6.7.1.40 Penalty Interest Debts

Note: Penalty interest and administrative charges cannot be applied to debts at this time.

Summary

A debtor who is not receiving a social security or DVA payment or a payment of compensation (within the meaning of the MRCA), and who fails to enter into an arrangement to repay their debt or who breaks such an agreement without a reasonable excuse, may be liable to pay penalty interest on top of their debt. This interest becomes a debt payable to the Commonwealth.

Penalty interest can only be applied to a debt if the debtor has been notified in writing.

The aim of the interest charge is to encourage debtors to make and comply with arrangements for debt repayment.

Penalty interest may be applied to all debts under the SSAct, except for:

debts belonging to a current recipient of any type of pension, benefit, allowance or family payment,
debts where there is an arrangement for repayment in place,
debts where a recovery arrangement is broken but still in place,
other government department (OGD) and internal transfer (ITR) debt types,
AoS debts that involve an AoS protection indicator,
finalised debts,
debts with a balance less than $20,
debts which have one or more co-debtors,
debts where one or more of the debtor's debts are deferred or suspended,
debts belonging to deceased recipients,
debts where correspondence to the recipient has been suppressed, and
debts that have had the recovery fee applied.

Act reference: SSAct section 1229 Notices in respect of debt, section 1229A Interest on debt, section 1229AA Determination that interest not be payable

Notices of the debt & date of effect

A debtor must be sent a notice in writing in respect of the debt. If the debtor fails to enter into an arrangement, or breaks an arrangement to pay the debt, a further notice must be sent to the debtor specifying that the debt must be paid by a certain date (the final payment day). If they fail to do so, penalty interest is applied from the date of the final payment day.

The final payment day is the latest of the following days:

the 90th day after the day on which the outstanding debt amount was due,
the 28th day after the date on which the further notice was issued, or
90 days after the day on which an ARO makes a decision related to a request for review.

Penalty interest rate

The penalty interest rate is 20% per year. The Minister may determine a lower penalty rate by legislative instrument.

Act reference: SSAct section 1229B Penalty interest rate

Social Security (Penalty Interest) Determination 2001

Multiple debts

Where a person owes multiple debts, each debt must be treated separately, and penalty interest calculated against each of the individual debts.

Administrative charge

When a person first becomes liable to pay interest in respect of an outstanding debt amount, they are liable to pay an administrative charge of $50. This administrative charge is a debt due to the Commonwealth.

Act reference: SSAct section 1229AB Administrative charge

Requirement for a written notice

Penalty interest can only be applied to a debt if the debtor has been notified in writing. The first written notice sent to the debtor must state:

the date of issue of the notice,
the reason why the original debt was incurred, including a brief explanation of the circumstances that led to the debt being incurred,
the period of the debt,
the outstanding amount of the debt at the date of the notice,
the due date for the outstanding amount to be paid,
a list of repayment arrangements available to the debtor, and
contact details for inquiries concerning the debt.

The further written notice sent to the debtor must state the details noted above, and in addition:

the effect of the penalty interest and the administrative charge, and
how the interest is to be calculated, and the amounts that have been applied.

Note: If the first written notice includes the details required by both the first and second notices, it will be taken to be the further written notice for the purposes of the legislation.

Act reference: SSAct section 1229 Notices in respect of debt

Determination that interest is not payable

If a debtor has a reasonable excuse for failing to enter into, or for breaking an agreement for debt repayment, the decision to impose penalty interest on a debt can be overturned by a determination by the Secretary.

If the penalty interest has already been applied, the debtor must be notified in writing of the new decision. The written notice should also specify conditions by which the debtor needs to abide, for example, making a repayment towards their debt by a particular date. Failure to do so (without a reasonable excuse) may mean the reapplication of penalty interest.

A decision to apply penalty interest is subject to review and appeal processes.

Interest is not payable on a debt, or proportion of a debt, that arose from administrative error.

Act reference: SSAct section 1229A(2A) Interest on debt, section 1229AA Determination that interest not be payable

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Last reviewed: 6 September 2010

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