ALLAN ALLAWAY and SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS

[2009] AATA 364

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2009] AATA 364

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2008/5918

GENERAL ADMINISTRATIVE DIVISION		)
Re		ALLAN ALLAWAY

Applicant

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

Respondent

DECISION

Tribunal  M J Carstairs, Senior Member

Date 19 May 2009

Place Brisbane

Decision The Tribunal affirms the decisions under review. 

........................[sgd].......................

Senior Member

CATCHWORDS

SOCIAL SECURITY – disability support pension – debt raised – applicant registered private company – whether income of company should be attributed to applicant to assess rate of pension – debt to be recovered from applicant – special circumstances not found to exist – decision under review affirmed

Social Security Act 1991(Cth), ss 1207, 1207N, 1207Q, 1207X, 1208B, 1223

Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000 clauses 11, 13, 25

Ryde v Secretary, Department of Family and Community Services [2005] FCA 866

REASONS FOR DECISION

19 May 2009  M J Carstairs, Senior Member     

1.      Allan Allaway has incurred a social security debt, of some $3,800, which represents pension Centrelink was paying to Mr Allaway in the period from 1 April to 30 June 2006.  This period was shortly after Mr Allaway had registered a private company, Allaway Research & Development Pty Ltd.  A company structure was one of the requirements for the receipt of Queensland Government grants under the Innovation Start-Up Scheme (“ISUS”),[1] a scheme to fund the development of new technology.

[1]        T4.

2.      Mr Allaway is an inventor who has developed a prototype for a machine to clean artificial grass.  As I understand his evidence, the project, now some years on, is about to deliver commercial returns, perhaps by the end of the year.  However, Mr Allaway says that there have been no returns to date, and certainly none during the period to which the debt refers.  In that regard, Mr Allaway maintains that it is unfair and unjust that he now incurs a Centrelink debt.  He also believes his circumstances are special, such that recovery is not appropriate.

ISSUES

3.      The disputed issues then are two-fold:

§  whether the income of Allaway Research & Development ought be attributed to Mr Allaway, to assess his rate of pension? (If so, then he will have a debt under the legislation); and

§ whether any such debt ought to be recovered from him? (This second aspect raises the question of waiver provisions in the Act).

4.      Relevant to the first issue is whether Mr Allaway should be held to be an attributable stakeholder of 100% of the company’s income. This requires that consideration be given to the discretions available under the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000 (“the Principles”), which is a legislative instrument formulated by the Secretary under s1207X(5) of the Social Security Act 1991 (“the Act”).  The discretions include not to hold Mr Allaway as being an attributable stakeholder, or to reduce the percentage of assets or income attributed to him.

BACKGROUND

5. The first of the two identified issues arises from the application of the provisions in Part 3.18 of the Act. That Part provides for the Means Test Treatment of Private Trusts and Private Companies, provisions introduced into the Act to allow the assets and income of private trusts and companies to be attributed to individuals obtaining social security payments.

6.      Social security recipients are means-tested in order to work out their correct rate of payment. That is, their possible means of support are assessed under income and assets tests. 

7. The statutory provisions for means-testing of private companies are somewhat complex, involving a series of tests designed to take into account the circumstances attending the person’s involvement with a company. Part 3.18 commences with a general outline, set out at s 1207 of the Act. The effect of this can be summarised as follows: the assets or income of (relevantly) a private company will be attributed to an individual if:

§  the company is a “designated private company”; and

§  the company is “a controlled private company” in relation to the individual; and

§  the individual is an attributable stakeholder of the company.

8. Before the Social Security Appeals Tribunal (“the SSAT”), Mr Allaway’s then representative acknowledged that Allaway Research & Development was a “designated private company” (coming within s 1207N of the Act); and it was a “controlled private company” because Mr Allaway had voting interests of 50% or more, and was in a position to influence the company[2]. His solicitor accepted, in written submissions filed with the SSAT that Mr Allaway was an “attributable stakeholder” for the purposes of s 1207X of the Act.

[2] Section 1207Q of the Act.

9. Mr Allaway, self-represented before this Tribunal, did not present evidence or submissions contrary to these points previously conceded before the SSAT on his behalf. I would agree that the Act’s provisions relating to private companies had to be applied (in accordance with Part 3.18) because the company was a controlled private company and Mr Allaway was an attributable stakeholder. The SSAT set out the applicable legislation comprehensively[3], and that does not here need to be restated in any further detail.

[3]        T2 at paragraphs 16 - 20 of Reasons for Decision.

10. Because Part 3.18 had to be applied, certain consequences flowed for Mr Allaway’s pension. It had to be re-calculated taking the company income as his own, with an income attribution percentage of 100%.   

11.     However Centrelink had not been aware that Mr Allaway had any involvement with a private company until he referred to its existence in about July 2006, when he lodged documents in support of his transfer from disability support pension to age pension, for which he qualified in April 2006.   Mr Allaway provided the company’s accounts and company tax return for the 2005/2006 tax year.  Mr R Harcourt, company director, confirmed that Mr Allaway had loaned $18,000 to the company on 30 April 2007, which was used to pay patent applications.

12. Was it appropriate in these circumstances to apply the Principles to reduce the effect of the 100% attribution rule? .

APPLICATION OF THE PRINCIPLES

13. The Principles set out various factors or circumstances to be taken into account by decision‑makers in determining whether a person might not be held to be an attributable stakeholder, and for determining a lesser income attribution percentage than the 100% which is automatically applied under s1207X of the Act. Clause 25 of the Principles states that the respondent must consider whether there are circumstances that make it inappropriate for the individual to have an income attribution percentage of 100%.

14. The Principles require a decision-maker to consider a number of identified matters. These include:

§circumstances arising from the legal structure and the administrative arrangements of the company;

§whether the individual can reasonably be expected to exercise effective control in relation to the company;

§whether the individual has made a contribution to the company, and the effects of this on the financial position of the company;

§past benefits from distributions and any foreseeable future benefit of capital income or both;

§whether the individual derives any other benefit from the company;

§whether the individual is an attributable stakeholder of any other trust or company; and

§any other circumstances affecting their involvement with the activities or administration of the company.

15.     Dealing with these matters globally, there is no dispute that Mr Allaway was the sole shareholder and a director of the company during the relevant time. Mr Allaway agreed that he had a 100% ownership interest.  (At the time of the hearing, there was another director who had a 25% interest, but Mr Allaway intends to buy her out.)  As Mr Allaway described the arrangement, he had the practical knowledge, and others involved with the project had the business expertise.  They would defer to him, however, the invention being his.  Thus, while Mr Allaway might have lacked some of the business expertise that others brought to the project, there was nothing to suggest that Mr Allaway was anything other than in effective control. 

16.     With respect to the value of any personal contributions by Mr Allaway, and the proportion of these to the total assets of the company, Mr Allaway’s evidence was that he has “poured” any available money into Allaway Research & Development, confident that he will see returns once his invention is marketed.  Mr Allaway confirmed under cross-examination that the $77,540 showing under “Current Liabilities” in the balance sheet at 30 June 2006[4] represented loans from him.  He said his loans have increased considerably since then; now exceeding $150,000. As I see it, Mr Allaway’s level of personal contributions points strongly against exercising the discretion to reduce his attributable stakeholding below 100%.

[4]        T5; p 60.

17.     I accept that Mr Allaway did not receive any distributions from the company in the relevant period, nor as I understand it, to date.  Mr Allaway also maintained that the grants did no more than directly reimburse outlays for developing the invention, referred to in the Deed as “approved activities”: such as expenditures for consultant’s fees; prototype development; and costs associated with protecting the intellectual property. The Deed specifically precluded payment of salary or expenses to any officer of the company[5] such as Mr Allaway. 

[5]         This is the effect of clause 7(d), read with the Definitions (clause 1), and Schedule C to the Deed.

18. I readily accept that Mr Allaway did not receive any payment under the grants. Nevertheless, it was quite clear from his evidence that he expects to successfully market the product and obtain financial benefits, for himself and his family, in the longer term. In that regard, it is important to take into account that the Principles require consideration not only of “past benefits from distributions”, but “any foreseeable future benefit” of capital or income. Mr Allaway referred in general terms to the importance to himself and his family of the venture succeeding. The company is the vehicle that enables Mr Allaway’s invention to become marketable. This reasonably fits within the ambit of “any kind of benefit”, (which bears a wider meaning, as referred to in clause 11 of the Principles).

19.     Mr Allaway considers it unjust that company income is attributed to him, and asks that I take into account the mandatory requirements of the grant to bring the company into existence. However, I do not see this as being of particular significance in the exercise of the discretion, and even if it were, it would not outweigh other relevant factors. I also would observe here, that if the grants were paid directly to Mr Allaway, Centrelink would take them into account as his personal income and assess his pension rate accordingly.  

20. I would not alter the 100% attribution percentage using the discretions in the Principles.

PENSION ASSESSMENT TAKING ACCOUNT OF COMPANY INCOME

21.      In the period under review, the company received grants totalling $32,663.  The company’s Profit and Loss statement (year ended 30 June 2006) showed income from consulting fees ($6098) and grants ($32,663).  The company tax return declared total income of $38,761; net taxable income of $15,105; and expenses totalling $23,656.

22.     I note the method adopted by Centrelink’s complex assessment officer, Mr D Henderson[6], to determine the effect of company income on Mr Allaway’s rate of pension. Mr Henderson accepted the accuracy of the company financial records, and deducted company outlays and expenses from the grants. He then annualised the amount, despite income being received under the grant only in the last quarter of the financial year. Annualising is an accepted method of assessing income under the Act; indeed it is required by the pension Rate Calculators. I see no error in the approach adopted by Mr Henderson. It accords with s 1208B of the Act and the relevant Rate Calculator.

[6]        T15.

23. The result of the recalculation of Mr Allaway’s pension, taking into account company income, was that Mr Allaway’s pension had been overpaid. These are the circumstances where a debt arises under s 1223 of the Act, even without fault on Mr Allaway’s part. I am satisfied that Mr Allaway incurred a debt. I am also satisfied that its amount has been correctly calculated.

ARE THERE GROUNDS OF SPECIAL CIRCUMSTANCES?

24. There are a number of grounds upon which debts otherwise recoverable under the Act can be waived. In Mr Allaway’s case the only possible relevant ground is that for “special circumstances”. I say this because there is no ground of administrative error on the facts here.

25.     Where the discretion for special circumstances arises for consideration, the case law acknowledges that the term is incapable of precise or exhaustive definition.  However, what is required is something that sets a case apart, so as to distinguish it from the usual case. That is, the discretion addresses any circumstances that distinguish a particular case from others, so as to justify a departure from the rule by which money overpaid should be repaid by the person who received it. 

26.     The Federal Court, in Ryde v Secretary, Department of Family and Community Services [2005] FCA 866 said that the use of the term special circumstances demonstrated an intention to proscribe waiver in ordinary cases and any hardship or unfairness should be sufficient to justify departure from the general rule. 

27.     Mr Allaway submits that a number of grounds make his circumstances “special”.  Mr Allaway emphasised the perceived injustice of the legislative regime, and his own honesty and forthrightness in providing all requested information to Centrelink.  In those circumstances, he submits, Centrelink ought not require him to re-pay the debt.  He says that he lives frugally.  He says he outlays only $25 per week for food. Other itemised outlays were also modest.  But when his financial circumstances are examined, I note he receives something in excess of $500 age pension per fortnight, and pays rent totalling $146 (net) per fortnight[7].   In that regard, it seems to me that his modest style of living is covered by what he receives.  It seemed clear, on the evidence presented, that Mr Allaway is able to pay, without undue distress, the $20 per fortnight that Centrelink is presently accepting as fortnightly instalments to discharge the debt.

[7]        Exhibit A1.

28.     I would also observe that Mr Allaway has significant savings.  In that regard, I am not satisfied that there are any real grounds of financial hardship on the evidence before me.  Mr Allaway has the capacity to repay, at the very least by regular withholdings from his Centrelink payments.  I do not consider that other matters he raised, including the deprivations in his childhood, are matters that are relevant to the exercise of this discretion now.

29. I am satisfied that Mr Allaway received moneys to which he was not entitled, given the legislative provisions now applying to private companies. Where that occurs, there is an expectation that moneys incorrectly paid will be recovered. I do not see Mr Allaway’s circumstances as “special” in the sense required by the Act, so as to justify exercising the discretion in his favour. To do so would frustrate the clear object of this Part of the Act, which is to take into account company receipts as Mr Allaway’s own, and assess what pension should be paid accordingly.

30.     I am satisfied that this debt ought not be waived, in whole or in part, and should be recovered from Mr Allaway, on terms as negotiated with Centrelink.

DECISION

31.     The Tribunal affirms the decision under review. 

I certify that the 31 preceding paragraphs are a true copy of the reasons for the decision herein of M J Carstairs, Senior Member

Signed: .............................[sgd]...........................................
  Emily Clarke, Associate

Dates of Hearing  20 March 2009

Date of Decision  19 May 2009
The Applicant was self-represented
Advocate for the Respondent   Mr Robert Hamilton, Centrelink