3.11.1.40 Penalty Interest Debts before 01/07/2001

Summary

The penalty interest provisions have been changed from 1 July 2001. For the current policy, go to 6.7.1.40.

SSAct section 1229 was inserted in 1994 as part of wider measures to improve the system of financial penalties for debtors who defaulted on repayment arrangements or failed to enter into repayment arrangements.

Act reference: SSAct section 1229 Notices in respect of debt

General provisions

Sections 1229, 1229A, 1229B and 1229C apply a penalty charge to any debt owed under the Act, provided the debtor:

• is not a current recipient of a social security payment, and
• refuses to enter into a repayment agreement, or
• defaults on a repayment agreement.

Debtors in receipt of social security payments will not incur penalty interest.

However, where a debtor who is not in receipt of payment has incurred a penalty interest debt, that debt will remain due and recoverable when the debtor begins to receive payment again.

Rationale behind the imposition of penalty interest

The rationale behind the introduction of the penalty interest charge was to encourage debtors to make AND maintain arrangements for repayment of their debts, thereby reducing the rate of default and increasing recoveries.

The charge is applied to:

• debtors who refuse to agree to a reasonable repayment arrangement based on their financial circumstances, and
• MAY be applied debtors who break an arrangement without sufficient reason.

Penalty interest may be applied to all debts under the SSAct, with the following exceptions:

• debts belonging to a current recipient, i.e. anyone receiving 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 is still in place,
• other Government Department (OGD) and Internal Transfer (ITR) debt types,
• AoS debts which 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, and
• debts where correspondence to the recipient has been suppressed.

Discretion & the penalty interest scheme

Section 1229 and 1229A provide that the Secretary MAY issue a notice to a debtor advising of the applicability of the penalty interest charge.

In addition, SSAct section 1229A(3) provides that the Secretary does not have to determine that penalty interest is payable if satisfied that the person intends to pay as soon as is reasonably practicable, having regard to the person's financial circumstances.

Recovery by deductions from third parties

Both sections 1229(1) and 1229A provide for recovery via deductions from the payment of a third party with that person's consent.

Garnishee & penalty interest

Where it is possible to recover the debt by garnishee, garnishee of the amount of the debt should be pursued in preference to the application of penalty interest.

Penalty interest & multiple debts

Where a person owes multiple debts, each debt must be treated SEPARATELY for the purposes of the penalty interest provisions. This means that penalty interest must be calculated against each of the individual debts.

Waiver & penalty interest

Penalty interest may be waived under SSAct section 1237B.

Act reference: SSAct section 1237B Determination that penalty interest not payable in relation to particular periods

Review & appeal of decision to impose penalty interest

A decision to apply penalty interest is subject to the review and appeals processes under SSAct Chapter 6.

Debts of other government departments

Debts recovered under the SSAct on behalf of OGD are not subject to penalty interest under the SSAct.

Appeals about the existence of a debt recovered on behalf of OGD should be directed to the Department that owns the debt. Appeals about the method or rate of recovery fall within SSAct Chapter 6.

Statutory limitation period

Issuing a penalty interest advice will extend the statutory limitation period for a period of 6 years from the date of issue of the notice.

However, the accrual of interest will not affect the statutory limitation period.

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Last reviewed: 5 November 2007