7.3.2.10 Waiving a Debt Arising from Administrative Error

Summary

This topic provides information about waiving (1.1.W.10) a debt (1.1.D.60) caused (directly or indirectly) by an administrative error, and where the person received the payment in good faith. The topic discusses:

• what is administrative error,
• debts arising solely from administrative error,
• what is good faith, and
• severe financial hardship (1.1.S.45).

What is administrative error?

An administrative error is an action by the Commonwealth that may cause or contribute to a recipient incurring a debt.

Example: Coding errors, or incorrect processing of information.

In some cases, a debt will be the result of a combination of administrative error and the debtor's actions. Only the part of the debt clearly identified to be caused by an administrative error may be waived.

Explanation: Where the FAO uses inaccurate information provided by an applicant/recipient to determine that person's FA entitlement, and it is determined that there is no administrative error, the debt cannot be waived.

Debts arising solely from administrative error

The part of a debt that can be waived under this provision is called the 'administrative error proportion' of the debt. The administrative error proportion can be up to 100% of the amount of the debt.

The administrative error proportion of the debt must have been caused or contributed to by an administrative error made by the Commonwealth, for example, a decision made by a delegate of the Secretary. If the debtor has contributed in any way to the cause of the debt, that part of the debt cannot be waived under this provision.

The administrative error proportion of the debt must be waived if:

• the payment was received in good faith and recovery of the debt would cause the debtor severe financial hardship, or
• the payment was received in good faith and the debt has been raised in either of the periods below (whichever ends last):
  • after the end of the next income year following the income year in which the eligibility period or event which gave rise to the payment of FA occurs, or
  • more than 13 weeks from the day the FA payment was made that gave rise to the debt.

Example: Caitlin claims FTB for a past period through the FAO for the previous income year. Caitlin receives a lump sum payment 2 weeks later. However, 4 months later, the FAO realises that Caitlin had been incorrectly paid due to a computer error. Caitlin was not entitled to the payment and even though she had provided the correct information, a computer error led to a wrong determination of entitlement. If the FAO determines that Caitlin received the payment in good faith, as she provided all the relevant information, and recovering the debt would result in severe financial hardship for Caitlin, the debt can be waived under A New Tax System (Family Assistance) (Administration) Act 1999 section 97(2).

The debt must be waived under section 97(3) of the FA(Admin)Act if the FAO determines that:

• there was an administrative error, and
• the payment was received in good faith, and
• the debt was raised more than 13 weeks after the payment was made or after the end of the next income year following the income year in which the eligibility period or event occurs.

If the debt is raised within 13 weeks of the reassessment or before the end of the income year following the income year in which the eligibility or event occurs, whichever is the latter, then the debt could only be waived if the person would suffer severe financial hardship. Severe financial hardship (1.1.S.45) is to be determined on a case-by-case basis.

Act reference: FA(Admin)Act section 97 Waiver of debt arising from error

What is good faith?

Receiving a payment in good faith implies that a recipient has no knowledge, or reason to believe, that they were not entitled to receive a payment and they have not directly or indirectly contributed to the debt situation. If a person knew or had reason to know that they were not entitled to a payment they have received, they cannot be said to have received the payment in good faith.

In determining whether a person received an amount in good faith, the Commonwealth must look at what the person actually knew, rather than what they could reasonably have been expected to know.

A person may still receive a payment in good faith even if they knew there was a variation to their payment. It is essential to consider all the circumstances of the case, including:

• information given to the recipient in the form of letters and other literature, interviews, and phone contact, which may help to establish the recipient's reasonable expectation about their payments,
• information provided by the recipient about their circumstances, which may help establish the recipient's expectations about future payments and the impact of any new information they provided to the FAO,
• the recipient's regular pattern of payment - what would they reasonably expect to receive on a regular basis? What would be an unexpected payment or amount?
• the amount of the excess payment - a large amount might be expected to be questioned by the recipient,
• the period of time the incorrect payments were made over - a short period could be considered by the recipient to be administrative delay in actioning new information while a longer period may not.

Note: It is also important to consider whether the person has been 'wilful' or 'negligent' in relation to the overpayment.

Explanation: This means that the FAO may consider whether the recipient has been aware of an irregularity in payment but has failed to take steps to bring the situation to the FAO's attention.

Severe financial hardship

The administrative error portion of a FA debt must be waived if the payment(s) were received in good faith and the person would suffer severe financial hardship (1.1.S.45) if the debt were not waived.

In considering whether a recipient could face severe financial hardship, details of their income and expenditure should be examined. Once details about income and expenses have been examined, other debt recovery options such as lower repayment arrangements or a write-off, which might enable a person to repay their debt without causing them severe financial hardship, should then be considered. If any of those options are unsuitable for the recipient, the debt should then be waived.

Act reference: FA(Admin)Act section 97 Waiver of debt arising from error

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Last reviewed: 6 September 2010