Write off

What is write off?​

A decision to write off a debt means that any recovery action ceases. A write off does not extinguish the debt and it may be pursued at a later date should the debtor’s circumstances become more favourable. A write off can be in place indefinitely (noting that the circumstances of a debtor may never change), although DVA has a six year limit recovery policy (see ‘limits on recovery’ above).

A written off debt can be re-instated and pursued at any time when a debtor’s capacity to repay improves.

For taxation purposes where a debt is written off, the amount overpaid is still assessable income but may become non-assessable should the amount be repaid at a later date. If this occurs, the amount repaid would reduce the income taxed in the year of assessment and not the year of repayment.

A determination under section 428 of the MRCA to write off a debt (or to not take these actions) is not an original determination (subsection 345(2)(l)).  As such this decision cannot be the subject of an own motion review or reviewed by the VRB.  However, any determination as to the amount that should be written off is an original determination as defined (subsection 345(2)(l)) and may be the subject of an own motion review or review by the VRB.

Determinations under section 114C of the DRCA to write off a debt are not merits reviewable.

A determination under section 428 of the MRCA or section 114C of the DRCA will however be reviewable under the Administrative Decisions (Judicial Review) Act 1977 (ADJR Act) as they are administrative decisions made under an enactment and reviewable by a court on the basis that the decisions involved an error of law.

Who can perform a write off?

The MRCC can write off of a debt by making a determination in writing under section 428 of the MRCA or 114C of the DRCA. Only a person at a particular level is delegated to write off a debt under the MRCA or DRCA.

There are no financial limits to the exercise of a delegate’s power to write off a debt under either section 428 of the MRCA or section 114C of the DRCA. However, the Commission’s policy position is that the financial limits that apply to the waiving of debts under the MRCA should be applied to the writing off of debts under the MRCA and the DRCA.

The relevant levels to write-off a debt and the financial limits that apply to the waiving of debts are set out in the Commission's instrument of delegation. 

The total debt should be considered when determining who should exercise the delegation i.e. if a client has a $200,000 debt but $60,000 is being written off, the delegation level that applies is based on the $200,000 total debt.

Under what conditions should a write off be undertaken?

The MRCC has broad discretionary powers to write-off a debt under the MRCA or the DRCA. There are no legislative criteria that must be met before a debt can be written-off. 

As a matter of policy, a debt should only be written off if all appropriate recovery action has been considered and recovery is not possible at the time the matter is assessed.

There are no necessary and sufficient criteria for determining if a write off is appropriate and the delegate must use judgment given the individual circumstances. However, the following criteria should be used as a guide for when a write off could be undertaken:

• the client has no capacity to pay;
• the client is not locatable; or
• recovery is not cost effective,

Note, however, that the above circumstances are circumstances at the time write-off is being considered but that the circumstances may possibly change in the future.

The client has no capacity to pay

Capacity to pay is inclusive of both financial and mental capacity.

If the debtor is suffering or would suffer financial hardship if the overpayment were recovered, then it is appropriate to consider a write off. When assessing financial hardship the following factors should be considered:

• income from employment or other sources;
• everyday living expenses such as food, rent, transport costs, electricity, rates, school fees;
• assets such as invested funds, shares, real estate and motor vehicles; and
• liabilities such as mortgages, personal loans, store card debts and hire purchase commitments.

In the context of dealing with overpayments the mental health of the client should be accorded significant weight.  This is particularly the case if the overpayment has arisen as a result of an administrative error by DVA and through no fault of the client. If a debtor has a serious mental health issue with suicidal ideations it may be unreasonable to pursue recovery immediately and write off can be considered.

Delegates can consider other compassionate circumstances such as financial hardship, a recent death in the family, or a family member having serious health issues such as cancer, can be grounds for a write off.

The client is not locatable

All reasonable efforts should be made to locate the client before write off is considered. However, the cost effectiveness of pursuing recovery must be kept in mind where extensive inquiries may be necessary.

The extent of the inquiries to be made should be determined by taking into account the amount of the overpayment outstanding, the age of the overpayment, the period since any recovery action was made, and the circumstances of the client such as the likely prospect of recovery being made.

Recovery is not cost effective

The general principle in relation to overpayment recovery is that recovery action should be cost effective. When deciding whether recovery is cost effective, the following factors should be considered:

• the amount of the debt;
• the age of the debt;
• when last recovery action occurred;
• the course of action needed to pursue recovery and the likely outcome;
• administrative costs already incurred and future administrative costs; and
• the client’s financial circumstances and capacity to repay.

In certain circumstances, a debt may be partially recovered and the balance of the debt written off when the sources for recovery have been exhausted.

An overpayment should not be written off where recovery action is in place, regardless of the amount of the overpayment or the cost effectiveness of recovery action, e.g. a client is making repayments or reductions have been imposed on a current payment.

When a write off should not occur

A write off should not be considered where the overpayment arose because of:

• fraud;
• false or misleading statements or representations;
• a deliberate failure on the part of the client to comply with a requirement as directed by DVA and in accordance with the relevant legislation; or
• the payment was not received in good faith.

If the client knew they were not entitled to a payment or could reasonably be expected to have known that, they cannot be said to have received the payment in good faith.

Waiver

What is waiver?

Under section 429 of the MRCA or section 114D of the DRCA, the MRCC can decide in writing to waive the right to recover an overpayment. Waiver of a debt means the debt is extinguished and no longer exists.  The waiver of the debt could be full or partial.  Where partial waiver is made, the remaining amount of debt will still be subject to the recovery process.

A determination under section 429 of the MRCA to waive a debt (or to not take these actions) is not an original determination (subsections 345(2)(m)).  As such this decision cannot be the subject of an own motion review or reviewed by the VRB.  However, any determination as to the amount that should be waived is an original determination as defined (subsection 345(2)(m)) and may be the subject of an own motion review or review by the VRB.

Determinations under section 114D of the DRCA to waive a debt are not merits reviewable.

A determination under section 429 of the MRCA or section 114D of the DRCA will however be reviewable under the Administrative Decisions (Judicial Review) Act 1977 (ADJR Act), as they are administrative decisions made under an enactment and reviewable by a court on the basis that the decisions involved an error of law.

Who can perform a waiver?

Only a person at a particular level is delegated to waive an overpayment under the DRCA and MRCA. The relevant levels and the maximum amounts these delegates are authorised to waive are set out in the Commission's instrument of delegation. 

While there are no financial limits on the waiving of debts contained in the DRCA instrument of delegation, the Commission’s policy position is that the financial limits that apply to the waiving of debts under the MRCA should be applied to the waiving of debts under the DRCA to ensure consistency in decision making.

The total amount of the debt should be used to determine who should exercise the delegated power e.g. if a client has a $200,000 debt but $60,000 is being waived, the delegation level that applies is based on the $200,000 total debt. 

The delegate performing the waiver must always be a person other than the delegate initiating and managing the recovery process.

It should be noted that a decision not to waive a debt must also only be made by a person who holds the necessary financial delegation.

Under what conditions may a waiver be undertaken?

The MRCC has broad discretionary powers to waive debts under the MRCA and the DRCA. There are no legislative criteria that must be met before a debt can be waived. 

As a matter of policy, a debt should only be waived if all appropriate recovery action has been considered and a write off is not appropriate.

A decision to waive an overpayment is very rare and generally should only be applied to overpayments involving relatively small amounts, or in cases of financial hardship where it is clearly an appropriate course of action. A decision to waive is based on its own merits. Extensive investigation should be done, with dutiful consideration first being given to write off.

There is no specific criteria for waiver and the power is not limited to any set of special circumstances. Cases are examined individually, and an approval for waiver will only be given where the circumstances are judged to be of such a compelling nature that the Commonwealth should waive the debt.  Common examples of where circumstances may warrant the waiver of debt include where the:

• debt arose because of delegate error;
• payment was received in good faith by the claimant; and
• claimant is suffering severe financial hardship which would probably be worsened by recovery of the debt.

There are further circumstances under which an overpayment may be waived:

• extreme or unusual circumstances;
• the ‘other reasons’ category;
• administrative error; and
• administrative delay.

These are the circumstances under which an overpayment should be waived include:

• the debtor is deceased and there is no estate or there is insufficient estate;
• the debt is irrecoverable at law, for example, the statutory time limit on recovery has expired; or
• if the debtor is no longer receiving a payment, and is not likely to do so in the future, and the overpayment is less than $200.  Note, however, the existence of a Ministerial determination in which debts less than $200 should be waived.

In addition, if the delegate has provided the client with a discount for a one-off payment, then the discounted amount must be waived.

Extreme or unusual circumstances

A debt should be waived if a delegate determines that extreme or unusual circumstances apply and it would be unreasonable to pursue recovery of the debt. For this provision to apply, the circumstances need to be unusual, uncommon or exceptional. The following are examples of such circumstances:

• If a debtor is convicted of an offence and is in sentencing, the court can order that a term of imprisonment be served in lieu of repaying the debt. This is distinct from a sentence of imprisonment for the offence committed or failure to pay fines and costs. If the reason for imprisonment is not clear, advice should be sought from the Department of Public Prosecutions.
• If there are compelling and compassionate reasons—for example, a debtor is seriously or terminally ill—the delegate might be satisfied that partial repayment is acceptable and the balance of the debt or debts may be waived.
• If a debt has been raised against a client and the client dies leaving no estate, and there is no likelihood of a family member making a voluntary repayment, the debt might be waived.

The 'other reasons' category

If a debt does not fit into any of the foregoing categories but a delegate considers it would be otherwise unreasonable for DVA to pursue recovery, waiver of the debt may be considered.

Under this category of waiver, a decision can only be made by the MRCC.

Administrative error

For a debt to be waived because of an administrative error on the part of DVA, two conditions must be met:

• the debt must be caused wholly by administrative error on the part of DVA. It is not sufficient for the debt to be caused partly or mainly by administrative error; that is, it does not apply to a situation where the client contributed to the cause of the overpayment to any extent, whether knowingly or unknowingly; and
• the payment(s) must have been received by the client in good faith. This means that there is no fault on the part of the client and they could not have known or be reasonably expected to have known that they were not fully entitled to the payment(s).

Administrative delay

When an overpayment is increased because DVA failed to act on a client’s advice about a change in circumstances in a timely manner, the portion of the overpayment caused by the administrative delay may be waived. That portion of the overpayment is taken to be the portion commencing on the day immediately following DVA receiving notification of the change in circumstances.

The part of the amount owing that was caused by administrative delay may be waived only if the four following conditions are all met:

• the client had notified a change in circumstances;
• the overpayment was caused solely by, or the amount of overpayment was increased as a result of, a delay in processing the change of circumstance by DVA;
• the client did not know or could not reasonably have known they were receiving the incorrect rate of payment i.e. they received the payment in good faith; and
• there has been no attempt to deceive or defraud DVA.

A debt cannot be waived under the administrative delay criterion when a client fails to notify DVA of an event that would reduce their payments and this is not discovered until action is taken—for example, data matching, a denunciation, a third party notification, or a department-initiated action. The overpayment is calculated from the date of the event up to and including the day before the payment is reduced to the correct rate.

Special circumstances in which an overpayment may be waived

Notional entitlement is a special circumstance in which a waiver may be applied to an overpayment.

Notional entitlement refers a benefit which a person would have been entitled to receive had they made a claim for it.

When calculating a client’s debt arising from an overpayment of a benefit, it is important to establish whether the client had a notional entitlement to another type of benefit during the same period of the overpayment. A client might be overpaid payment A because of a loss of eligibility to receive payment A and yet be eligible for another payment, payment B, during that period. This is called a notional entitlement, and it may be used to offset the debt. The debt will be the difference between payment A and payment B for the relevant period.

For example, a partner service pensioner (PSP) who is divorced but continues to receive PSP pension  might have had a concurrent entitlement to age pension under the Social Security Act for the same period he or she was overpaid the PSP pension (overpayment period). If Centrelink grants the person an age pension, provided they would have been entitled to receive the age pension during the overpayment period, their ‘notional entitlement’ may be considered as established and an equivalent amount for the period in question may be offset against the debt by waiving that amount.

However, careful consideration needs to be given to the particular circumstances of each individual case when deciding whether to waive a debt arising from an overpayment of a benefit on the basis that a person had a notional entitlement to another benefit during the same period. If the overpayment was obtained by fraud or misrepresentation or a failure to comply with a requirement of the legislation, it may not be appropriate to waive the debt, even if there was a notional entitlement to another benefit in the same period as the overpayment.

When a waiver should not occur

A waiver should not be considered where the overpayment arose because of:

• fraud;
• false or misleading statements or representations;
• a deliberate failure on the part of the client to comply with a requirement as directed by DVA and in accordance with the relevant legislation; or
• the payment was not received in good faith.

If the client knew they were not entitled to a payment or could reasonably be expected to have known that, they cannot be said to have received the payment in good faith.

What constitutes 'Good Faith'?

In Falconer and SDSS (1996) 41 ALD 187, the Administrative Appeals Tribunal found that the question to ask in determining whether a client has received a payment in good faith is, essentially: 'did the client know that the amount had been paid contrary to the Act?'

If a client knows that he or she is not entitled to a payment he or she has received, the client cannot be said to have received the payment in good faith.

There must be evidence to support a decision to accept good faith, and the matter may need to be discussed with the client. The decision maker must look to what the client was reasonably expected to have known. Knowledge or notice of an irregularity in the payment is not enough to establish that the client lacked good faith. It is essential to consider all the circumstances of the case, including:

• the complexity of the case
• the debtor's age, health and level of family support in determining whether the debtor should/could have understood that they were receiving the incorrect rate of payment
• information given to the client in the form of letters and other literature, complete obligations, income and assets statements, interviews, and phone contact, which may help to establish the client's reasonable expectation about their payments. The frequency and timeliness of this contact should also be considered
• information provided by the client about their circumstances, which may help establish the client's expectations about future payments and the impact of the new information they provided to DVA. The delegate should also consider the frequency of contact with the Department
• the client's regular pattern of payment – what would they reasonably expect to receive on a regular basis? What would be an unexpected payment or amount?
• the amount of the excess payment – A large amount might be expected to be questioned by the client
• the period of time the incorrect payments were made – a short period could be considered by the client to be administrative delay in actioning new information while a longer period may not
• in some cases, it may be necessary to also consider the client's literacy level in assessing whether they were aware they were being overpaid.

Contacts

For any other policy matters that are not covered in this document, please contact Policy Development Branch for assistance.