1.1.S.45 Severe financial hardship
Severe financial hardship should be decided on an individual basis for the purpose of:
- waiving (1.1.W.10) a Centrelink debt attributable solely to administrative error (which may be up to 100% of the total debt), or
- for the purpose of writing-off a Centrelink debt, or
- making a decision about reducing or suspending the recovery of an FTB advance, or
- reconsidering debt offsetting decisions.
The definition of severe financial hardship is to be used when establishing whether an individual would suffer severe financial hardship if they had to repay a debt under FA law or if their FTB Part A continued to be reduced by the standard advance reduction (1.1.S.105) applicable to their outstanding FTB advance.
Severe financial hardship
The issue of severe financial hardship should be decided on an individual basis, taking into account the individual's circumstances. These would include:
- the make up of the family group (e.g. single parent, number of children etc.),
- current family income and expenses,
- minimum amount of expected debt repayment under Centrelink guidelines,
- standard reduction amounts for any outstanding FTB advances,
- available funds, and
- exceptional expenses (e.g. funeral or pharmaceutical costs).
There must be clear evidence that severe financial hardship would result (after reasonable expenses are deducted from income) if recovery of a debt were pursued, or if the standard FTB advance reduction rate continued to apply. Reasonable expenditure includes, but is not limited to: rent, groceries, electricity, minimum loan repayments, school fees, medical costs etc.
The rate of income support including the FA a family group would be paid (if they were eligible), may be used as a benchmark when comparing the family's income and expenditure. If the family's income is greater than this amount but their reported expenditure leaves a net income less than the minimum debt repayment or standard advance reduction amount, then it may be relevant to examine whether their expenditure is reasonable.
For the purpose of considering a waiver or a write-off, or reducing or suspending recovery of an FTB advance a person would be subject to severe financial hardship if their net fortnightly income (after reasonable expenses are deducted from gross income) over the debt repayment period (for both debts and advance recovery) would be less than the minimum fortnightly amount the person would be allowed to repay under the flexible repayment arrangements for FA debts or the standard reduction for their outstanding FTB advance.
Note: For decisions relating to FTB advances, a person's gross income should include FTB prior to any existing FTB advance reductions.
Example 1: Lydia is a sole parent in receipt of PP and FTB. She has an FTB debt, which was caused solely by administrative error and was received in good faith. Lydia has appealed against the decision to recover the debt as she says that this would place her family in severe financial hardship. Lydia has provided Centrelink with information to support her request including a detailed fortnightly statement of financial circumstances listing her income and expenditure. Lydia's expenses are reasonable and include necessary costs such as rent, food, petrol, electricity, gas and school fees. She has provided supporting receipts and invoices. In addition to her regular expenses Lydia also has substantial debts due to a recent illness and has no savings or readily convertible assets.
After taking into account Lydia's regular expenses it was found that her remaining income would be less than the minimum repayment amount required over the repayment period. It is clear that Lydia could not sustain her financial responsibilities and repay the debt. Recovery would cause Lydia severe financial hardship and the debt may be waived.
Example 2: Charmaine is a sole parent and receives FTB Part B and maximum rate FTB Part A for her 2 children. She earns approximately $15,000 per annum from a small business she runs from home, but cannot get PPS because she also has a share in a commercial property and is over the asset limit. Charmaine applied for and received a one-off advance prior to Christmas, and the standard reduction for her advance is $48.60 per fortnight.
Charmaine was involved in a car accident and due to her injuries she will not be able to earn any income from her business for several months, and has requested that her advance repayments be suspended until she is back on her feet. Charmaine has provided Centrelink with information to support her request including her fortnightly income and expenditure. Charmaine's expenses are reasonable and include necessary costs such as mortgage repayments, food, utilities, education and transport costs.
After taking into account Charmaine's gross income and regular expenses, it was found she would have $30 per fortnight left over, prior to the advance repayment. Charmaine has no savings or liquid assets that can be readily converted to cash. It is clear that in her changed circumstances, Charmaine could not sustain her financial responsibilities and repay the advance at the standard reduction without suffering severe financial hardship.
The customer service advisor considers reducing Charmaine's advance repayments, but in the circumstances it is decided that suspending the advance recovery for the maximum 13 weeks is a more appropriate response to Charmaine's situation.
Act reference: FAAct Schedule 1 clause 47 Changing the repayment period-individual requests longer period, Schedule 1 clause 49 Suspension of repayment period
FA(Admin)Act section 95 Secretary may write off debt, section 97 Waiver of debt arising from error