6.7.1.45 Ten per cent recovery fee on debts from false or non-declaration of income from personal exertion
Overview
A 10% recovery fee will be imposed on a debt incurred when a person has:
- refused or failed, without reasonable excuse, to provide information, or
- knowingly or recklessly provided false information,
when required under a provision of the social security law, to provide information in relation to the person's income from personal exertion.
The 10% debt recovery applies only to persons of working age on a social security benefit, or in receipt of DSP, WP (ceased March 2020), WidB (ceased March 2020), or PP at the time the debt occurred.
The fee is only applicable to that part of the debt that arose because the person refused or failed to provide information, or knowingly or recklessly provided false or misleading information about their income from personal exertion.
An interest charge may be applied to the 10% recovery fee.
Act reference: SSAct section 23(1)-'social security payment', section 1228B Additional 10% penalty for understatement etc. of income
Policy reference: SS Guide 6.7.1.40 Interest charge on debts
Factors to consider
The decision to impose a 10% recovery fee is separate from the decision to raise a debt, and must be considered discretely. However, the decision to apply the recovery fee must be made at the same time the debt is raised and cannot be applied retrospectively.
Income from personal exertion
To determine whether or not misdeclared income is subject to a recovery fee, it must first be determined that it is ordinary income (1.1.O.30) under the SSAct. It should then be considered whether the ordinary income is derived from personal exertion.
Income from personal exertion includes any income received as an employee or for any services rendered. This includes income from salaries, wages, commissions, fees, bonuses, superannuation allowances, retiring allowances and retiring gratuities, allowances, gratuities and earnings.
It also includes proceeds of any business activity carried on by the person either alone or as a partner, with any other person or profit received from holding an office or from any profit-making undertaking or scheme.
It does not include interest, unless the person's business consists of the lending of money, or unless the interest is received in respect of a debt for goods supplied or services rendered by the person in the course of their business. Nor does it include an income amount received as compensation for the person's inability to earn, derive or receive income through personal exertion.
Contact requirements
In certain circumstances, where a potential debt has been identified for non-declaration or under-declaration of income, the person will be sent a letter and provided with at least 28 days to confirm their employment income online. If a debt arises, a 10% recovery fee will be added to the debt amount depending upon the person's circumstances at the time or if a reasonable excuse for refusing or failing to provide the information cannot be provided.
In all other circumstances, where a debt has been identified for non-declaration or under-declaration of income, the 10% recovery fee will not be applied until the person has been contacted. It must be established, at the contact, if the person had a reasonable excuse for refusing or failing to provide information or whether they knowingly or recklessly provided false or misleading information in relation to their income.
In these circumstances, contact will be made by telephone or by a 'request to contact' letter. If a current income support recipient does not reply to a request to contact letter after 21 days, their payment should be suspended. If there is still no contact after a further 14 days, their payment should be cancelled. People who contact Centrelink while their payments are suspended should be treated as current recipients, but should not have their payment restored without confirming whether or not they have a reasonable excuse for their refusal or failure to provide income details, or without clarification regarding the person knowingly or recklessly providing false or misleading information.
Refusing or failing, without reasonable excuse, to provide information in relation to the person's income from work
The 10% recovery fee will be applied to a debt that has arisen because a person has refused or failed, without reasonable excuse, to provide information in relation to their income from personal exertion.
The term 'reasonable excuse' is discretionary but in basic terms the excuse must be one that would seem plausible and satisfactory to a member of the general public. For example, the refusal or failure must not simply be a deliberate act of non-compliance.
When determining if a person has a reasonable excuse for failing to declare income, the person's circumstances must be considered. Factors that may contribute are:
- the person's age
- the person's health
- the person's level of education
- the person's level of literacy, and
- any other personal factors that may have affected the person's ability to correctly declare their income from personal exertion.
Knowingly or recklessly providing false or misleading information in relation to the person's income from work
The 10% recovery fee will also be applied to a debt when the debt has arisen because a person has knowingly or recklessly provided false or misleading information in relation to their income from personal exertion.
The term knowingly implies a deliberate action, for example when a person who does not want their income support payment to be reduced due to their employment income has made a conscious decision not to declare or to under declare their income. It includes situations where a person enters into a scheme to defer payment of employment income for the sole or dominant purpose of obtaining a social security advantage (SSAct section 1073BB).
The term recklessly implies a careless action where a person could be expected to foresee that the action would have adverse consequences. In most cases it will be appropriate to give recipients a warning the first time they mistakenly provide false or misleading information about their income from work. However, in most cases, a person who has previously had an over payment for providing incorrect information about earnings and/or employment income paid to them, would know the consequences of providing incorrect information and may be taken to be recklessly giving false or misleading information.
Example: Jo couldn't remember how much she got paid from her casual job and she misplaced her pay slip. She guessed the income amount when she declared it. Centrelink later found out that Jo had been overpaid because the reported income was below the amount she had been paid. Jo was contacted to discuss the circumstances of the misdeclaration. Because this was the first time Jo misreported income resulting in a recoverable debt, no fee was imposed, Jo was warned that providing false information in relation to her income in future may result in a 10% recovery fee being applied. This warning HAS to be recorded online. If Jo had previously been warned, it may have been appropriate to impose the 10% recovery fee for recklessly providing false or misleading information in relation to her income.
It is important to remember that there will be some instances where a person may appear to have knowingly or recklessly provided false or misleading information about their income from personal exertion, but because of personal factors, they cannot be held accountable for this.
Example: A person with an intellectual or learning disability may previously been warned about the requirements for correctly reporting income, but may continue to report their income incorrectly. In normal circumstances this could be considered knowing or reckless behaviour. However, consideration should be given to whether this person fully understood their reporting requirements. If the person did not, then the recovery fee could not be imposed.
Act reference: SSAct section 1073BB Anti-avoidance
Amount of the 10% recovery fee
The fee applies only to that part of the debt that arose because the person refused or failed to provide information, or provided false or misleading information about their income from personal exertion, including deliberately deferring employment income in order to gain a social security advantage. The fee must be rounded down to the nearest 5c.
In cases of multiple income streams and/or partner income, the following process should be applied:
Step 1: Calculate the amount of the person's debt, call this Amount A.
Step 2: Calculate the debt amount (if any) that would have arisen if there had been no income from personal exertion, call this Amount B.
Step 3: Subtract Amount B from Amount A. The result is the amount of the debt due to income from personal exertion, and to which the 10% recovery fee should apply.
Example: Mary has some income from share dividends and one-off income from employment. She deliberately under-declared both amounts. Centrelink later found out that Mary had been overpaid because she had not declared her income correctly and a debt was raised for the entire over payment arising from both acts of under-declaration. Mary previously had one-off income from employment that she had not declared and was advised that she was required to declare all income she is paid. Because she had previously been advised of the need to declare her income correctly it would be appropriate to apply the 10% recovery fee to Mary's debt. The amount (if any) that Mary would have been overpaid based on her share dividends alone is subtracted from the total debt amount. The difference is the amount attributable to Mary's personal income and the amount on which the 10% recovery fee should be calculated.
Example: John is paid money for washing car windscreens. His partner, Devinda, is paid money for picking apples. Devinda also receives PP. Centrelink discovered that Devinda was paid more money than she had declared which means that she has been overpaid. It is determined that Devinda knowingly misdeclared her income. The 10% recovery fee should be applied to Devinda's debt. John included the same information about Devinda's income on his form and has therefore been overpaid as well. However, even though John also under-declared Devinda's income he does not incur the penalty. The 10% recovery fee is not applied to John because his debt is not the result of income from his own personal exertion, only Devinda's. The amount (if any) that Devinda would have been overpaid, based on John's income alone is subtracted from the total debt amount. The 10% recovery fee is applied to the difference.