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Penalties

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Last amended 
12 December 2022

Penalties

In the event that a client with an overpayment has either not entered into an arrangement to repay or has entered into an arrangement and has failed to repay an amount, the VEA provides for financial penalties to apply to the overpayment amount, including interest and administrative charges.

Penalty interest

Section 205AAB sets out when a client is liable to pay interest on a debt. Section 205AAB applies to a person who:

  • receives a further notice under subsection 205AAA(3); and
  • is not in receipt of a pension, allowance or other pecuniary benefit under this Act or the social security law.
    1. A person to whom section 205AAB applies is liable to pay penalty interest from the day after the ‘final payment day’ if they:
  • have not entered into a repayment arrangement on or before the final payment day, to pay the outstanding amount of the recoverable amount and they have been informed in writing that they are required to pay interest under subsection 205AAB(2); or
  • have entered into a repayment arrangement, failed to make a payment in accordance with the agreement and have been notified in writing that they are required to pay interest under subsection 205AAB(3).

The ‘final payment day’ is the later of the following days:

(a) the 90th day after the day on which the outstanding amount of the overpayment was due and payable;

(b) the 28th day after the date of the further notice given under subsection 205AAA(3).

A person is not liable to pay penalty interest on a debt or any portion of a debt that arose from administrative error made by the Commonwealth or an agent of the Commonwealth (subsection 205AAB(2A)).

Section 205AAC(1) provides the Commission with the power to make a determination that interest is not payable, or is not payable in respect of a particular period. The circumstances in which the Commission may make such a determination include, but are not limited to those in which it is satisfied that a person has a reasonable excuse for not entering into a repayment arrangement or not making a payment in accordance with the agreement

If a review of the decision that gave rise to the overpayment is favourable, any repaid amounts, including repaid penalty interest, must be refunded to the person.

Note that the VEA does not provide for a right of appeal against the imposition of penalty interest or administrative charges.

Calculation of penalty interest

Section 205AAE of the VEA sets the penalty interest rate at 3 per cent a year. To calculate the penalty interest applied to a debt three steps should be taken:

Step 1:  Determine the daily percentage rate = [annual interest rate expressed as a decimal]
divided by [365 days]

Step 2:  Determine the penalty interest daily amount = [daily percentage rate]
multiplied by [amount of debt]

Step 3:  Determine the amount of penalty interest to be added to the debt = [penalty interest daily amount] multiplied by [number of days being applied for]

Recovery of penalty interest

Penalty interest is recoverable as if it were recoverable under section 205 of the VEA. Any repayments made by a person in relation to a debt reduce the original amount of the debt first. Once the original amount of the debt is wholly repaid, the repayments go towards reducing the penalty interest component and then any administrative charge.

The following table shows the order of recovery of a debt.

Recovering a penalty interest debt
If any payments have been madeReduce a debt by the amount paid
Not wholly paidReduce original debt by the repayment amount until wholly repaid
Wholly repaidReduce penalty interest debt by the repayment amount until wholly repaid
Wholly repaid and penalty interest is wholly repaidReduce administrative charge debt by the repayment amount until wholly repaid

Administration charges

An administrative charge is added to a debt when a person first becomes liable to pay penalty interest in respect of that debt. The administrative charge is a debt due to the Commonwealth and is recoverable under section 205 of the VEA as if it was a recoverable amount. It consists of a one-off charge of $50. The administrative charge is payable once interest is payable.