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12.6.3 Write off
What is a write off
A determination to write off a debt must be made in writing under section 206(1)(b) of the VEA. A decision to write off a debt means that any recovery action ceases. Such a decision is made where circumstances make debt recovery not favourable or legally practicable. 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 on the recovery of overpayments by way of court proceedings.
A written-off debt can be re-instated and pursued at any time when a debtor’s capacity to repay improves. For example, if the debtor lodges a successful claim for income support or receives a lump sum from an estate, recovery action should begin. Any such recovery action is, however, constrained by the six-year statute of limitations for the recovery of overpayments by way of court proceedings contained in section 206(2) of the VEA.
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.
Who can perform a write off?
A decision to write off an overpayment arising under, or as a result of, the VEA must be determined under section 206(1)(a) of the VEA. Only a person at particular level is delegated to exercise the Commission’s power to write off a debt.
The relevant levels and the maximum amounts these delegates are authorised to write-off are set out in the Commission’s instrument of delegation. Delegates can find a copy of the most recent delegation instrument in TRIM or on DVA’s intranet.
The amount of debt at the time the delegate is considering a waiver should be used as a guide in determining who should exercise the delegation i.e. if a client has a $200,000 debt at that particular time but $50,000 is being written off, only a person with the delegation to make a decision in relation to a $200,000 debt should exercise the waiver power.
It should be noted that a decision not to write-off a debt can also only be made by a person who holds the necessary financial delegation.
Under what conditions should a write-off be undertaken?
The Commission has a broad power in section 206(1)(a) to write-off debts that have arisen under the VEA. There are no legislative criteria that must be met before a debt can be written-off. However, 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 may 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.
Delegates can consider other compassionate and compelling circumstances impacting on the client’s capacity to repay the debt.
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;
- the anticipated cost of recovery actions
- 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 clients’ 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 limitations have been imposed on a current pension.
Write off action should not be considered where successful recovery of an overpayment would be effected under the provisions of section 205A of the VEA, i.e. by issuing a payment notice.
When a write-off should not occur
A write-off should not be considered where the overpayment arose because of:
- false or misleading statements or representations;
- a deliberate failure on the part of the veteran 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.
Review rights with regard to write-off
Use of the power to write-off a debt is entirely discretionary and a client has no right to insist that consideration be given to exercising these powers. However, where an officer does refuse to exercise these powers (while not merits reviewable internally, by the VRB or AAT) the decision not to consider writing-off a debt will be an administrative decision which will be reviewable by the courts under the Administrative Decisions (Judicial Review) Act 1977 (ADJR Act).
Likewise, if an officer does consider whether a debt should be written-off under the VEA that decision will not be merits reviewable either internally, by the VRB or by the AAT. However, the decision will be reviewable by the courts under the ADJR Act.