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C13/2003 Penalty Interest Rate on Recoverable Debts



Penalty Interest Rate on Recoverable Debts


The purpose of this instruction is to ensure that departmental staff are applying the correct penalty interest rate to recoverable debts, as per section 205AAE of the Veterans' Entitlements Act, 1986 (VEA) and section 1129B of the Social Security Act, 1991 (SSA).


On 1 July 2001 new debt recovery provisions were introduced via the Family and Community Services and Veterans' Affairs Legislation Amendment (Debt Recovery) Act, 2001.

The new debt recovery rules included the application of a penalty interest rate in some circumstances.  Full details on how the new provisions apply are provided in Departmental Instruction C08/2001 titled Enhance Debt Recovery.

Penalty interest rate

A penalty interest rate may apply to a recoverable debt if it has not been repaid, or if arrangements have not been made to repay the debt, within a certain period.

The penalty rate is provided in the following section of the VEA:

205AAE Penalty interest rate

The penalty interest rate is the rate in force from time to time under section 1229B of the Social Security Act 1991.

Under the SSA, section 1229B Penalty interest rate states:

  1. The penalty interest rate is:
    1. 20% per year; or
    2. if a lower rate is determined under subsection (2) - that lower rate.
  2. The Minister may from time to time, by notice in writing, determine a rate of less than 20% per year that is to be the penalty interest rate.
  3. A notice under subsection (2) is a disallowable instrument for the purposes of section 46A of the Acts Interpretation Act 1901.

Penalty rate determination –  3%

The penalty interest rate provision has been applied under social security law since its introduction in 1994, whereas it has applied in the VEA only since the enhanced debt recovery rules were introduced on 1 July 2001.

At the time of introduction to the VEA, a determination had been made under the Social Security (Penalty Interest) Determination 2001 that the penalty interest rate would be 3%, as permitted by subsection 1229B(2) of the SSA.  This determination was effective from the date of its gazettal, on 1 August 2001.  A preceding disallowable instrument had previously provided that the rate was also 3%.

The current determination can be found on Scaleplus under the 'Instruments made under Legislation' database, or by clicking on the following link:

An extract from the determination is at Attachment A.


If you require any further information on this instruction, please contact Kirrily Williams of Income Support Policy, National Office on (02) 6289 6525.

Jeanette Ricketts

Branch Head


May 2003

Attachment A

Social Security (Penalty Interest) Determination Error! Reference source not found.

I, AMANDA ELOISE VANSTONE, Minister for Family and Community Services, make this Determination under subsections 1229B (2) and 1229C (1) of the Social Security Act 1991.

Dated 31 July 2001

Minister for Family and Community Services

Part 2Penalty interest rate

5Penalty interest rate

For subsection 1229B (2) of the Act, the penalty interest rate is 3% per year.