High Court rules loans are not income

I’m surprised this issue has had to go to the High Court to find that loans are not income. Alarmingly, it took over eight years to resolve – if it isn’t appealed.

RNZ:  Solo mum’s loans were not income – High Court ruling

A solo mother of two has won her eight-and-a-half-year fight against the Ministry of Social Development (MSD), which unlawfully tried to argue bank loans and credit cards constituted income.

The Ministry was trying to recover $109,852 from the woman, who has name suppression and can only be identified as ‘Ms F’.

MSD claimed it overpaid her to that amount while she was earning a benefit between 2005 and 2010 because she borrowed from her mother, a finance company and the bank to stay afloat.

But in a High Court appeal released today, Justice Paul Davison ruled MSD was wrong to classify those sources of money as income.

“The bank loans did not truly add to Ms F’s resources as she was required to repay the funds she received,” Justice Davison wrote.

“Bank borrowings by use of a credit card have the same essential characteristics as a bank loan, in that credit card expenditure is to be repaid. Credit card spending is therefore a loan, and is not properly treated as income.”

Justice Davison said it was not for him reconsider the financial advice given to the Authority, only whether it “erred in law in its interpretation and application of what constituted income”.

“The Authority plainly preferred the evidence of the Ministry’s financial analyst and its preference for the evidence of a competing expert is not a matter for this Court to review,” Justice Davison said.

Justice Davison ruled that Ms F was entitled to costs.

More from Catrionna Maclennan at The Spinoff:  Winz is meant to help the vulnerable, not hound them through the courts

In what parallel universe would the agency charged with assisting our most vulnerable citizens cut a mother’s benefit because she borrowed money from her family and her bank to stay afloat?

In 21st century Aotearoa, that is how the Ministry of Social Development thinks it should carry out its job.

It established a massive debt against a woman who borrowed – and repaid – money while she was on a benefit. The ministry then spent years pursuing her to repay her benefit, as it said the loan money meant she was not entitled to state support.

The woman was forced to waste hundreds of hours providing details of her situation to MSD and explaining her finances, at the same time as caring for her children, studying for a degree and trying to start a business to support her family.

She lived outside Auckland at the time and owned a property, which she was trying to hang on to so that her children would have a home. She borrowed to buy paint for the property and to fix a leak to prevent sewage from running through the floor.

The benefit review form did not ask Ms F to list loans.

Ms F also provided detailed information to MSD showing that the loans had been repaid.

MSD’s argument was that the loans, even though they have been repaid, were “income” and accordingly disqualified her from benefit support.

The case went to the Benefits Review Committee and the Social Security Appeal Authority. The amount she was alleged to owe was adjusted several times, so that the figure ranged between $109,852.91 and $127,275.05.

The Social Security Appeal Authority ruled that two bank loans should not have been treated as income, but held that other loans were income and that Ms F should be required to repay $109,852.91.

But the High Court has now ruled that the loans are not income.

This could have wider implications. RNZ: Call for review into ministry’s penalities for beneficiaries getting loans

Lawyers and beneficiary advocates want an urgent review into the Ministry for Social Development’s (MSD) debt recovery programme.

Child Poverty Action Group spokeswoman Susan St John…

…said there was no way debt should ever have been considered a resource.

It was hard to know how many borrowers were affected by the lending restrictions, but Ms St John said every one of them suffered.

“It’s really like just opening up a can of worms.”

Auckland Action Against Poverty spokesman Ricardo Mernendez…

…said over the past few months he had met with many people who were also penalised by MSD for receiving loans.

“At least half a dozen – that’s just people who come to our office in Onehunga there will be many across the country who are in similar situations,” Mr Mernendez said.

Lawyer Catriona Maclennan…

…said the problems went beyond just loans classed as income, with systemic issues around the ministry’s pursuit of money from beneficiaries.

She said Social Development Minister Carmel Sepuloni should step in and immediately stop debt recovery cases that were before the courts.

But this could take some time.

Ministry of Social Development spokesperson Simon MacPherson said the ministry would be studying the court’s decision carefully and thoroughly and consider its response.

Ms Sepuloni said she would not be commenting until she received a report from ministry officials.

I’m surprised it has taken so long to resolve this.

IRD don’t treat loans as (taxable) income. MSD should never have considered loans as income affecting benefits.

Read the full High Court decision here:



  1. Alan Wilkinson

     /  July 4, 2018

    Stunning misbehaviour by bureaucrats. Some heads should roll.

    • Gezza

       /  July 4, 2018

      I agree. I found this utterly incredible. Whoever MSD relied on for their legal advice should be identified & dismissed for incompetence.

      • Callum

         /  July 4, 2018

        It went through a lot of levels of judiciary and is not a clear cut area of the law. It is just being bandwagoned as a general commentary on MSD when it is a very murky situation overall with the court agreeing there was significant components of income that were being hidden.

    • PDB

       /  July 4, 2018

      Yep – makes no sense at all.

  2. Blazer

     /  July 4, 2018

    ‘I’m surprised it has taken so long to resolve this.’-I’m not …National had a punitive regime when it came to any beneficiaries.

    • High Flying Duck

       /  July 4, 2018

      National had nothing to do with the court process, and it is debatable they would have had anything to do with the bureaucratic stupidity in deciding loans were income.
      Most bureaucrats retain their small minded Napoleon complexes no matter the stripe of government.

      • Blazer

         /  July 4, 2018

        a word from the minister usually straightens them up.
        Look at recalcitrant HNZ chief Mc Kenzie refusing any interviews until he got the….word.

    • Callum

       /  July 4, 2018

      The lower courts agreed the ‘loans’ were actually income. They also found the testimony of the defendant unreliable and evasive with documentation created well after the transactions in question to justify them.

      • High Flying Duck

         /  July 4, 2018

        That puts a different context on the case, although there is no excuse for the ministry claiming the bank loans were income.

        • High Flying Duck

           /  July 4, 2018

          Just read John below – puts even more context around it. Sounds like she used the funds for a very good lawyer!

          • This is incorrect.

            The Review Authority found bank loans were not income but the loan from the mother was income (a gift).

            The Court found the Authority was right to say bank loans are not income but wrong to rule that the loan from the mother was income. The main reason for this was that the Authority didn’t try to ascertain whether any of the family loan had been repaid. It the Authority had done so it would have found that almost all of the loan had already been repaid.

  3. John whyte

     /  July 4, 2018


    The news reports are a bit garbage here. The herald embeds the judgement which is better. There were three points
    1) the lady in question recieved over $100,000 from her mother in small payments. The winz review board deemed this income. The beneficiary appealed saying the winz board got the law wrong here.
    2) the beneficiary had erratic deposits of money. Winz wanted to use her credit card spending as an assessment of income. The court said this wasn’t allowed.
    3) the beneficiary brought and sold 3 houses over the time period. During that period she drew down loans and spent the money. The winz board ruled these were loans. Winz at the high court submitted these could be income for the purposes of the dpb.

    Its important to note – winz never assessed the bank loans as income. They wanted a judgement to enable them to do so in future.

    Also important- the judge clarified some rules about determining when money from family is income and when it a loan. Winz will reassess the woman with this criteria and may still chase her for the $109k.

    This is a complex case with a strong implication the beneficiary was doing up houses for profit and running a side business.

    • Blazer

       /  July 4, 2018

      shines a very different light on things.Thx.

      • High Flying Duck

         /  July 4, 2018

        Still blaming the Nats?

        • Blazer

           /  July 4, 2018

          No, I withdraw that implication.

      • This is totally incorrect. To each of the three points.

        1) The Court found that the Authority didn’t even do the basic check of whether the woman had repaid any of the money from her mother. She had. Almost all of it.

        2) The Court found they had no jurisdiction to relitigate this point as the woman had the opportunity to challenge it at the Authority.

        3) There was no side business. The Authority found no issue with the buying and selling of houses. She was living in each of them one at a time. That is, she was moving house. This was NOT appealed by MSD.

        MSD was treating bank loans as income. The Authority found against that. And the Court agreed.

        MSD was also treating family money as income. This is a greyer area. But the Court found the Authority didn’t do the most basic of checks and found the family money was also a loan.

        This was a bloodbath. An utter annihilation of MSD. And confirmed with the judge awarding costs against MSD.

        • High Flying Duck

           /  July 4, 2018

          You are overstating the success Sam. Having read the judgement there was success on both sides, with the defendant “on balance having the greater success” and therefore being awarded costs.
          The judgement upheld some of the findings of income and denied others due to a lack of process more than being incorrect in the assessment.
          Shoddy investigation and a lack of follow up to prove the allegation seem to have been the main cause of the judgement going against the department.
          You are right that Callum also overstates things, but this is far from being the cut and dried case of departmental over-reach that the original post suggests.

          • The shoddy investigation is against the Authority.

            MSD was also clearly and wrongly found against on the bank loans.

            The only victory MSD had was the judge saying they couldn’t review new evidence which might explain the rest of the ‘income’ because this should have been presented the first time around.

  4. Callum

     /  July 4, 2018

    Read the detail of the court judgement and there is a lot more to it.
    – Business account with private expenditure mixed in, however income low enough for a whole lot of benefits.
    – Loans from the mother with no documentation, repaid only well after the issue was raised and long after a lot of capital gains were realised that could have been used to make payment.
    – Buying and selling properties for some pretty good gains by the look.
    – Unexplained deposits the court agreed were to be treated as income.
    – Lifestyle well above declared income.
    – Unexplained changes in the share of a trust, indicating that income was being drawn.

    This wasn’t a poor solo mum being harassed by WINZ, this was someone with a lot of money and resources claiming a whole lot of benefits while living a pretty good lifestyle.

    • Alan Wilkinson

       /  July 4, 2018

      Fair enough. However the principle that loans can be treated as income is indefensible.

      • Callum

         /  July 4, 2018

        That depends on the nature of the loan. If you have a whole lot of assets under your control but locked up in a trust, drawing funds will be considered income or resources available to you especially if you are applying for welfare. Same applies with companies where shareholders are dividend stripping through their current accounts. A blanket rules does not work because people will work around it, you need to look at the substance of the transactions.
        In this case it sounds like she was doing property speculation as an income but structuring it to keep it non taxable. Banks don’t make loans unless there is a revenue source (direct income or capital gains) to support repayment.

        • You’ve got this totally wrong, Callum.

          The judgement was clear. The banks loaned against the house as security. She didn’t have multiple houses; just the one she was living in, and then moved out of into another, before, as the judgement says, downgrading to a third house.

          • Callum

             /  July 4, 2018

            Sam you probably already know banks are required to confirm there is income to support loan repayments. Try borrowing more when your sole income is a benefit, tend to get laughed out of the bank.

      • Callum’s reply is nonsense.

        The repayment happened before the Authority hearing. The Court found the Authority should have sought more evidence about whether that actually happened (if they were worried about that) and, based on a repayment, determined the money was a loan.

        The Authority didn’t do that.

        The buying and selling houses were houses the woman LIVED IN. That is, she was moving house. You can still do them up to make money, but the Authority did not find for the Ministry that the moving houses was about money and MSD DIDN’T APPEAL THAT.

        The Court ruled they couldn’t relook at the ‘other income’ issue even when the woman provided further evidence because she could have provided that evidence earlier. That’s not the Court saying there was other income or not, but that the Court couldn’t relook at it.

        The judgement makes no mention of lifestyle.

        • MSD got this so badly wrong costs were awarded against it.

          Callum thinks he knows better, though.

        • Callum

           /  July 4, 2018

          Loan repaid AFTER the investigation was begun, significant inconsistencies between the mother and F on what was repaid with F claiming she still owed money when the mother said it was fully repaid. $27,000 variance on that alone.

          • Amazing that someone might make repayments at different times, eh. Amazing that they might focus on commercial loans rather than loosely set family loans.

            A variance on $27,000 out of a $130,000 loan? Where things aren’t written down. Suggest you don’t know how bad people can be with bookkeeping, eh.

            • Gezza

               /  July 4, 2018

              I’ve got my car booked in tomorrow cos the damn thing’s suddenly started leaking oil like a champion & a mechanic who had a look at it said it’s got a cracked sump. Ma wants to pay for it. If I was on a benefit I think WINZ would count that as income.

            • MSD itself said none of that was determinative.

              Further, the Court referred to multiple possible payments. Numerous small ones prior to the ex making a false tip-off to MSD and a bigger one later. The Authority didn’t make a determination on any of them.

  5. Callum

     /  July 4, 2018

    By the way IRD can and does treat loans as income where the background indicates they are not truly loans and funds come through particularly from trusts. There was a recent case on exactly this with funds channelled through a number of trust and ‘loans’ received from ‘friends’.

    • Blazer

       /  July 4, 2018

      well they don’t seem to apply it very well regarding insolvencies.
      Many cases of bankrupts living the good life ,thanks to generous ‘friends’.

      • Callum

         /  July 4, 2018

        It is definitely an area that needs to be monitored more closely but there is only so much that can be done. Bankrupts travelling (whoever is paying) seems to be approved far too often when the people they owe money to can’t afford to. The biggest issue is generally the cost of pursuing these matters can far out weigh the funds recovered. Have done some work in this area and there are some you feel sorry for, others that could do with lynching.