AARON DAVIDSON and SECRETARY, DEPARTMENT OF EDUCATION, EMPLOYMENT AND WORKPLACE RELATIONS
[2013] AATA 342
[2013] AATA 342
Division GENERAL ADMINISTRATIVE DIVISION File Number
2012/5855
Re
AARON DAVIDSON
APPLICANT
And
SECRETARY, DEPARTMENT OF EDUCATION, EMPLOYMENT AND WORKPLACE RELATIONS
RESPONDENT
DECISION
Tribunal Mr R G Kenny, Senior Member
Date 27 May 2013 Place Brisbane The Tribunal affirms the decision under review.
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Mr R G Kenny, Senior Member
CATCHWORDS
SOCIAL SECURITY – Pensions, benefits and allowances – Newstart allowance – Assets – Loans – Deemed income – Reduced rate of payment – Loans to company an asset – Decision under review affirmed
LEGISLATION
Social Security Act 1991 (Cth) ss 11, 1068, 1076, 1122
CASES
Moffatt and Secretary, Department of Family and Community Services [2003] AATA 1259
Re Boyd and Department of Social Security [1994] AATA 580
Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634Secretary, Department of Employment and Workplace Relations v Vanderpluym [2007] FCA 876
SECONDARY MATERIALS
Guide to Social Security Law
REASONS FOR DECISION
Mr R G Kenny, Senior Member
BACKGROUND
Aaron Davidson (the applicant) was in receipt of newstart allowance under the Social Security Act 1991 (Cth) (“the Act”) when, on 8 May 2012, he was advised by Centrelink that his rate of payment was $442 per fortnight. The applicant then provided Centrelink with copies of the 2011 financial statements and income tax returns for Tidal Energy Pty Ltd (“Tidal Energy”), a company of which he is a joint director. In reliance on information contained therein, Centrelink determined, on 8 June 2012, that the applicant’s newstart allowance should be reduced to $361.49 per fortnight. This was based on information that the applicant had outstanding loans to Tidal Energy and from which he was deemed by Centrelink to have earned income. That decision was affirmed by an authorised review officer on 16 October 2012 and, in turn, by the Social Security Appeals Tribunal on 3 December 2012.
ISSUES, LEGISLATION AND SUBMISSIONS
The rate of newstart allowance is subject to an income test under s 1068 of the Act. In addition to income in the ordinary sense, regard is also had, in accordance with s 1076 of the Act, to income deemed to have been earned from assets. Centrelink relied on the reference in the Tidal Energy financial statements that the applicant had outstanding loans to Tidal Energy in the total amount of $141,167.[1] Centrelink determined that the loans were the applicant’s assets as defined in s 11(1) of the Act. In that regard, s 1122 of the Act provides:
1122 Loans
If a person lends an amount after 27 October 1986, the value of the assets of the person for the purposes of this Act includes so much of that amount as remains unpaid but does not include any amount payable by way of interest under the loan.
[1] See Exhibit 1, T-document 5. pp. 26-46, esp. p. 35.
The loan was treated as being valued at its face value as it was identified in the Tidal Energy statements and to the extent to which it remained unpaid. Applying the formula in s 1076(3A) of the Act, Centrelink, deemed that the applicant was receiving income of $223.03 per fortnight from the loans.[2] This calculation resulted in the reduction of the applicant’s newstart allowance.
[2] See Exhibit 1, T-document 7, p. 49.
The issue for the Tribunal is whether the provisions of the Act have been correctly applied in the making of those calculations.
CONTENTIONS
The applicant made the following submissions. He and the other director of Tidal Energy have developed a particular device which they have had patented. Tidal Energy is not a trading company but a research and development company used by them to develop the device. They each provided capital in the amount of $40,167 to Tidal Energy to cover costs and the applicant loaned Tidal Energy another $101,000 which he borrowed against his home as security. Tidal Energy invested the monies in a finance company with a view to use the income from the investment to meet the operational costs incurred by Tidal Energy. The finance company subsequently went into liquidation. The applicant believed that there is no prospect of recovering the monies from the finance company at a rate higher than 20 cents in the dollar. Tidal Energy is still operating and they continue to hope that they will derive income in the future from the marketing of their patented device.
The applicant does not dispute the calculations by Centrelink in relation to the level of deemed income that is to be attributed to him because of the loans to Tidal Energy. However, he submitted that the legislation which treated the loans as an asset, especially when they are likely to be unrecoverable, and then to apply the deemed income provisions to the loans was unfair in its application to someone in his position. He submitted that the principles underpinning the legislation should only operate in the context of the activities of the “rich and privileged” and not someone in his own difficult financial circumstances. The applicant conceded that the accountants of Tidal Energy had properly recorded relevant information in the financial statement provided to Centrelink.[3]
[3] See Exhibit 1, T-document 5. pp. 26-46.
For the respondent, Mr McQuinlan submitted that the legislation concerning the treatment of loans and deeming income from loans was applicable generally to the Australian community and that Centrelink were obliged to give effect to it in the applicant’s case. He submitted that the provisions of the Act had been correctly applied by Centrelink to the applicant with the result that his fortnightly newstart allowance was reduced. He submitted that it was appropriate to take the value of the loans at face value as they were presented in the Tidal Energy statements,[4] in the amount of the loan that remains unpaid,[5] and regardless of whether the loan is recoverable.[6]
[4] Referring to Re Boyd and Department of Social Security [1994] AATA 580 at [38].
[5] Referring to Secretary, Employment and Workplace Relations v Vanderpluym [2007] FCA 876 at [72] per Greenwood J.
[6] Referring to Moffatt and Secretary, Department of Family and Community Services [2003] AATA 1259 at [27].
CONSIDERATION
I accept the submissions of Mr McQuinlan rather than those of the applicant. The financial statement of Tidal Energy lists the loans from the applicant with a face value of $141,167. I have noted the authorities relied upon by Mr McQuinlan and accept his submissions that they are to be assessed at their face value and are to be treated as assets of the applicant, even if it is the case that they are not recoverable by him. The provisions in the Act, which are set out above, are clear and I am reasonably satisfied that they have been applied appropriately by Centrelink. Their application in that manner is supported by relevant provisions in the Guide to Social Security Law (“the Guide”) which is published by the respondent to provide assistance to those who administer the Act. While not bound to apply policy instructions of the kind referred to in the Guide, the Tribunal will usually apply the guidelines unless, unlike the situation here, there are cogent reasons in a particular case for not doing so.[7]
[7] See Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634 at 639-645 per Brennan J (President).
The Guide makes it clear that loans of the kind made by the applicant are to be taken into account as his assets.[8] The Guide also provides a list of circumstances when a loan may be treated as no longer existing.[9] These are:
[8] See the Guide at 4.6.5.60.
[9] See the Guide at 4.6.5.65.
Legally, a loan ceases to exist at the time it is repaid, or when the debtor is formally released from the loan. A debtor is released from a loan contract under a bankruptcy or where the loan is forgiven.
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A loan no longer exists for social security purposes when:
· it is repaid, OR
· the borrower is bankrupt, OR
· the borrower enters a debt agreement under Part 9 or 10 of the Bankruptcy Act 1966 (Commonwealth), OR
· the lender forgives the loan usually via a deed or gift of release (see explanation 1), OR
· the lender takes a loan contract to court to have it enforced and obtains a court order to allow collection of the money (see explanation 2), OR
· the lender takes a loan contract to court to have it enforced and is unsuccessful in court (see explanation 3), OR
· the lender seizes the asset against which the loan is secured (see explanation 4), OR
· property against which the loan is secured is sold and the proceeds used to repay some or all of the loan, OR
· the company (or trust) that borrowed the money is wound up (see exception), OR
· the company (or trust) that borrowed the money is in the process of irreversible winding up (see explanations 1 & 5), OR
· the period specified in the relevant state Statute of Limitations has elapsed since the date of the first breach of the loan contract (see explanation 6), OR
· a company that borrowed the money is in administration and subsequently placed in liquidation, or loans to the company become subject to a deed of company arrangement. In these cases, the loan is taken to have ceased to exist from the date that the company was placed in administration
I am reasonably satisfied that none of those factors is relavant in the applicant’s case.
The applicant has not disputed the calcualtions relating to the income deemed by Centrelink to be related to the loans and I am reasonably satisfied that the amount has been correctly assessed.[10] The effect is that the applicant’s newstart allowance is reduced in accordance with that calculation.
[10] These are set out in Attachment 1 to Exhibit 3.
DECISION
The decision is affirmed.
I certify that the preceding 12 (twelve) paragraphs are a true copy of the reasons for the decision herein of Mr R G Kenny, Senior Member.
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Associate
Dated 27 May 2013
Date of hearing 9 May 2013 Applicant In person Advocate for the Respondent Mr Rick McQuinlan, Departmental Advocate
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