Alan Gorton Thelma Gorton and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs - [2012] AATA 127

[2012] AATA 127

Division	GENERAL ADMINISTRATIVE DIVISION
File Number(s)	2011/1930 2011/1931
Re	Alan Gorton Thelma Gorton
APPLICANTS
And	Secretary, Department of Families, Housing, Community Services and Indigenous Affairs
RESPONDENT

DECISION

Tribunal	Senior Member CR Walsh
Date	22 February 2012
Place	Perth

Decision Summary

In accordance with section 43(1)(c)(i) of the Administrative Appeals Tribunal Act 1975, the Tribunal sets aside the decision of the Social Security Appeals Tribunal, dated 6 April 2011, and substitutes that decision with the following:

“(a)The quantum of the loans to Mr Gorton and Mrs Gorton, as recorded in Mountway Holding Pty Ltd’s financial statements for the periods ending 30 June 2001 to 30 June 2010, are to be accepted as the outstanding loan amounts for the purpose of determining the rate of age pension payable to Mr Gorton and Mrs Gorton in respect of those periods.

(b) No arrears of age pension are payable to Mr Gorton and Mrs Gorton.”

...(sgd) CR Walsh.............

Senior Member CR Walsh

Catchwords

Social Security – age pension – loans that have not been repaid in full – financial assets – financial investments – attribution of assets and income of private company to person who controls the company – ordinary income - deemed income – reduced rate of age pension – interest – quantum of loans – net value - lifting the corporate veil – deemed interest - whether arrears of age pension payable

Legislation

Social Security Act 1991 – section 8(1) – section 9(1) – section 10A - section 11 - section 117 - section 1064 – section 1064-A1 – section 1064-A2 – section 10064-E1 - section 1077 – section 1121 - section 1122 – section 1208B - Part 3.10, Division 1B
Social Security and Veterans’ Entitlements Legislation Amendments (Private Trusts and Private Companies – Integrity of Means Testing) Act 2000
Veteran’s Entitlement Act 1986 – section 5L – section 52C
Income Tax Assessment Act 1936
Income Tax Assessment Act 1997

Cases

Inland Revenue Commissioners v Oswald (1945) AC 360
Drake v Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60
Bank of New South Wales v Brown [1983] 57 ALJR 155
Re Siebel and Director-General of Social Security [1983] AATA 163 (10 June 1983)
Re Lenthall and SDSS (1987) 14 ALD 275
Re Hughes and SDSS (1992) 25 ALD 754
Re Boyd and SDSS (1994) 83 SSR 1221
Re Wright and SDSS (1994) 782 SSR 1196
Re Riches and SDSS (1995) (AATA 10590; 8 December 1995)
Re Clayton and SDSS (1996) 42 ALD 796
Re Unicomb and SDSS (1996) AATA 10915
Re Harrison and Repatriation Commission (1996) (AATA 11132; 7 August 1996)
Repatriation Commission v Harrison [1997] 78 FCR 442
Unicomb and SDSS [1998] 82 FCR 96
Ling and Secretary, Department of Family and Community Services [1999] AATA 797
Mendes and Secretary, Department of Family and Community Services [2000] AATA 22
Re Bentham and SDFaC [2001] AATA 1018 (15 November 2001)
Re SDFaCS and Downes (2002) 70 ALD 100
Re Trewin and SDFaCS (2002) 69 ALD 774
Re Dart and SDFaC [2002] 72 ALD 521
Saunders and Secretary, Department of Family and Community Services [2002] AATA 1265 (6 December 2002)
Re Hanrick and SDFCS [2003] AATA 549
Gordon and Secretary, Department of Family and Community Services [2005] AATA 331 (14 April 2005)
Re Lyons and Secretary, Department of Family and Community Services and Anor [2007] 94 ALD 450
Goh and Secretary, Department of Families, Housing, community Services and Indigenous Affairs and Anor [2009] AATA 527 (16 July 2009)
Goh v Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2010] FCA 396 (30 April 2010)
Bysouth and Secretary, Department of Education, Employment and Workplace Relations [2010] AATA 59
Smith and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2011] AATA 517 (27 July 2011)

REASONS FOR DECISION

Senior Member CR Walsh

22 February 2012

Introduction

Mr and Mrs Gorton (the Gortons) seek a review of the decision made by the Social Security Appeals Tribunal (SSAT) on 6 April 2011, that Centrelink: (i) recalculate the Gortons’ rates of age pension (AP) from 1 February 2002, taking into account their respective “Unsecured interest-bearing liability” and “Unsecured financial liability” balances (for their ‘loans’ to Mountway Holdings Pty Ltd), as directed by the SSAT; and (ii) pay the Gortons arrears of AP for the periods 25 March 2008 to 23 June 2008 and from 16 September 2008.

History of Application

The Gortons were granted the AP by Centrelink on 5 February 1998.
The Gortons are the owners, directors and shareholders of Mountway Holdings Pty Ltd (Mountway). Mountway was established in the 1980s as an engineering business, but is also involved in share trading. Mr Gorton holds 99 shares in Mountway and Mrs Gorton holds 1 share. Centrelink has attributed Mr Gorton with 100% control of Mountway for social security purposes and Mountway’s assets and income have been taken into account by Centrelink for the purpose of determining the Gortons’ respective rates of AP.
Based on the personal tax returns of the Gortons for the year ended 30 June 2007 and the company tax return, profit and loss statements, balance sheet and depreciation schedules for Mountway, which were provided to Centrelink by the Gortons, a Centrelink officer decided (on 28 May 2008) that the Gortons each had a “loan” to Mountway of $89,455, that each loan was a “financial asset” which was subject to the deeming rules under social security law and, consequently, that AP would be paid to the Gortons at a reduced rate.
The two amounts of $89,455 were recorded in Mountway’s “Detailed Statement of Financial Position as at 30 June 2007” (which statement was prepared by Mountway’s then accountants, Butler Rees & Co Pty Ltd) not as “loans” to the Gortons but, rather, as an “Unsecured Financial Liabilities” in respect of the Gortons.
On 10 November 2008 a Centrelink Authorised Review Officer (ARO) reviewed and affirmed the 28 May 2008 decisions and the Gortons appealed to the SSAT.
In affirming the decision of the ARO, on 6 April 2009 the SSAT found, inter alia, that “the loans are financial assets and by the operation of Division 1B of Part 3.10 of the Act must be subject to deemed income in calculating the rate of Mr and Mrs Gorton’s age pension.”
The Gortons subsequently appealed the SSAT’s decision of 6 April 2009 to this Tribunal.
On 17 December 2009 the Tribunal (presided over by Senior Member Sweidan) reviewed and affirmed the SSAT’s decision of 6 April 2009. According to Senior Member Sweidan’s “Written Reasons for Decision”, dated 3 February 2010, the primary contention of the Gortons at that hearing was that no “loans” existed between the Gortons and Mountway but that if “loans” were found to exist, Centrelink had incorrectly determined the quantum of those loans. In his “Written Reasons for Decision”, Senior Member Sweidan stated:
“16. In light of all the evidence before the Tribunal, the Tribunal’s view is that it is clear that loans were made by [the Gortons] to Mountway Holdings and that those loans continue to exist.
………….
26…….It appears that the deemed interest has been capitalized each year, and it seems to the Tribunal there is a strong likelihood that s1122 [of the Social Security Act 1991] has not been correctly applied.
27. The Tribunal makes no finding in that regard as the Tribunal is not required, for purposes of this application, to determine the quantum of the loans.
28. However, the Tribunal strongly urges Centrelink in fairness to the applicants, to reconsider the calculation of the correct amount of the loans, for purposes of applying the provisions of the Act in relation to the quantum of those loans.”
In accordance with Senior Member Sweiden’s recommendation to Centrelink (at paragraph 28 of his “Written Reasons for Decision”, as set out immediately above), on 16 February 2010 and 25 May 2010 a Centrelink Complex Assessment Officer (CAO) reconsidered the quantum of the loans being assessed to the Gortons as financial assets and the application of section 1122 of the Social Security Act 1991 (SSA).
On 16 February 2010 a Centrelink CAO concluded, inter alia:

“Our previous assessments in relation to the loans to Mountway Holdings Pty Ltd have been based upon updated balance sheets supplied by you each year. These balances, as at 30 June, have included that interest credited for the previous year.
There was no assessment of any further interest payable, even though in most cases the new balance is supplied some months after 30 June. The timing is dependent upon the availability of the information, usually with the completion of your annual accounts and income tax returns.
Therefore, there is no adjustment to the previously assessed amounts used to calculate the deeming and given the decision to affirm the deeming of the loans has been recently affirmed by the Administrative Appeals Tribunal, there is no change to your entitlements.”

On 25 May 2010 a Centrelink CAO concluded, inter alia:
“Our previous assessments in relation to the loans to Mountway Holdings Pty Lts have been based upon updated balance sheets supplied by you each year with values as at 30 June. We have taken the information at face value and updated the balance of the loans accordingly. There has been no reason to doubt the veracity of the accounts provided.
The balance provided to us has never been adjusted by Centrelink for the amount of deemed income. Centrelink does not, and has not, added deemed income to the balance of any of the financial assets.”
……………
The balance was the “amount as remains unpaid,” and these have been assessed appropriately and deemed income calculated correctly.
There is no previous assessment that needs correction.”
On 10 September 2010 a Centrelink ARO reviewed and affirmed the decision that Centrelink had correctly assessed the asset value of the Gortons’ loans to Mountway. In reaching that decision the Centrelink ARO stated:
“The loan amounts that Centrelink assess and apply deeming provisions to is based solely on the amount on the balance sheets for Mountway Holdings each financial year, not by any interest that Centrelink has added.”
Dissatisfied, the Gortons applied to the SSAT for a review of the Centrelink ARO’s decision of 10 September 2010.
On 6 April 2011 the SSAT decided to set aside the Centrelink ARO’s decision of 10 September 2010 and substituted that decision with the following:
“(a) Centrelink is to re-calculate Mr and Mrs Gorton’s rate of age support pension from 1 February 2002 taking into account Mr and Mrs Gorton’s respective unsecured financial liability balance (for their loans to Mountway Holdings Pty Ltd) as follows:

Year ended 30 June
Mr Gorton Mrs Gorton

2001 $61,187.00 $61,187.00

2002 $67,522.50 $67,522.50

2003 $71,504.50 $71,504.50

2004 $72,531.50 $72,531.50

2005 $73,421.50 $73,421.50

2006 $71,838.50 $71,838.50

2007 $72,509.00 $72,509.00

2008 $73,690.00 $69,743.00

2009 $74,017.50 $69,743.50

2010 $69,019.00 $64,745.00

(b) Arrears of age pension are payable to Mr and Mrs Gorton for the periods 25 March 2008 to 23 June 2008 and from 16 September 2008”

On 20 May 2011 Centrelink re-calculated the Gortons rate of AP in accordance with the SSAT’s decision of 6 April 2011 and the Gortons were each paid arrears of $1,248.03.
The Gortons now seek a review of the SSAT’s decision of 6 April 2011 by this Tribunal.

Issues in this Application

In the hearing of this application, the Gortons argued, as they had done in their previous application before Senior Member Sweidan (on 17 December 2009), that no “loans” existed between the Gortons and Mountway.
Instead, the Gortons asserted there was a “loan” by the Uniting Church Investment Fund (UCIF) to Mountway which arose because the UCIF had paid the R & I Bank $96,904.96 in settlement of Mountway’s overdraft with that bank. However, according to the Gortons, UCIF’s “loan” to Mountway was extinguished in 1991 when the UCIF seized the asset against which the loan by the UCIF to Mountway was secured, being the Gortons’ family home.
The Gortons contended that there has never been any “loan” agreement in place between the Gortons and Mountway and that the amounts referred to in Mountway’s financial statements as “Unsecured Interest-Bearing Liabilities” (in Mountway’s Balance Sheets and Detailed Statements of Financial Position for the years ended 30 June 2001 to 30 June 2006) and as “Unsecured Financial Liabilities” to “AV Gorton” and “T Gorton” (in Mountway’s Detailed Statements of Financial Position for the years ended 30 June 2007 to 30 June 2010), which statements had been prepared by the company’s accountants, merely recorded or acknowledged a “moral” obligation of Mountway (which, in their opinion, is not legally enforceable) to reimburse the Gortons (for the UCIF’s seizure of their family home as a consequence of Mountway’s default on its loan with the UCIF) if Mountway’s financial circumstances ever improved.
21. The issue of whether the amounts referred to in Mountway’s financial statements as “Unsecured Interest-Bearing Liabilities” to “AV Gorton” and “T Gorton” (in Mountway’s Balance Sheets and Detailed Statements of Financial Position for the years ended 30 June 2001 to 30 June 2006) and as “Unsecured Financial Liabilities” to “AV Gorton” and “T Gorton” (in Mountway’s Detailed Statements of Financial Position for the years ended 30 June 2007 to 30 June 2010) represented “loans” by the Gortons to Mountway was dealt with in the Gorton’s earlier application before Senior Member Sweidan on 17 December 2009: refer to paragraph 8 above. If the Gortons did not agree with Senior Member Sweidan’s finding on this point, it was open to them to appeal to the Federal Court of Australia. They chose not to. It is not appropriate for the Tribunal to revisit this issue in this application.
This application is for a review of the SSAT’s decision of 6 April 2011 and the issues to be determined by the Tribunal are, therefore, limited to the following:
(i) What is the quantum of the loans made by the Gortons to Mountway; and
(ii)Are arrears of AP payable to the Gortons and, if so, in respect of which period?
Each of these issues is considered, in turn, below.

What is the quantum of the loans made by the Gortons to Mountway?

Section 1122 of the SSA

The rate of AP paid to a social security recipient is determined on the value of a person's total assets and income. These are referred to as the “assets test” and the “income test”.
Prior 1 January 2002, the loans by the Gortons to Mountway were considered “financial investments” that attracted deemed income: see section 9(1) and section 1077 of the SSA.
On 1 January 2002 most of the provisions of the Social Security and Veterans' Entitlements Legislation Amendment (Private Trusts and Private Companies – Integrity of Means Testing) Act 2000 came into effect. Broadly, those provisions ensure that the assets and income of private companies or trusts is attributed to the person or persons who control the company or trust, or to the person or persons who are the source of the capital or corpus of the company or trust.
From 1 January 2002, the loans by the Gortons to Mountway were considered “financial assets” attributed to Mr Gorton and continued to attract deemed income.
A “financial asset” is defined in section 9(1) of the SSA to mean a “financial investment” or a “deprived asset”. “Financial investment” is defined in section 9(1) of the SSA to mean, among other things:
“(e) a loan that has not been repaid in full;”.
“Financial investments”, including “loans” are subject to “deeming” under the SSA. Broadly, “deeming” is the assessment of income from “financial investments” for the purposes of the “income test”. To calculate the income assessed, deeming rates are applied to the total market value of an income support recipient's financial investments. The actual returns from the income support recipient's investments, whether in the form of capital growth, dividends or interest are not used for income assessment, even if the investment returns are above the deeming rates. The deeming rates are set so that they realistically reflect the returns available in the market from a range of financial investments.
Section 1077 of the SSA sets out the method used to calculate the deemed income from financial assets for members of pensioner couple. These are worked out in accordance with the amounts of a below and above threshold rates.
The amount of deemed income for each member of a couple is taken to be received as “ordinary income” and calculated under section 1077(4) of the SSA. “Ordinary income” is defined in section 8(1) of the SSA to mean, among other things, “an income amount earned, derived or received by the person for the person’s own use or benefit.” The ordinary income is then subject to the income test along with other ordinary income, such as foreign income and foreign pension.
Section 117 of the SSA states that a person's rate of AP is to be worked out using the rate calculator at the end of section 1064 of the SSA. Section 1064 of the SSA provides that a person’s pension is calculated using the pension rate calculator contained at the end of section 1064-A1 of the SSA. The rate calculator sets out that a person’s maximum rate of pension is reduced by taking into account the person’s “ordinary income”. Section 1064-A2 of the SSA states that ‘Where 2 people are members of a couple, they will be treated as pooling their resources (income and assets)…’.
The rate of APs paid to the Gortons has been reduced by Centrelink pursuant to section 1064-A1 of the SSA, based on the amount of their “ordinary income” as worked out under section 1064-E1 of the SSA. The amount of “ordinary income” includes any deemed income from “financial investments” which, in the case of the Gortons, consists primarily of their “loans” to Mountway.
Thus, to correctly ascertain the Gortons’ “ordinary income” for AP purposes it is essential to first determine the quantum of their “loans” to Mountway.
Section 1122 of the SSA states:
“1122. Loans
1122. 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.”
Section 1122 of the SSA applies only to loans made on or after 27 October 1986 and requires the “face value” of the loan to be used: Re Hughes and SDSS (1992) 25 ALD 754, Re Clayton and SDSS (1996) 42 ALD 796, Re SDFaCS and Downes (2002) 70 ALD 100 and Re Trewin and SDFaCS (2002) 69 ALD 774, the latter two cases involved loans to a family company and a family trust, respectively, being valued at “face value”.
In contrast, for loans made before 27 October 1986, the value of the debt is its “real value”: Re Wright and SDSS (1994) 782 SSR 1196; Re Riches and SDSS (1995) (AATA 10590; 8 December 1995) and Re Hughes and SDSS. Further, in Re Lenthall and SDSS (1987) 14 ALD 275, the Tribunal held that the appropriate value of a debt prior to 27 October 1986 was the actuarial calculation of the current value of the debt rather than just the sum of the original debt.
Centrelink’s CAO noted in a letter to Mr Gorton, dated 25 May 2010, that:
“Prior to 27 October 1986, customers were seeking to have loans revalued based on the loans' actuarial value, rather than just the outstanding balance... ...The point of introducing section 1122 of the Act was to eliminate any need to seek such valuation or other method.
...the reference to “does not include any amount payable by way of interest under the loan” is not in fact a reference to any adjustment to the balance for interest that may have accrued, but not been credited. Nor is it to exclude the accrued interest from the “amount as remains unpaid.”
This wording of section 1122 of the Act is to reinforce the requirement that an actuarial value not to be taken into account. The future interest payments payable under the terms of the loan, which have a quantifiable value, are not to be included. The exclusion of "any amount payable by way of interest" is an exclusion of the actuarial value of the interest. It further limits the value to the outstanding balance only.
The “amount as remains unpaid” is the face value of balance outstanding of the loan. This is not merely the principle, but the current balance, adjusted over time for repayment of the principle, interest accumulated, interest paid and any further lending.”

In Re Boyd and SDSS (1994) 83 SSR 1221 the Tribunal found (at [38]) that section 1122 of the SSA established that the value of the ‘loan’ is that amount that remains unpaid:
“In accordance with Hughes (supra), the Tribunal finds that the legislation, whilst capable of producing unjust results in some circumstances, nevertheless intended loans made after 27 October 1986 to be valued at face value.”
More recently, in Saunders and Secretary, Department of Family and Community Services [2002] AATA 1256 (6 December 2002) in considering the assessment of loans under section 1122 of the SSA in relation to a family trust, the Tribunal commented:
“21. In relation to the loans by the applicants to the family trust, section 1122 of the Act provides that, for amounts lent by a person after 27 October 1986, so much of a loan as remains unpaid to the person must be included as an asset for the purposes of the Act....
......
23. In respect of the first matter, the practice of adopting the full face value of the loan has applied since 27 October 1986 when the Act was amended: see Re Ling and Secretary, Department of Family and Community Services [1999] AATA 797; Re Mendes and Secretary, Department of Family and Community Services [2000] AATA 22; Re Hughes and Secretary, Department of Social Security [1992] AATA 52; (1992) 25 ALD 754 and Re Trewin and Secretary, Department of Family and Community Services [2002] AATA 437.”
Consequently, the Tribunal considers that section 1122 of the SSA applies to the “face value” of the Gortons’ loans to Mountway as set out in the company’s financial statements for the relevant years (i.e. the years ended 20 June 2001 to 30 June 2010): Re Hughes and SDSS, Re Clayton and SDSS, Re SDFaCS and Downes, Re Trewin and SDFaCS (2002) 69 ALD 774, Re Boyd and Saunders and Secretary applied.
The Gortons’ “loans” to Mountway for the years ended 30 June 2001 to 30 June 2010 are recorded in its financial statements as follows.
·Mountway’s Balance sheet for the year ended 30 June 2001 (which was prepared by Delta Partnership Pty Ltd) states:
“Current Liabilities
Interest-bearing liabilities
Unsecured
A V Gorton  $ 66,383
T Gorton  $ 66,383”
·Mountway’s Balance Sheet for the year ended 30 June 2002 (which was prepared by Delta Partnership Pty Ltd) states:
“Current Liabilities
Interest Bearing Liabilities
A V Gorton  $ 69,540
T Gorton  $69, 540”
·Mountway’s Balance Sheet for the year ended 30 June 2003 (which was prepared by Delta Partnership Pty Ltd) states:
“Current Liabilities
Interest Bearing Liabilities
Unsecured
A V Gorton  $ 75,873
T Gorton  $ 75,873”
·Mountway’s Balance sheet for the year ended 30 June 2004 (which was prepared by Delta Partnership Pty Ltd) states:
“Current Liabilities
Interest Bearing Liabilities
Unsecured
A V Gorton  $ 80,157
T Gorton  $ 80,157”
·Mountway’s Detailed Statements of Financial Position (DSFP) for the year ended 30 June 2005 (which was prepared by Butler Rees & Co Pty Ltd) states:
“Current Liabilities
Interest Bearing Liabilities
Unsecured
A V Gorton  $ 84,506
T Gorton  $ 84,506”
·Mountway’s DSFP for the year ended 30 June 2006 (which was prepared by Butler Rees & Co Pty Ltd) states:
“Current Liabilities
Interest Bearing Liabilities
Unsecured
A V Gorton  $ 85,097
T Gorton  $ 85,097”
·Mountway’s DSFP for the year ended 30 June 2007 (which was prepared by Butler Rees & Co Pty Ltd) states:
“Financial liabilitiess
Unsecured
A V Gorton  $ 89,455
T Gorton  $ 89,455”
·Mountway’s DSFP for the year ended 30 June 2008 (which was prepared by Butler Rees & Co Pty Ltd) states:
“Financial Liabilities
Unsecured
A V Gorton  $ 94,794
T Gorton  $ 88,063”
·Mountway’s DSFP for the year ended 30 June 2009 (which was prepared by Butler Rees & Co Pty Ltd) states:
“Current liabilities
Unsecured
A V Gorton  $ 98,689
T Gorton  $ 91,631”
·Mountway’s DSFP for the year ended 30 June 2010 (which was prepared by Butler Rees & Co Pty Ltd) states:
“Current liabilities
Financial Liabilities
Unsecured
A V Gorton  $ 98,689
T Gorton  $ 91,631
Unpaid Deemed Interest           $ 5,543
Unpaid deemed Interest            $ 4,455”
Each of Mountway’s financial statements is accompanied by a declaration from the company’s accountants (at the relevant time) to the effect that the statement has been prepared based on the information provided to them by the directors of Mountway (i.e. the Gortons) and that the statement has been compiled in accordance with the accounting policies and standards. In addition, Mountway’s financial statements are all accompanied by Directors Declarations (i.e declarations by the Gortons) to the effect that the financial statements (and notes) “fairly” present Mountway’s financial position and performance for the year concerned and, that, “in the directors’ opinion, there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable”.

Net Value

The Gortons contended that the ‘net value’ of the original loan amount was as follows:
“the applicable amount relates to $96,904.96 PLUS interest and other charges as detailed in exhibits sixteen and seventeen.”
Section 1121 of the SSA broadly provides that when determining the value of a person’s assets for the purposes of the assets test, the value used is the value of each asset after taking into account any charge or encumbrance on that asset. In Repatriation Commission v Harrison [1997] 78 FCR 442 the Federal Court of Australia (Tamberlin J), in considering the application of sections 5L and 52C of the Veteran’s Entitlement Act 1986 (which sections are drafted in substantially similar terms to sections 11 and 1121 of the SSA), upheld an appeal against the Tribunal's decision, and (at 447-448) rejected the Tribunal’s finding. The Federal Court found (at [448]) that: ““the Act” [i.e. the SSA], in setting out the assets test makes no mention of concepts such as net worth, net assets, or personal worth.”
In Gordon and Secretary, Department of Family and Community Services [2005] AATA 331 (14 April 2005), the applicant (a pensioner) had a line of credit with a bank which was secured against his home. The applicant himself did not use the line of credit. However, his children did and made repayments against the loan. The Tribunal took the view that a line of credit was a “loan” made by the pensioner to the children to the extent of the money drawn down by the children. The Tribunal also refused to allow any offset from the amount of the loan for interest accrued on the loan. Senior Member Hunt found (at [13] and [14]) that:
“13. Further, nothing in section 1122 qualifies the "value of the assets" of the person by reference to interest or related income. For the purposes of this Act, the value of a loan asset includes so much of that amount as remains unpaid. The value of these loan assets of Mr Gordon is the amount that remains unpaid, in accordance with section 1122. The amount remaining unpaid is not reduced by the interest due to the bank.
14. ...As to whether the amount of the loan can be reduced by interest, the Tribunal agrees with an earlier Tribunal decision in Ropert and the Secretary, Department of Social Security, where the Tribunal held that no set-off was available. The Tribunal in Ropert referred to Unicomb and the Secretary, Department of Social Security where Branson J observed that nothing in section 1122 suggested that the net advantage to the person from a transaction might be considered in calculating the value of the asset. Therefore, I am of the opinion that the interest which Mr Gordon remarked was accruing on the loans does not reduce the value of his loans to his children. It follows from Unicomb that interest accruing on the loans drawn down in this case does not reduce the amount of the loan for calculation of Mr Gordon’s pension entitlement.”
More recently, in Smith and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2011] AATA 517 (27 July 2011) the applicant submitted, as a fundamental proposition, that the value of the loan should not be taken to be the amount outstanding, because the loan is essentially a valueless asset. It should, instead, it was agreed, be valued commercially. Disagreeing with those calculations, Senior Member Frost, found (at [7]):
‘To accept that submission would be to disregard the plain words of s 1122, which mandate that the value of Mr Smith’s assets includes “so much of [the amount of the loan] as remains unpaid ...”. As has been emphasised by the Tribunal in cases such as Hughes and Secretary, Department of Social Security [1992] AATA 52; (1992) 25 ALD 754; Boyd and Secretary, Department of Social Security (1994) 36 ALD 331; Wright and Secretary, Department of Social Security [1994] AATA 278; Saunders and Secretary, Department of Family and Community Services [2002] AATA 1256; (2002) 72 ALD 264; Ling and Secretary, Department of Family and Community Services [1999] AATA 797; Mendes and Secretary, Department of Family and Community Services [2000] AATA 22; and Trewin and Secretary, Department of Family and Community Services [2002] AATA 437; (2002) 69 ALD 774, there is no room in this context for an analysis of whether the amount is actually recoverable from the borrower.
Next it is submitted that the asset must be offset by liabilities. However, it is quite plain that when assessing assets under the Act there is no requirement that all liabilities must be deducted or balanced – s 1122 of the Act does not contemplate a reduction on this basis nor does any other provision in the Act. In Repatriation Commission v Harrison [1997] FCA 956 Tamberlin J, when dealing with the analogous assets test in the Veterans’ Entitlement Act 1986, said that the assets test was not necessarily concerned with ascertaining the net value of a person's assets and concluded “that the valuation of particular assets is to be made and a total value determined without taking into account liabilities”. The same position applies with respect to s 1122.
Mr Smith has also submitted that because he made the loan in his personal capacity to himself in his capacity as trustee of a trust, the value of the loan must be offset by balancing the corresponding liability that he has in his capacity as trustee. In the absence of a provision ameliorating the strict application of s 1122 of the Act this argument cannot succeed.”
Similarly, the Tribunal considers that the Gortons’ loans must be given their “face value”, rather than any reduced rate which would recognise a component of their unrealisability: Repatriation Commission v Harrison, Hughes, Boyd, Wright, Saunders, Ling and Secretary, Department of Family and Community Services [1999] AATA 797, Mendes and Secretary, Department of Family and Community Services [2000] AATA 22, Trewin, Gordon and Smith applied. The terms of section 1122 of the SSA are clear and their application in this case means that the value of the Gortons’ assets for AP purposes must include their loans to Mountway, based on the amounts recorded in the financial statements supplied by the Gortons to Centrelink for the relevant years: refer to paragraph [42] above.

Lifting the corporate veil

The Courts of Australia have been cautious in deciding when to “lift the corporate veil” to consider the reality of the situation and the nature of the relationship between the directors and shareholders of companies. As stated by the Tribunal (Member BJ McCabe) in Re Dart and SDFaC [2002] 72 ALD 521:
“The separate entity doctrine lies at the heart of corporate law. In the absence of statutory authorisation, the courts will only consider piercing the corporate veil if the corporate form is being used to perpetrate fraud: see Jones v Lipman [1962] 1 All ER 442; [1962] 1 WLR 832.”
For example, in Repatriation Commission v Harrison [1997] 78 FCR 442 the Federal Court of Australia (Tamberlin J) considered the Tribunal’s decision that is was permissible to “lift the corporate veil” and recognize that the shares of the companies concerned (in relation to which the applicants were the only directors and shareholders) were valueless. In that case, the only assets of the companies were debts owed by the applicants and if they repaid their debts to the companies their own personal assets would be reduced to the same extent as the increase in the companies' assets: see Re Harrison and Repatriation Commission (1996) (AATA 11132; 7 August 1996) . Tamberlin J upheld the appeal against the Tribunal's decision and, specifically (at [447]), rejected the Tribunal's right at law to lift the corporate veil to ascertain the net value of the applicants’ assets:
“The separate legal existence and identity of corporate entities from that of their shareholders and corporators or directors is well-settled in corporations law and, subject to limited exceptions, it currently represents the law of Australia. See Walker v Wimborne (1976) 137 CLR 1 at 6-7 per Mason J; Industrial Equity Ltd v Blackburn (1977) 16 NSWLR 549 at 577. At the latter reference Rogers A-JA sitting in the New South Wales Court of Appeal, with whom Hope and Meagher JJA agreed, expressed the view that it was not an accurate statement to suggest that the corporate veil may be pierced in all circumstances where one company exercises complete dominion and control over another.
Similarly, in Re Dart and SDFaC the Tribunal declined to lift the corporate veil in relation to inter-company loan transactions. Member BJ McCabe was critical of the applicant's reliance on separate corporate structures for advantage in his business affairs, on the one hand, while seeking to pierce the corporate veil for the purposes of the social security “assets test”, on the other: see also Re Hanrick and SDFCS [2003] AATA 549 and Bentham and SDFaC [2001] AATA 1018 (15 November 2001).
In its decision of 6 April 2011, the SSAT, decided to “lift the corporate veil” in an attempt to unscramble Mountway’s financial statements. The SSAT stated (at [35] and [36]):
“35......The Tribunal concluded that the loan balance per the balance sheet for each of the Gortons reflected the loans plus capitalised interest. However, contrary to Mr Gorton’s evidence that the increase in the loan balance from year to year was solely the “deemed interest” it is clear from the above table that in most years the difference in the loan balance from year to year was in fact more than just the “deemed interest” The Tribunal concluded that the increase in Mr and Mrs Gorton’s respective loan balances was due, at least, to the overall losses suffered from share trading and consulting as well as the amortisation of the goodwill and depreciation of the other assets.
36……...The Tribunal calculated the loan balance for each year by adding the increase in loan balance from the previous year per the company’s balance sheet to the adjusted loan balance for the previous year then reducing that amount by one half of the deemed interest amount. For example for the 2003/03 financial year the increase in loan balance for Mr Gorton was $6,333 (ie Mr Gorton’s loan balance of $75,873 per the 2003 company balance sheet less Mr Gorton’s loan balance of $69,540 per the 2002 company balance sheet) then reduced by one half of the deemed interest (half of $4,702 per the 2003 profit and loss statement). This results in a loan balance of $71,504.50 for Mr Gorton for the 2003 financial year.”
The Tribunal takes the view that the SSAT failed to consider all aspects of the transactions associated with the alleged “deemed interest” applied to Mountway’s accounts and that if the veil is to be lifted, which the Tribunal considers it should not, the totality of the accounts must necessarily be considered.

Deemed interest

Various documents presented by Mr Gorton has the handwritten notation that the interest paid on the loans is “Centrelink deemed”. Centrelink does not impose any requirement that interest be charged on loans. The decision by the Gortons’ to charge interest on their loans to Mountway is a decision which is entirely theirs. In any event, it is unclear on the evidence before the Tribunal exactly what Mr Gorton means by “Centrelink deemed” as to interest paid. It appears to the Tribunal that it may, however, be interpreted in one of two ways.
First, the amount of deemed income attributed to the Gortons’ rate of AP that is paid to them personally has been passed onto Mountway as an expense. If so, the Gortons’ personal finances are not at arm’s length with Mountway’s business and, therefore, it is not a legitimate expense. If the interest charged is not a legitimate expense, then for the purposes of the SSA, the assessment of Mountway’s income would need to be reconsidered by Centrelink and could potentially result in a detrimental effect on the Gortons’ previous rates of AP.
Section 1208B of the SSA refers to the assessment of permissible deductions of business and investment income, and includes what are allowable and what are non-allowable deductions. Allowable deductions are ordinarily assessed in accordance with the relevant provisions of the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997. According to Mountway’s balance sheet for the year ended 30 June 2008, the income assessed for Mountway from the 2008 financial year balance sheet has been assessed as a profit of $1,737. If the interest paid is not a legitimate expense it would not be considered allowable deduction and the amount of income for Mountway would be considered to be $10,053. This amount would be attributed to Mr Gorton (as the controller of the company) and, pursuant to section 1064-A2 of the SSA, the Gortons’ rate of AP would be affected under the income test. If the Gortons received a higher rate of AP then they were entitled to, they would have been overpaid and those amounts would potentially be recoverable debts due to Centrelink (the Commonwealth). In this case, the other financial years would also need to be reviewed.
Alternatively, if the “deemed interest” is accepted as the legitimate expense of “paid interest”, then, for the reasons below, the Tribunal finds that the SSAT erred in its decision.
The SSAT referred (at [19]) to the High Court of Australia’s decision in Bank of New South Wales v Brown [1983] 57 ALJR 155, in order to provide a definition of ‘interest’, as follows:
‘1. .... Although the appellant continued to charge interest at six-monthly rests in accordance with its usual practice, it appears that it did not, by express entry in its books, exercise its power to capitalize and add to the principal all or any of the unpaid interest. (at 518)’
2. After the company went into liquidation, the appellant lodged with the liquidator a proof of debt.... The liquidator decided that the debt proved included interest, and that such portion of the debt as represented interest at a higher rate....’
The SSAT noted (at [19]) that the High Court in Brown also referred to the House of Lords’ decision of Inland Revenue Commissioners v Oswald (1945) AC 360 wherein Lords Macmillan and Porter referred to the fact that unpaid interest or interest ‘due’ “never ceases to retain its character and continues to be interest when capitalised.”
The SSAT found (at [19-20]) that, essentially, “capitalisation of interest did not amount to a payment of interest, and that the actual payment, when made, was a payment of interest”. The SSAT also stated (at [18]):
“18. The term “interest” is not defined in the Act. This means the term takes its ordinary meaning. Ordinarily, the term “interest” means payment; or sum paid, for the use of money borrowed (the principal) (Macquarie Pocket Dictionary 3rd Edition 1998, Wiley).
The Tribunal considers that the SSAT failed to fully consider whether the “Interest Paid”, as recorded under the heading “Expenses” in Mountway’s financial statements for the relevant years, had, in fact, been ‘paid’.

The SSAT further noted (at [34]) that:
“The profit and loss statements of the company reported that the “deemed interest” (reflected as “interest paid” in the profit and loss statements) was received by the company. However Mr and Mrs Gorton stated that in reality the interest was not received by them and it was not paid by the company.”
There is no legal requirement for the ‘paid interest’ to have been physically received by the Gortons: for example, in Re Siebel and Director-General of Social Security [1983] AATA 163 (10 June 1983) sums withheld by a superannuation fund to recover previous overpayments were held to have been earned or derived, notwithstanding that they never came into the pensioner’s hands. Mountway’s Balance Sheets for the relevent years list as an “Expense”, “Interest paid”, to which the Gortons had a legal entitlement. Mountway’s financial statements show that the “Interest Paid” has been realised (i.e. received or derived) and, according to the Gortons, that interest was claimed by them as a liability. The Gortons’ asserted:
“8. That DEEMED INTEREST was added each year into The Company's account as it Unsecured Financial Liabilities, NOT as a loan to the Company such DEFAULT interest to be paid (without further penalties) to The Gortons – as and when the Company financial operations made this possible, and as acknowledged, in writing by Centrelink.”
The Macquarie Dictionary, Fifth Edition (2009) defines “liability” as “1. An obligation, especially for payment, debt or pecuniary obligations (opposed to asset).” The Tribunal takes the view that the Gortons’ “unsecured liabilities” or “loans” are a debt or pecuniary obligation of Mountway, which the Gortons expect to be returned at some future date. The “deemed interest” was incorporated with the already outstanding loans of the Gortons. Further, based on the evidence before the Tribunal, it appears that the interest paid was injected back to Mountway into each of the Gortons’ loans or “unsecured liabilities”.
In Re Lyons and Secretary, Department of Family and Community Services and Anor [2007] 94 ALD 450 the Tribunal considered whether a cash injection by the applicants into their own company should be characterised as a loan or a gift. It considered the meaning of both terms by reference to a number of previous decisions where the terms had been considered in various contexts. Whilst the applicants, in that case, maintained that there was no expectation that they would ever recover their cash injections, the Tribunal was persuaded by the characterisation of the cash injections in the company's financial statements and held that the applicants were bound by the characterisations made by their accountant in accordance with generally accepted accounting principles and practice. The Tribunal held that the balance sheet of the company correctly recorded loans made by the applicants to the company and the applicants could not expect to ignore the consequences of the company structure when it is suited them to do so. The Tribunal found that the authorities make it clear that the issue of recoverability is not determinative of the characterisation of funds as a “loan” or a “gift”. The Tribunal in Re Lyons and Secretary adopted the view expressed in Boyd and Secretary, that a reference in financial records to a sum as a “loan” represents a strong indication it was a “loan” and that such references suggest expectations of eventual repayment: see also Bysouth and Secretary, Department of Education, Employment and Workplace Relations [2010] AATA 59 (29 January 2010).
The evidence before the Tribunal in this case indicates that the interest has been “paid” to the Gortons, irrespective of whether or not it was actually ever physically received by them.
The Balance Sheets for Mountway for the relevant years list, as an “Expense”, “Interest Paid”, which is also claimed as “Interest expense within Australia” in Column V of the Mountway’s tax returns for the years concerned. Further, the Gortons each claimed half of the “Interest Paid” in their personal income tax returns as “Gross interest – Mountway Holdings” in the relevant years.
Specifically, under the heading “Expenses”, the financial statements for Mountway for the relevant years provide the following:

For the year ended 30 June 2001 -“Interest Paid” was $6,000;
For the year ended 30 June 2002 – “Interest Paid” was $4,035;
For the year ended 30 June 2003 – “Interest Paid” was $4,702;
For the year ended 30 June 2004 – “Interest Paid” was $6,514;
For the year ended 30 June 2005 – “Interest Paid” was $6,919;
For the year ended 30 June 2006 – “Interest Paid” was 4,348 (Note – 1/3 was allocated to Mr Gorton and the other 2/3 to Mrs Gorton);
For the year ended 30 June 2007 – “Interest Paid” was $7,375;
For the year ended 30 June 2008 – “Interest Paid” was $8,316;
For the year ended 30 June 2009 – “Interest Paid” was “$7,135; and
For the year ended 30 June 2010 – “Interest Charged” was “9,997.

The financial statements of Mountway also reveal that the “unsecured liabilities” to the Gortons have increased, which the Gortons have stated is equal to the same amount of “deemed interest”. Mr Gorton said that money was loaned with the expectation of it being repaid, albeit sometime in the future. Mr Gorton referred to the “unsecured liabilities” as “moral obligations” which were not enforceable at law. The fact they were listed in Mountway’s accounts as “liabilities” provides the pretext that there is some form of legal obligation that the amounts would be repaid.
The ARO also noted that:
“Although the loans are, increasing, it is not increasing as a direct result of interest on your loan balances, but rather capital that is injected to assist the company meet it’s (sic) commitments. The capital injection could have been borrowed from other sources, however you as a director have lent the money. The loan amounts that Centrelink assess and apply deeming provisions to is based solely on the amount of the balance sheets for Mountway Holdings each financial year, not by any interest that Centrelink has added.”
The Tribunal considers that the most reliable information available is what is presented in Mountway’s financial statements/records for the relevant years, as provided by the Gortons to Centrelink: Boyd and SDSS re Unicomb and SDSS (1996) AATA 10915 and Unicomb and SDSS [1998] 82 FCR 96.
In Goh and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs and Anor [2009] AATA 527 (16 July 2009) Senior Member Handley considered the available evidence before the Tribunal and noted the disparity of the evidence presented to the information presented to the Commonwealth. Senior Member Handley found (at [8] and [17-18]) that:
“8....An asset is defined at s 11 as either property or money. The applicants are members of a couple and the persons beneficially entitled to the return achieved by Jaytra. That return is a financial asset, being money within the definition of s 11. Section 1077 provides that the applicants shall be deemed, jointly, to have received those monies as ordinary income, from those assets, the amount of which is brought into account when calculating the amount of a pension or benefit. (Money is not defined. It has a meaning well understood. Ordinary income is defined at s 8 as being income that is not maintenance income or an exempt lump sum)’ (at 8).
17. For the purposes of this application, however Mr Goh said that Jaytra during the relevant years did not have any monies, but in a letter to Centrelink of 8 July 2008 (supplementary T-document 6 at p272) he recorded that Jaytra was liquidated on 25 June 2008, that it then had a debt of $130,795 owing to the Director/Shareholder, Soot Goh was completely written off. I do not understand that submission. That sum is identical to the amount recorded in the returns to the ATO and ASIC as shareholder funds and an amount owing to the applicants. But in evidence Mr Goh said Jaytra did not have any monies and his written submission above recorded that monies were not paid into Jaytra. If Jaytra did not have monies, there could be nothing written off. If the monies, which I am satisfied were held for the applicants' benefit were written off it would constitute disposal of an asset for which no benefit would be achieved when calculating asset values. Additionally, it would have the character of an unpaid loan (refer paragraphs 17 and 18 later).”
18. Those monies are an asset within the meaning of s11 of the Act (refer earlier). Whilst it was the evidence of Mr Goh that those monies had not ever been paid to him or his wife, the combined value of the assets of the applicants will include the monies held in the shareholders' current account because it constitutes an unpaid loan as described at s1122 of the Act. That the sum has not been repaid is an irrelevance for the purposes of the section. As was decided in the Tribunal decision of Re Boyd and Secretary Department of Social Security [1994] AATA 580 the value of the loan is the amount that remains unpaid. In Re Clayton and Secretary, Department of Family and Community Services [2003] AATA 1225 the Tribunal decided even if a loan cannot be repaid, the unpaid amount still is to be treated as an asset even if this produces unjust results . . .”
In Goh v Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2010] FCA 396 (30 April 2010) Federal Court of Australia (Middleton J) upheld the Tribunal’s finding and noted (at [14]) that:
“In respect of the loan monies the applicants raised questions of fact and not law. Once the Tribunal’s findings of fact are accepted, the applicants cannot avoid the application of s 1122 and the definition of ‘financial investment’ in s 9(1) of the Act. The liabilities of Jaytra are not relevant for the purposes of the identification of the loan monies. The Act sets out the rules for the determination of the social security benefits to be received. The Tribunal was entitled to make the findings of fact it did, including the finding that amounts in question were loan monies. The Act treats the loans as assets of the applicants at their face value, to the extent unpaid. The Tribunal was entitled to take into account the amounts identified as loans in the income tax returns... ...as the applicants’ assets.”
The Tribunal notes that there are numerous abnormalities in the amounts reported in Mountway’s balance sheets. The Gortons have stated that the “deemed interest” [income] has been “added each year into The Company’s accounts”. If this were so, the amount of “unsecured liabilities” should increase by at least the amount of deemed interest and they do not.
Mr Gorton provided the Tribunal with a table showing, each year, what “Centrelink Deemed Interest” and what “Total Annually Accumulated Deemed Interest” was, as follows.

Year(s)	Centrelink DEEMED INTEREST	Total Annually Accumulated DEEMED INTEREST
2002	$4,035	$4,035
2003	$4,702	$8737
2004	$6,514	$15,251
2005	$6,918	$22,169
2006*	$4,438*	$26,517*
2007	$7,375	$33,892
2008	$8,316	$42,208
2009	$7,135	$49,343

At paragraph 33 of its Reasons for Decision (dated 6 April 2011), the SSAT provided the following table setting out what was the “deemed interest” calculated by Centrelink based on the information supplied by the Gortons to Centrelink.

Year ended 30 June	'Company net profit (loss)¹	“Deemed interest”	Loan balance – Mr Gorton (per balance sheet)	Increase in loan balance – Mr Gorton	Loan balance – Mrs Gorton (per balance sheet)	Increase in loan balance – Mrs Gorton
2001	($22,531)	$61,187	$61,187
2002	($26,540)	$4,035	$69,540	+$8,353	$69,540	+$8,353
2003	($13,739)	$4,702	$75,873	+$6,333	$75,873	+$6,333
2004	($11,157)	$6,514	$80,157	+$4,284	$80,157	+$4,284
2005	($12,243)	$6,918	$84,506	+$4,349	$84,506	+$4,349
2006	($6,195)	$4,348	$85,097	+$591	$85,097	+$591
2007	($13,576)	$7,375	$89,455	+$4,358	$89,455	+$4,358
2008	($17,076)	$8,316	$94,794	+$5,339	$88,063	+$1,392
2009	($10,230)	$7,135	$98,689	+$3,895	$91,631	+$3,568
2010	($19,928)	$9,997	$98,689 Unpaid deemed interest $5,543	Nil	$91,631 Unpaid deemed interest $4,455	Nil
TOTAL	$59,340	+$33,502	+$33,228

In the above table, the amount of “deemed interest” corresponds with the amount of “Expenses”, as recorded in Mountway’s financial statements (as prepared by Mountway’s accountants at the relevant time), but does not match up with the “Current Liabilities”, as recorded in Mountway’s financial statements (as prepared by Mountway’s accountants at the relevant time). Also, in the above table, the SSAT has mistakenly calculated Mrs Gorton’s adjustment of $1,392 as a profit, rather than as a loss.
Mountway’s financial statements for the year ended 30 June 2008 show that Mrs Gorton’s unsecured liabilities decreased by $1,392 from $89,455 in 2007 to $88,063 in 2008. Mr Gorton’s unsecured liabilities, however, increased by $5,339 from $89,455 in 2007 to $94,794 in the 2008 financial year. Combined, these total figures show an increase of $3,947. These figures do not correspond to the amount of deemed income or “interest” of $8,316 that was allegedly added on to the unsecured liabilities.
In relation to such discrepancies the SSAT concluded at [35] that:
“….the increase in Mr and Mrs Gorton’s respective loan balances was due, at least, to the overall losses suffered from share trading and consulting as well as the amortisation of the goodwill and depreciation of the other assets”.
The ARO noted that Mr Gorton has stated that “the amount on the profit and loss statements had been a “guesstimate””.
This raises the issue of whether the Gortons have in fact added the “deemed interest” to the unsecured liabilities. If the Gortons have not received any interest paid than how is it that Mrs Gorton’s unsecured loan diminished? None of the figures to the change of the value of unsecured liabilities on Mountway’s financial statements match any of the “deemed income/interest”.
The financial statements of Mountway do not support that the deemed interest amounts were added to the unsecured liabilities (or loans) attributed to the Gortons. Although the Gortons may have added the amount of deemed interest (income) to the expenses, it was not until Senior Member Sweidan (in the Gorton’s previous application before this Tribunal) identified that section 1122 of the SSA and that deemed interest had been added to the loans, that the Gortons have since claimed that it was added to the liabilities.
In the Tribunal’s earlier decision, dated 3 February 2010, Senior Member Sweidan noted that the Gortons had previously informed that SSAT that in 1992 the loan amounts were $122,374 from the proceeds of the sale of the Gortons’ home, which proceeds were injected into Mountway. Quoting from the decision of the SSAT below, Senior Member Sweiden stated (at [13]):
‘This amount with half ascribed to each of them represents the loans shown in the books of the company. No part of these loans has yet been repaid. Mr and Mrs Gorton have preferred to leave the money in the company as working capital. They acknowledged that they are liable to have income deemed to them from these loans’ .
Senior Member Sweidan also noted the following (at [11] and [12]):
“11. The financial statements included a balance sheet of the company, being the statement of assets and liabilities, and notes to the financial statements, note 4 of which shows that the company had unsecured borrowings from A&T Gorton, quite clearly being the applicants, in the same amount of $135,631. It also relevantly shows that the comparative figure for the prior financial year ended 30 June 1996 was $143,482. Subsequently, the applicants submitted to Centrelink financial statements of the company for the year ended 30 June 2000, and those statements showed loans owing to each of the applicants of $61,187.
12. In forms subsequently lodged by the applicants with Centrelink on 25 June 2001, at question 18, the applicants showed loans owed to them by the company in respect of each of the applicants of $61,187, consistently with the financial statements for the year ended 30 June 200.”
The Gortons were granted AP on 5 February 1998. Mountway’s Balance Sheet for the year ended 30 June 1998 records “Borrowings” under the heading “Current Liabilities” of $124,797. Mountway’s Balance Sheet for the year ended 30 June 2000 shows that as at 30 June 1999, Mrs Gorton’s “unsecured liability” (loan) was $24,345 and Mr Gorton’s “unsecured liability” (loan) was $100,594 and that as at 30 June 2000 those unsecured liability (loan) figures had changed to $61,187 each.
On 23 January 2003 Centrelink received a letter from Mr Gorton advising that:
“Centrelink are holding loan agreements involving Mrs Thelma Gorton and Mr Alan V. Gorton with Mountway Holding Pty. Ltd., values as at 30^th June 2000.
Since that date these loans have each increased to $69,540 as at 30 June 2002 (total $139,079). As shown under “current liabilities, interest – bearing liabilities, unsecured”. In the detailed balance sheet of document 2. If you require us to provide you with replacement loan agreements – rather than you just making the appropriate adjustments in your records and on the agreement forms in your possession – we will be pleased to do so on receipt from you of this appropriate agreement forms.”
On 20 June 2007 Mr Gorton also advised Centrelink that “loans made to the Company (deemed by Centrelink) by Thelma Gorton and Alan V. Gorton rose to $85,097 each (total $170,195).”
In December 2009 the Tribunal (Senior Member Sweidan) first identified that the value of the loan’s original amounts appear to have been increased by the amount of the “deemed interest” capitalised each year and section 1122 of the SSA does not allow for any interest payable.

89. Re Unicomb and SDSS [1996] AATA 626 concerned, in part, loans made by Mr and Mrs Unicomb to a building company (“Chemle”) of which they were directors. The Tribunal determined that the capital sum borrowed by Chemle was an “asset” in the Unicombs’ hands. However, Chemle’s obligation to repay the loans was not addressed by the Tribunal, nor was the application of section 1121 of Part 3.12 of the SSA.

90. In Unicomb v SDSS [1998] 82 FCR 96 the Federal Court of Australia (Branson J) dismissed an appeal by Mr and Mrs Unicomb, commenting (at 99) that:
“Nothing in the terms of s 1122 of the Act, in my view, suggests that it is appropriate, for the purpose of determining whether a person has lent an amount, to consider whether, having regard to the factual circumstances which surround the transaction prima facie falling within the terms of the section, the person has gained a net advantage from such transaction so far as his or her total assets are concerned. In any event, in this case to look simply at the arrangement between the applicant and Chemle with respect to the $647,000 is to overlook aspects of what the applicant has described as “the whole transaction”. There is no evidence before me upon which I can determine the nature and extent (if any) of the obligation which Chemle assumed.. .... That is, it is not open, in my view, to conclude that, if the total transaction is looked at, it can be seen to be no more than arrangement by which an amount of $647,000 was borrowed by or on behalf of Chemle and subsequently repaid by Chemle.
I conclude that the applicant did lend the amount of $647,000 to Chemle within the meaning of s 1122 of the Act. The value of the applicant's assets thereafter for the purposes of the Act included so much of that amount as remained unpaid. In the circumstances of this case, payment by Chemle to AGC is to be regarded as payment made at the direction of the applicant, and thus, for the purposes of s 1122 of the Act, as equivalent to payment to the applicant.”

Conclusion

For the above reasons, the Tribunal concludes that Mountway’s financial statements for the relevant years (as prepared by Mountway’s accountants at the relevant time) should be accepted at “face value” and that there is nothing in those statements to support the Gortons’ contentions that the deemed income or interest was applied to anything else but Mountway’s “Expenses”, as recorded: Re Hughes and SDSS, Re Clayton and SDSS, Re SDFaCS and Downes, Re Trewin and SDFaCS, Re Boyd and SDSS, Wright and Secretary, Saunders and Secretary, Ling and Secretary, Mendes and Secretary, Unicomb v SDSS, Gordon and Secretary and Smith and Secretary.
It is inappropriate to “lift the corporate veil” and the value of the Gorton’s loans each year is the amount recorded as being outstanding in Mountway’s financial statement for that year as either an “Unsecured Interest-Bearing Liability” or an “Unsecured Financial Liability”, as applicable: Repatriation Commission v Harrison, Re Dart and SDFaC and Bentham and SDFaC.

Are arrears of AP payable to the Gortons and if, so, in respect of which period(s)?

In summary, the Gortons’ position is that:
“There is no dispute that the arrears in Age Pensions are payable to The Gortons. This fact is recorded in the SSAT determination and accepted by Centrelink by virtue of their paying part of the arrears due... ... What is in dispute is that the SSAT DETERMINATION restricted the period of arrears payment to inappropriate dates, by applying the Conditions of subsection 109(2) of The Administration Act.”.
With respect, an application before this Tribunal means that the decision under review (in this case the decision of the SSAT, dated 6 April 2011) is considered de novo (broadly meaning, ‘heard afresh’). In doing this, the Tribunal has an obligation to come to the correct and preferable decision: Drake v Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60 at 78 per Smithers J.
As mentioned above (refer to paragraph [38]), in Boyd and SDSS, the Tribunal commented (at [38]) that section 1122 of the SSA is clear in its effect and that “the legislation, whilst capable of producing unjust results in some circumstances, nevertheless intended loans made after 27 October 1987 to be valued at face value.”
In Bentham and SDFaC, the Tribunal preferred the financial documents as reliable evidence and determined that it was not permissible to ‘lift the corporate veil’ to consider the reality of the situation and the nature of the relationship between the applicants and various companies. In reaching this conclusion, Senior Member Allen and Member Price noted (at 7) that:
“The only other matter we would refer to is a submission by the applicants as to the intent of the Social Security Act. We would only say that to apply the law beneficially does not mean that in a case where there is no ambiguity the plain words of the statute can be ignored or read so as to give what the Tribunal might think is an interpretation more consistent with the intent behind the Act. In these circumstances, therefore, notwithstanding that there has been minor adjustments to the value of various assets in the hands of the applicants we decline to make any alteration in the values of the shares in Bentham Investments Pty Ltd which have being valued in the sum of $616,342 and again we would refer back to the balance sheets at document T21.”
In its decision of 6 April 2011, the SSAT correctly identified that:
“34…...the accounts prepared by the company’s accountant failed to disclose that the deemed interest was capitalised to Mr and Mrs Gorton’ respective loans. It was not for Centrelink to investigate what the loan figure in the balance sheet comprised, rather it is the responsibility of the accountant to correctly record the financial position of the company; and if the interest was not paid but capitalised to expressly to state this either in the accounts or by way of note to the accounts. The only conclusion that the Tribunal could reach is that that Centrelink correctly accepted the figure reflected in the balance sheet of the company each financial year to be the relevant loan amount.”
The Tribunal takes the view that Centrelink correctly assessed the loans by the Gortons to Mountway at their ‘face value’ as recorded in the financial statements presented by the Gortons to Centrelink in respect of the relevant years (which statements were verified as being true and accurate by Mountways’s accountants, at the relevant time, and by the Gortons as the directors of Mountway): Boyd and SDSS and Bentham and SDFaC applied. Accordingly, no arrears of AP are payable to the Gortons for the years concerned.

Decision

For the above reasons, the Tribunal sets aside the decision of the SSAT, dated 6 April 2011, and substitutes that decision with the following:

(a)The quantum of the loans to Mr Gorton and Mrs Gorton, as recorded in Mountway Holding Pty Ltd’s financial statements for the periods ending 30 June 2001 to 30 June 2009, are to be accepted as the outstanding loan amounts for the purpose of determining the rate of age pension payable to Mr Gorton and Mrs Gorton in respect of those periods.
(b)Consequently, no arrears of age pension are payable to Mr Gorton and Mrs Gorton.

I certify that the preceding 99 (ninety nine) paragraphs are a true copy of the reasons for the decision herein of Senior Member CR Walsh.

..(sgd) T Freeman........

Associate

Dated

Date(s) of hearing	1 February 2012
Representative for the Applicants	Mr A Gorton (Self-represented)
Representative for the Respondent	Mr P Maishman Centrelink Program Litigation and Review Branch

Year ended 30 June	Mr Gorton	Mrs Gorton
2001	$61,187.00	$61,187.00
2002	$67,522.50	$67,522.50
2003	$71,504.50	$71,504.50
2004	$72,531.50	$72,531.50
2005	$73,421.50	$73,421.50
2006	$71,838.50	$71,838.50
2007	$72,509.00	$72,509.00
2008	$73,690.00	$69,743.00
2009	$74,017.50	$69,743.50
2010	$69,019.00	$64,745.00