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11.3.3 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 EL1 level or above is delegated to write off a debt under the MRCA or DRCA.
The relevant instruments of delegation are the MRCC – Delegation of the MRCC’s Powers and Functions under the Military Rehabilitation and Compensation Act 2004 – Instrument MRCC2 of 2019 and MRCC – Delegation of the MRCC’s Powers and Functions under the DRCA – Instrument MRCC8 of 2019.
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.As such, the following financial limits should be applied when determining who should exercise the power to waive a debt:
- SES Band 1, 2 and 3 unlimited
- EL2 $250,000
- EL1 $100,000
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, an EL2 can exercise the delegation, not an EL1, as the total debt exceeds $100,000.
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:
- 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.