7.6.1.1 — The new penalty interest and administrative charge was introduced via the 1999/2000 Budget measure known as 'Enhanced Debt Recovery'. The measure removed the old administrative charge on debts outstanding for more than 3 months. The aim of the changes was to overcome the inequity of imposing an administrative charge on a debtor who could not afford to repay a debt within three months, but who was making an effort to repay. The penalty interest charge is levied only on those who are attempting to avoid timely repayment. A summary of the old rules prior to 1 July 2001 are in this manual's Section 7.6.9 Summary of old administrative charge.
7.6.1.2 — Penalty interest can be applied to debts if:
7.6.2.1 — If a recoverable debt has not been repaid and has not been waived under paragraph 206(1) (b) [4] VEA, the Commission must write to the person in order to recover the debt. The letter that has to be sent to the debtor is called a 'first debt notification notice' (refer to this manual's Section 7.4.1 First debt notification notice). The debt repayment is payable on the 28 — th day after the date of the notice.
Example
If a notice is issued on 2 March, then the repayment is due on 30 March.
7.6.2.2 — A further notice may be issued if:
This applies to a person who is not currently in payment. In most cases where a person is in payment, recovery would be effected via instalments of pension or by another method as agreed with the person, and a further notice would not be required.
7.6.2.3 — A further notice should specify the following details:
A 'first debt notification notice' may be considered a further notice if it includes details about the effects of penalty interest and administrative charge and how penalty interest is calculated.
7.6.3.1 — A person may be liable to pay penalty interest on a debt if the person:
7.6.3.2 — A person is liable to pay penalty interest from and including the day after the 'final payment day' if the person:
Or
7.6.3.3 — A person is liable to pay penalty interest from and including the day after the last payment was made if the person:
Note:Penalty interest can only be applied from the day after the 'final payment day' and not prior to that day. For the definition of 'final payment day' refer to this manual's Section 7.6.4.
7.6.3.4 — If the Commission is satisfied that a person has a reasonable excuse for not entering into a repayment arrangement or for breaking one, it has the discretion under section 205AAC [4] VEA not to apply penalty interest at all, or for a particular period.
7.6.3.5 — A person is not liable to pay penalty interest on a debt, or any portion of a debt, that arose due to administrative error.
7.6.3.6 — Regardless of whether a person has sought a review of the decision to retrospectively reduce their rate of pension penalty interest may still be applied from the day after the final payment day. If the review decision is favourable, any repaid amounts, including repaid penalty interest, must be refunded to the pensioner.
Note:The VEA does not contain a right of appeal against the imposition of penalty interest or administrative charge.
7.6.4.1 — The final payment day is the later of the following days:
In other words the final payment day cannot be earlier than the 118th day after the date of the first notice.
Example
A first notice is issued on 2 March. The debt is due on 30 March. The final payment day is 90 days after 30 March. Therefore the person is liable to pay penalty interest from 29 June.
In addition to the above rules, the final payment day for age pensioners paid by DVA may also be the 90th day after the day an Authorised Review Officer makes a decision, if a request for review has been made within 90 days after receipt of a first notice.
Example
First notice issued on 1 August. Request for review made within 90 days of receipt of notice, on 10 August. Authorised Review Officer makes a decision on 1 September. Final payment day is 90 days after 1 September decision, being 30 November.
7.6.5.1Section 205AAE [4] VEA specifies that penalty interest is calculated daily at the rate in force under section 1229B in the Social Security Act 1991. Penalty interest is treated as simple interest and not compound interest. Under section 1229B in the SSA the penalty interest rate is 20% per year, or may be determined in writing by the Minister for FaCS to be a lower rate. At the time penalty interest was introduced into the VEA on 1 July 2001, a determination was made under the Social Security (Penalty Interest) Determination 2001 that the penalty interest would be 3% per year, as permitted by subsection 1229B(2) in the SSA. The current determination can be found on the ComLaw website.
More ? [8]
7.6.5.2 — This section outlines the method for calculating the penalty interest applied to a debt:
Step 1 |
Determine the daily percentage rate |
[annual interest rate expressed as a decimal] |
Step 2 |
Determine the penalty interest daily amount |
[daily percentage rate] |
Step 3 |
Determine the amount of penalty interest to be added to the debt |
[penalty interest daily amount] |
June
Step |
Action |
1 |
[0.03] ? [365] = 0.0000821 |
2 |
[0.0000821] ? $2,000 = $0.1642 |
3 |
[0.1642] ? [30 days] = $4.93 |
Debt now |
$2,004.93 |
July
Step |
Action |
1 |
[0.03] ? [365] = 0.0000821 |
2 |
[0.0000821] ? $2,000 = $0.1642 |
3 |
[0.1642] ? [31 days] = $5.09 |
Debt now |
$2,004.93 + $5.09 = $2,010.02 |
7.6.6.1 — Penalty interest is recoverable as if it were recoverable under section 205 [4] VEA. Any repayments made by a person in respect of 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 the administrative charge. The following table indicates the order of recovery of a debt.
If the original debt is... |
Then reduce... |
not wholly repaid |
original debt by the repayment amount until wholly repaid |
wholly repaid |
penalty interest debt by the repayment amount until wholly repaid |
wholly repaid and penalty interest is wholly repaid |
administrative charge debt by the repayment amount until wholly repaid (refer this manual's Section 7.6.8 New Administrative Charge) |
Note:In cases where fraud is evident prosecution under subsection 208 VEA may be sought.
*Note:The above case types may also apply to income support supplement.
7.6.8.1 — Commencing 1 July 2001, 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 [4] VEA. It consists of a flat one-off charge of $50. Unlike the pre?1 July 2001 administrative charge, there does not have to be a breach of the VEA, nor does the debt have to be over $200 before the administrative charge can be applied.
7.6.9.1 — Prior to 1 July 2001, an administrative charge was applied under Section 205 [4] VEA where a debt:
Note:Prior to 1 July 2001 there was no penalty interest provision under the VEA.
7.6.9.2 — The administrative charge was a one-off charge, calculated by adding $15 + 10% of the balance outstanding after 3 months. The total amount of the charge could not exceed $515.
Example
If a debt of $250 was outstanding after 3 months, the administrative charge would be $40 (i.e.15 + 0.10 ? 250 = 40).
7.6.9.3 — Prior to 1 July 2001, penalty interest was imposed on social security debts under the Social Security Act 1991 (SSA) when the person:
Note:There was no administrative charge provision under the SSA.
Links
[1] https://clik.dva.gov.au/user/login?destination=comment/reply/24064%23comment-form
[2] https://clik.dva.gov.au/user/login?destination=comment/reply/24230%23comment-form
[3] https://clik.dva.gov.au/user/login?destination=comment/reply/24295%23comment-form
[4] https://clik.dva.gov.au/service-eligibility-assistant-updates/all-determinations-order-date-signed-oldest-most-recent/determinations-under-vea
[5] https://clik.dva.gov.au/user/login?destination=comment/reply/24285%23comment-form
[6] https://clik.dva.gov.au/user/login?destination=comment/reply/24251%23comment-form
[7] https://clik.dva.gov.au/user/login?destination=comment/reply/24091%23comment-form
[8] https://clik.dva.gov.au/book/export/html/24064#tgt-csref_manual_ftn19
[9] http://www.comlaw.gov.au/Series/F2007B00363
[10] https://clik.dva.gov.au/book/export/html/24064#ref-csref_manual_ftn19
[11] https://clik.dva.gov.au/user/login?destination=comment/reply/24071%23comment-form
[12] https://clik.dva.gov.au/user/login?destination=comment/reply/24344%23comment-form
[13] https://clik.dva.gov.au/user/login?destination=comment/reply/24171%23comment-form
[14] https://clik.dva.gov.au/user/login?destination=comment/reply/24351%23comment-form