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What is a waiver
Under the section 206(1)(b) of the VEA, the Commission has a broad discretion to waive the right of the Commonwealth to recover the whole or part of an overpayment. A determination to waive a debt under section 206(1)(b) must be made in writing. This has the effect of permanently extinguishing the debt that arose from overpayment.
Who can perform a waiver?
Only a person at particular level is delegated to waive a debt under s 206(1)(b) on behalf of the Commission.
The relevant levels and the maximum amounts these are authorised to waive 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 total amount of the debt at the time waiver is being considered should be used to determine who should exercise the delegated power e.g. if a client has a $200,000 debt but $50,000 is being waived, 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 waive a debt can also only be made by a person who holds the necessary financial delegation.
Under what conditions may a waiver be undertaken?
The Commission has a broad power under section 206(1)(b) to waive debts that arise under the VEA. There are no legislative criteria that must be met before a debt can be waived. However, 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.
Under section 206(1)(b) of the VEA the Commission may waive the right of the Commonwealth to recover:
- all or part of a debt that becomes payable under or as a result of the Act; and
- those categories of debts under or as a result of the Act that are included in a class of debts specified by the Minister in the Gazette (referred to as ‘ministerial waivers’ in this document).
At present the following classes of debts have been specified for ministerial waiver:
- debts calculated manually to be an amount less than $200, or where the delegate is satisfied on the basis of available evidence that the amount of the overpayment is, or is likely to be, less than $200; and
- debts incurred by certain persons receiving certain income streams.
There are further circumstances in which an overpayment may be waived:
- extreme or unusual circumstances;
- the ‘other reasons’ category;
- notional entitlement;
- administrative error; and
- administrative delay.
Further guidance on each of these conditions is discussed in the Overpayment Management Manual.
There are circumstances in which an overpayment should be waived, including where:
- the debtor is deceased and there is no estate or the estate has insufficient asset to repay the debt;
- the debt is irrecoverable at law, for example, the statutory time limit on recovery has expired or the debtor has been discharged from bankruptcy, the debt arose before the date of bankruptcy, and debt was not incurred by fraud; 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, the existence of a Ministerial determination in which debts less than $200 may 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.
Debts incurred by certain persons receiving income streams
If a debt is raised as a result of the restructure of a non-compliant self-managed superannuation or small APRA fund 100 per cent asset test–exempt income stream, the debt may be waived if the circumstances that created the debt meet the criteria set out in the Veterans’ Entitlements (Class of Debts—Self Managed Superannuation and Small APRA Funds) Specification 2012.
All cases where this situation arises should be referred to the Investment Database Unit.
Extreme or unusual circumstances
A debt should be waived if a delegate determines that extreme or unusual circumstances exist 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.
- These examples are not exhaustive and there may be other situations that constitute extreme or unusual circumstances. A delegate should apply his/her discretion in determining whether circumstances are extreme or unusual.
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 Repatriation Commission.
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 or solely 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).
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 considered for waiver. 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
There are two special circumstances in which a waiver may be applied to an overpayment under the VEA:
- Overpaid tax outside the ‘four-year’ rule; and
- Notional entitlement.
Overpaid tax outside the 'four-year' rule
Income tax can be overpaid when an overpayment of income support payment or incapacity payment occurs and has been repaid in full. Since their income (that is, their income support payment) has been reduced, the pensioner might have paid too much tax and be eligible for a re-assessment of their tax liability. The Australian Taxation Office (ATO) can, however, only retrospectively review tax liability for up to four years. This can result in a situation where a pensioner is liable to repay an overpaid income support payment and, because the overpaid period falls outside the four-year rule, is unable to apply to the ATO for a refund even though their actual income was reduced for that period.
DVA clients are advised in their first debt notification letter that when they make repayments, their taxable income is effectively reduced for the financial years in which the overpayment occurred and are encourage to discuss this matter with their financial adviser or the Australian Tax Office.
For the purposes of tax liability, discounted debts will be deemed to have been repaid in full; that is, amended tax statements will be provided for the total amount of debt. This ensures that overall the Commonwealth does not profit from the debt recovery by the ATO collecting more tax at the higher rate of taxation than the client receives in a DVA pension.
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 VEA 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 VEA, 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:
- 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.
Review rights with regard to waiver
Use of the power to waive 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 this power (while not merits reviewable internally, by the VRB or AAT) the decision not to waive the 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 waived 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.
What constitues '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.
For any other policy matters that are not covered in this document, please contact Policy Development Branch for assistance.