ALICE ROSIER and SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS

[2009] AATA 778

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2009] AATA 778

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2008/5800

GENERAL ADMINISTRATIVE DIVISION		)
Re		ALICE ROSIER

Applicant

And SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS

Respondent

DECISION

Tribunal Senior Member Bernard J McCabe

Date9 October 2009

PlaceBrisbane (heard in Toowoomba)

Decision The Tribunal sets aside the decisions under review and remits the matter to the respondent for reconsideration in accordance with the written reasons.

.................[Sgd].......................

Senior Member

CATCHWORDS

SOCIAL SECURITY – Age Pension – Attributable assets – Whether applicant attributable stakeholder – Trust is not a concessional primary production trust – Applicant an attributable stakeholder – Whether asset attribution percentage of the attributable stakeholder should be 100% – Applicant asset attribution percentage should be 33% – Decision set aside and remitted

Social Security Act 1991 (Cth) ss 1064, 1207B, 1207C, 1207P, 1207V, 1207X(2), 1208U(1)(i), 1209E

Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000 (Cth) ss 15, 16(2)(c), 17, 18, 19, 20

REASONS FOR DECISION

9 October 2009 Senior Member Bernard J McCabe         

1.      Mrs Alice Rosier is the applicant in these proceedings. She applied for the age pension on several occasions. On the first occasion, Centrelink rejected the application after forming the view that Mrs Rosier was unable to satisfy the assets test. On Centrelink’s analysis, 100% of the assets of the family trust were attributable to her. On the second occasion, Centrelink concluded Mrs Rosier was entitled to be paid at a rate calculated on the basis that she had been deprived of assets in the amount of $506,050.

2.      The applicant and her family have asked the Tribunal to reconsider the matter. They presented their evidence and arguments at a hearing in Toowoomba, and subsequently provided written submissions. The Secretary to the Department of Families, Housing Community Services and Indigenous Affairs, the respondent to this appeal, has also provided written submissions.

3.      The fate of Mrs Rosier’s application turns on the interpretation and application of the complex provisions of the Social Security Act 1991 that deal with the way in which the value of assets held on trust may be attributed to a particular individual who is associated in some way with that trust.

The factual background

4.      Mrs Rosier and her family were shareholders in Brookcove Pty Ltd (“Brookcove”). Brookcove issued four ordinary shares. Mrs Rosier, her late-husband (Otto) and her two children (Mark and Joanna) each owned one those of shares. Mark Rosier held his share jointly with this wife. Mark said in his evidence that the formal documents do not accurately reflect the underlying agreement between members of the family that he and his wife should have one share each. 

5.      The Rosier Family Trust (“the Trust”) was settled in November 1989 with Brookcove as the trustee. The Trust identified the applicant’s husband, Otto Rosier, as the primary beneficiary. The applicant and her children were also identified as primary beneficiaries, albeit they appeared to have fewer powers than Otto. Otto was apparently the moving force behind the decision to establish the Trust. Under cl 34 of the Trust, he was entitled to remove a trustee and appoint another in its stead. The clause adds that the power to make the change would vest in Otto’s legal personal representative upon Otto’s death.

6.      The Rosiers were farmers. The family originally farmed a dairy property at North Arm. I was told in evidence that the family ran the property as a team. Otto was often away seeking work that would supplement the family’s income from dairying operations. The operation of the farm was left in large part to the children, most obviously Mark. I heard evidence of Mark’s extensive contributions to the operation and upkeep of the farm from the age of 12. He ran his own cattle on the property. His herd comprised a significant proportion of the animals that were run on the farm by the time he turned 17 and left to complete an apprenticeship. After his departure, Otto ran beef cattle, but Mark continued to make a contribution when he could.

7.      The written submissions and oral evidence of the applicant’s family make it clear that there was concern within the family about honouring and protecting the contributions that family members – especially Mark – had made to the development of the farming business at North Arm. Mark gave evidence that his father had promised a controlling interest in the property would pass to Mark and his sister in due course. The family agreed upon a trust arrangement as a way of protecting the contributions of each of them to the success of the overall business.

8.       When the North Arm property was sold, the family used $220,000 of the proceeds of the sale towards the purchase of a new property at Cadarga. The property was acquired by Brookcove for the purposes of the Trust. Mark gave evidence that his father indicated he only wanted a small and diminishing role in the new farming enterprise. Otto had moved with the applicant to a new home in Maryborough. Mark says (and his sister accepts) that it was understood he would assume responsibility for the farm and that it would effectively become his in due course, subject to the residual interest of his sister.

9.      The evidence establishes that Mark in particular expended a great deal of effort in the first few years after Cadarga was acquired. He and his wife lived on the property in very simple accommodation. There was a lot of heavy physical work to be done. Mark and his wife invested their own money in making improvements. The boundary fences were in poor repair and internal fences, yards and watering systems had to be built. The herd had to be established. The cattle and the plant and equipment and supplies were all acquired in the name of Brookcove.

10.     It seems that Otto was not prepared to leave his son to manage the property. Otto became a more frequent visitor and argued with Mark over decisions that had been taken. After several months, the argument reached the point where Otto ordered Mark to leave the property. Mark did so, leaving the fruit of his work behind. Mark said he learned at that point that the Trust did not offer him the protection he had been led to expect.

11.     The applicant says she and her husband took up residence on the property after Mark and his wife departed. The submissions lodged on the applicant’s behalf say the applicant and her husband were not in a position to run the property as Mark had done. The property gradually fell into disrepair. The submissions also say the applicant and her husband operated the farming business as a partnership. They ignored the Trust and used the assets acquired in the name of the Trust for their own purposes. At Mrs Rosier’s request, Mark and his family undertook some unremunerated work on the property and provided some other assistance.

12.     The applicant’s submissions say the applicant and her husband were unable to make the farm pay notwithstanding the intermittent assistance provided by their son. They relied on rental income from their property in Maryborough and remittances from their daughter, who had moved to New Zealand. The value of the property may have fallen during this period as it was not adequately maintained.

13.     The applicant’s Statement of Facts and Contentions claims Mark and his wife have been denied the opportunity to derive wages in the amount of around $175,000 during this period. They say they have not been compensated for the loss of cattle they bred and the cost of other improvements to the property. Mark and his sister also say they were not compensated for the work they did on the North Arm property. They estimate the value of their work at around $120,000.

14.     Mrs Rosier and her husband remained on the property until Otto was killed in a motor vehicle accident on 15 July 2006. Mrs Rosier was also injured in the accident. She was hospitalised for several months. She now lives in a retirement home.

15.     Otto’s will left his estate to Mrs Rosier. She is an elderly lady. Her daughter holds a power of attorney. Particularly in the period following the accident, Mrs Rosier was incapable of exercising any practical control over the Trust even though her husband’s will effectively gave her that power.

16.     The family engaged a solicitor to provide advice on how to resolve the difficulties arising out of the Trust following Otto’s death. The Trust property was ultimately transferred to members of the family (apart from the applicant) on 30 November 2007.

17.     The applicant’s family members gave evidence that they sought a generous valuation of the property for the purposes of winding up the Trust. They wanted their mother to have as large a share as possible. The valuation they obtained suggested the property was worth in the order of $700,000. A valuation from the Australian Valuation Office suggested a similar figure was appropriate, although the applicant’s family said the real value was somewhat lower. They were surprised when Centrelink abandoned an earlier valuation of the property which suggested it was worth around $600,000 in favour of the higher figure. They said they were also dismayed to learn that ending the Trust would count as a deprivation of the property. Centrelink said the applicant effectively deprived herself of $527,100. The Social Security Appeals Tribunal decided on appeal that the amount of the deprivation was actually $506,050.

18.     The family says that outcome would be unfair and inappropriate. They argue Cadarga was developed and run as a family enterprise. Mark in particular made such a large contribution to the upkeep and development of the property over such a long period of time that the interests of his parents steadily diminished. The family add that Cadarga was purchased out of the proceeds of the sale of an earlier property at North Arm that had benefitted from the hard work of the entire family and Mark in particular. In essence, they say Mrs Rosier had long since relinquished a real interest in the whole property. Under an arrangement within the family, ownership of the property – and thus its value – had effectively been transmitted to other members of the family many years ago. It makes no sense to attribute the entire value of the property to Mrs Rosier or to assume that she has deprived herself of the entire value of the property.

19.     I had no reason to doubt the evidence that was provided by various family members at the hearing and in their submissions. I accept they were truthful and attempted to assist the Tribunal as best they could.

The legislation

20. Section 1064 of the Act includes a number of “calculators” that are used in the assessment of a person’s entitlements. In essence, the calculators take into account the value of the person’s assets and the amount of their income if he or she is otherwise eligible to receive a pension. Once the amounts reach certain thresholds, the rate of age pension is steadily reduced until it declines to zero. In this case, the applicant was initially refused a pension because she fell foul of the assets test.

21. The decision-maker will have regard to all of the assets a person owns directly when assessing the value of his or her assets for the purposes of the assets test. The value of any assets that are attributed to them will also form part of the assessment. The attribution rules are set out in Pt 3.18 of the Act. Broadly speaking, the rules are designed to ensure that someone does not avoid the effect of the assets test by putting his or her assets in a company or creating a trust over the assets.

22.     Section 1207 outlines the general rules. The section says:

·This Part sets up a system for the attribution to individuals of the assets and income of private companies and private trusts (sections 1207Y and 1208E).

·Attribution starts on 1 January 2002.

·For an asset or income to be attributed to an individual:

(a)the company must be a designated private company or the trust must be a designated private trust (sections 1207N and 1207P); and

(b)the company must be a controlled private company in relation to the individual or the trust must be a controlled private trust in relation to the individual (sections 1207Q and 1207V); and

(c)the individual must be an attributable stakeholder of the company or trust (section 1207X).

·A company or trust will be a controlled private trust or a controlled private company if the individual passes a control test or a source test.

·An individual will not be an attributable stakeholder of a trust if the trust is a concessional primary production trust in relation to the individual.

·The asset deprivation rules and the income deprivation rules are modified if attribution happens.

23. As a first step, I must determine whether the Trust is a “designated private trust” within the meaning of the Act. The relevant section is s 1207P. (Section 1207N, the other provision mentioned in s 1207, deals with private companies. That is not relevant here.)

24. Section 1207P(1) says a trust will be a designated private trust unless certain exclusions apply. There is no evidence to suggest the Trust comes within any of those exceptions. It follows the Trust is a designated private trust.

25. I am next required to ascertain whether the Trust is a “controlled private trust” in relation to Mrs Rosier. Section 1207V of the Act says a trust will be a controlled private trust in relation to an individual if the if the trust is a designated private trust and the individual (in this case, Mrs Rosier) passes either the “control” test or the “source” test.

26. I am satisfied the applicant passes the “control” test in this case. She has the power to appoint or replace the trustee. I note the applicant’s daughter says the applicant is not (and was not at the relevant time) in a practical position to exercise that power. That does not matter because the only other people who could exercise that power in her stead is a member of her family. Family members qualify as “associates” for the purposes of the Act by reason of ss 1207B and 1207C. The applicant will be deemed to have control if that control is in the hands of her associates. It follows the Trust is a controlled private trust in relation to the applicant.

27.     The next issue is whether the applicant is an “attributable stakeholder” in relation to the Trust. Section 1207X of the Act defines the expression “attributable stakeholder” and also sets out rules for determining the amount of the assets which are attributable to the individual.

28. The applicant has argued the Trust is a “concessional primary production trust”. If she is right, the applicant will not be regarded as an attributable stakeholder. Unfortunately for the applicant, she is wrong. Section 1208U(1)(i) of the Act says a trust will only qualify as a concessional primary production trust if the applicant’s power to appoint trustees is limited in ways described in the section. Although the Trust bears many of the characteristics of a concessional primacy production trust, the power of the primary beneficiary or his successor to appoint or remove a trustee is practically unlimited for present purposes. It follows the Trust does not answer the description of “concessional primary production trust”.

29.     It is therefore necessary to focus on the attribution rules. Section 1207X(2) of the Act contemplates an attributable shareholder being attributed 100% of the value of the assets of the trust unless the Secretary determines the person is not an attributable shareholder, or determines that the person should be attributed less than 100% of the value of the assets. The respondent has contended Mrs Rosier should be attributed with 100% of the value of the assets at the relevant time. It says the discretion in s 1207X(2) should not be exercised in Mrs Rosier’s favour.

30. The exercise of the discretion in s 1207X(2) is governed by the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000 (“the Principles”). The Principles are a set of decision-making principles that are given statutory force by s 1209E of the Act. I am required to have regard to the Principles when making a decision about attribution.

31. Having regard to the matters referred to in Pt 2 of the Principles, I do not think I can justify treating Mrs Rosier as if she was not an attributable stakeholder. She certainly made a contribution to the value of the Trust: she and her husband worked along with the other members of the family to build up the assets at North Arm and then at Cadarga: see s 8 of the Principles. It was unclear from the evidence whether she benefitted from formal distributions from the Trust, but she and her husband did live off the assets of the Trust when they moved back onto Cadarga after Otto and Mark fell out. It follows that the applicant will be attributed with 100% of the value of the assets of the Trust unless the Secretary determines that a lower figure is appropriate having regard to the matters referred to in Pt 3 of the Principles.

32. Section 15 of the Principles says the Secretary must consider the relationship between the individual and the trust having regard to a range of matters. Section 16(1) of the Principles requires that the decision-maker look at a range of relevant circumstances identified in s 16(2). The only circumstances that mark themselves for attention are those referred to in s 16(2)(c). When I have regard to the relationship that existed between the applicant and the Trust at the relevant time, I am satisfied there is little likelihood of Mrs Rosier exercising effective control over the Trust. She is an elderly lady who depends on her family. She was seriously injured in the car accident that killed her husband. She was unconscious for a long period and apparently became accustomed to her family – especially her daughter, who holds a power of attorney – playing a decisive role in the management of her affairs. I infer from the evidence that she was accustomed to her husband playing that role while he was alive. Mrs Rosier did not give evidence at the hearing, but she was present and clearly accepted what her family members were saying on her behalf.

33. I accept Mrs Rosier made a contribution to the value of the assets of the Trust: s 17 of the Principles. She and her husband provided $220,000 to the Trust out of the proceeds of the sale of the property at North Arm. That money was used to purchase the property at Cadarga. She has made little if any contribution to the value of the assets of the Trust beyond that initial contribution. She did not receive any consideration in return for that contribution. I accept the evidence of the family members that the provision of cash was itself recognition of the contribution that other family members had made to the success of the family business. Mrs Rosier and her husband moved to town and only made occasional visits to the farm in the period before her husband resumed control. The fact that other family members were given shares in Brookcove was apparently intended to reflect the understanding that the family members would progressively take over the farm (albeit that Mark says the allocation of shares did not faithfully reflect the extent of his contribution and that of his wife).

34. I understand that Mrs Rosier and her husband did not derive any income from the Trust while it was on foot (s 18 of the Principles), and she has received nothing (apart from the $210,000 payment) now that the Trust has been wound up. She has no expectation of future distributions: s 19 of the Principles. I have already noted the applicant did receive some benefit in the form of accommodation and income from Trust assets in the period after her husband resumed control of the farm. That is relevant for the inquiry required pursuant to s 20 of the Principles. It is difficult to quantify that amount, but I note the evidence that the property deteriorated during this period and the applicant and her husband were forced to sell their property in Maryborough in order to survive. The tax returns referred to in the report of the authorised review officer’s determination do not suggest the applicant and her husband made a significant amount from the assets.

35.     When I have regard to all of these matters, I think it would be inappropriate to attribute the entire value of the assets to the applicant. This was a family arrangement that was plainly intended to take account of the contributions of other family members. I infer the applicant and her family would contend that she should be attributed with 25% of the value of the assets. That figure reflects her shareholding in the company (although it does not take account of the fact that, as a formal matter at least, her husband’s share also devolved to her). It appears to reflect a rough and ready calculation of her cash contribution relative to the value of contributions made by other family members who worked and provided other things which have resulted in an increase in value of the property. The family members certainly settled on a roughly one quarter contribution when the Trust was wound up and the applicant was paid out (although the family say the valuation was inflated with a view to conferring a higher benefit than the applicant might otherwise be entitled to receive).

36.     There is little evidence that would enable me to make an accurate assessment of the value of the contributions made by members of the family including the applicant. While I accept in principle that the family members made the bulk of the contributions to the improvement in the value of the Cadarga property after it was purchased, it is difficult to be precise because – as the Social Security Appeals Tribunal observed in its reasons – much of the documentation that might establish who contributed what to the venture was destroyed in a mice plague. The family members offered some estimates of the value of their contributions in the written submissions. While I accept the sincerity of the estimates, it is difficult to know what to make of them.

37.     At the end of the day, if I am satisfied the applicant’s family did make a significant contribution to the value of the assets of the Trust in circumstances, I think I have no choice but to make the best guess I can as to the applicant’s share. If I adopt a conservative approach to the family member’s estimates of the value of their contributions, I accept the applicant’s stake accounted for around 33% at the time she applied for her pension on the first occasion. I am satisfied the Secretary should attribute 33% of the value of the assets to her on that basis.

The valuation attached to the property

38.     The respondent says the total value of the assets of the Trust at the time of vesting was $747,100. That figure is comprised of $700,000 in real estate, $42,100 in livestock and $5,000 in plant and equipment.

39.     The evidence of the applicant’s family during the hearing established that the applicant contributed little if anything to the establishment of the herd or the improvement of the property. That was the work of Mark and his wife. But I accept these were all Trust assets, and I have already decided the applicant should be attributed 33% of the value of the total in recognition of the contributions made by Mark in particular.

40.     The applicant’s family say the figure of $700,000 for the real estate is unrealistic. They dispute in particular the valuation attributed to the house and its surrounds. They say the accommodation on the property is basic. The valuation was first suggested in an appraisal by an agent retained by the applicant’s family. I was told the valuer was asked to provide a generous valuation in order to increase the amount that would be paid to the applicant when the Trust was wound up. The Australian Valuation Office and Centrelink adopted that valuation in due course. (There is evidence suggesting Centrelink had initially accepted an earlier, lower valuation which the applicant’s family say is more realistic.)

41.     The family’s criticisms of the valuation may be right, but I have not been provided with any evidence that would enable me to dispute the valuation that has been adopted. In the absence of evidence to the contrary, an appraisal provided by the Australian Valuation Office must carry some weight. In the circumstances, I think the valuation must stand.

Conclusion

42.     I am satisfied the decision to attribute 100% of the value of the Trust assets to the applicant should be set aside. I find in substitution that 33% of the value of the assets should be attributed to her. The decision should be remitted to the respondent for reconsideration on that basis. The decision that the applicant was subsequently deprived of assets valued at $506,050 must also be set aside and remitted for reconsideration in light of the findings I have made.

I certify that the 42 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member Bernard J McCabe.

Signed: ............................[Sgd]..............................................
  Michael Buckingham, Associate

Date of Hearing  22 May 2009
Date of Decision  9 October 2009     
Solicitor for the applicant          Unrepresented
Advocate for the respondent     Mr J Guthrie, Centrelink