Auckram and Secretary, Department of Social Services (Social services second review)
[2018] AATA 2976
•20 August 2018
Auckram and Secretary, Department of Social Services (Social services second review) [2018] AATA 2976 (20 August 2018)
Division:GENERAL DIVISION
File Number(s): 2017/3169
Re:Brian Auckram
APPLICANT
AndSecretary, Department of Social Services
RESPONDENT
File Number(s): 2017/3624
Re:Fiona Auckram
APPLICANT
AndSecretary, Department of Social Services
RESPONDENT
DECISION
Tribunal:Senior Member M J McGrowdie
Date:20 August 2018
Place:Sydney
The decision of AAT1 made on 4 May 2017 in relation to Mr Auckram is affirmed.
The decision of AAT1 made on 4 May 2017 in relation to Mrs Auckram is affirmed.
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Senior Member M J McGrowdie
CATCHWORDS
SOCIAL SECURITY – Austudy payment – whether company assets should be treated as Applicant’s assets – application of ‘income maintenance period’ – decisions under review affirmed
LEGISLATION
Social Security Act 1991(Cth) ss 10, 19C(3), 1067L, 1122, 1207N, 1207Q
CASES
Menkens and Secretary, Department of Family & Community Services (2000) AATA 22
REASONS FOR DECISION
Senior Member M J McGrowdie
20 August 2018
INTRODUCTION
The applicants are a married couple who sought Austudy benefits from the Respondent.
Mrs Auckram was granted Austudy from 18 January 2016 but the benefit was cancelled on 2 June 2016. She has applied to the Tribunal to review that cancellation decision.
Mr Auckram’s application for Austudy benefits made on 19 February 2016 was refused on 22 March 2016. He has applied to the Tribunal to review that refusal decision.
Both the cancellation and refusal decisions were made on the basis that the couple exceeded the asset cap. An Authorised Review Officer who reviewed the decision to refuse Mr Auckram’s application also noted that Mr Auckram would, at the time he made his application, have been subject to an income maintenance period from 30 April 2015 to 27 July 2016. This was because Mr Auckram had received termination benefits from his former employer, Integrity Consulting Pty Ltd (“the company”). Mr Auckram was the sole director and shareholder of that company.
ISSUES
The issues are:-
(a)Whether the value of the assets of the company should be treated as part of Mr Auckram’s assets, as a member of a couple, so as to lead to the refusal of Mr Auckram’s application for the Austudy benefits and the cancellation of Mrs Auckram’s Austudy benefits; and
(b)Whether an “income maintenance period” applied at the time so as to preclude eligibility for Austudy benefits for Mr and Mrs Auckram.
DISCUSSION
In relation to the first issue it is necessary to consider the assets of the company.
The assets of the company disclosed in the company’s balance sheet as at 30 June 2015 disclosed net assets of $288,054.34 and liabilities of $11,344.38. Included in the assets were two loans owing to the company by Mr Auckram. The first was a loan for $98,120.94 and the second, a loan for $90,582.12.
The first loan has remained unpaid and Mr Auckram says that due to his financial circumstances, he does not have the ability to repay the loan. Accordingly, Mr Auckram says that the first loan should be treated as virtually worthless and of no value. Nonetheless, it remained a bad debt and Mr Auckram’s representations to the Australian Taxation Office to have the debt written off were unsuccessful upon the basis that as Mr Auckram was in his forties he had the potential to regain his work capacity after having become redundant and then to repay the loan. If Mr Auckram was to repay the loan then the monies could come back to him as dividends which would be taxable. Mr Auckram has been an oil field consultant. The company ceased to trade by the end of 2014.
Section 1122 of the Social Security Act 1991 (Cth) (“the Act”) provides that:-
“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 …….”
In accordance with that section, after 27 October 1986, the value of a loan is its face or book value (see Menkens and Secretary, Department of Family & Community Services (2000) AATA 22). Prior to 27 October 1986 and as at that date it was possible to consider, for the purposes of assessing assets, the realisable value of a debt having regard to the ability of the debtor to repay the loan.
This means that the face value of the first loan is to be taken as the asset value of the loan in this case.
The second loan was a second mortgage created for borrowings by Mr Auckram from the company. The security provided was the family home. This mortgage was subsequently repaid by Mr Auckram to the company upon the sale of the home. The mortgage was still in existence at the time relevant determinations in respect of Austudy benefits for Mr and Mrs Auckram were made.
Again, at the relevant time, this was an asset of the company.
Both loans are therefore part of the assets of the company and the value of those assets is the combined amount comprising both loans which is $188,703.06.
ATTRIBUTION OF THE VALUE OF THE ASSETS OF THE COMPANY
Part 3.18 of the Act makes provision for the attribution in respect of assets of private companies in that the value of those assets will be treated as an asset of the person controlling the company, for the purposes of the social security legislation.
The provisions of Part 3.18 apply where the social security aspirant is an “attributable stakeholder” of a company which is a “designated private company” and a “controlled private company” (Sections 1207N and 1207Q of the Act).
A company will be a “designated private company” if the company has consolidated revenue of less than $25 million and consolidated gross assets of less than $12.5 million. Integrity Consulting Pty Ltd does fall within those matters and is a designated private company.
Clearly Mr Auckram has had control of the company as its sole director and shareholder and so the company is a “controlled private company” with Mr Auckram being a 100% “attributable stakeholder”.
As the company is a “designated private company” and a “controlled private company”, and Mr Auckram an “attributable stakeholder”, the Act attributes the value of the assets of the company to Mr Auckram so as to form part of Mr Auckram’s assets for the purposes of the “assets” test with regard to qualification by him and Mrs Auckram for Austudy benefits.
Mr Auckram submits that this is not permissible as it breaches the well-established common law principle of “the corporate veil”.
With regard to this submission, Parliament has enacted what might be described as a deeming provision whereby a value equal to the assets of a private company, but not the assets themselves, are to be regarded as the assets of an individual who controls the company. It is, in my view, within the powers of the legislature to do so. It is in any event beyond the role of the Tribunal to make any determination on the validity of legislation. Its role is to interpret and appropriately apply legislation.
Mr Auckram also submitted that the legislative provisions in relation to attribution involves an alienation of property rights without just compensation and is unconstitutional.
The difficulty with this argument is that no transfer of a property right is effected by the legislation. What the legislation does is to deem an amount equivalent to the value of an asset of a private company controlled by an individual, to that individual solely for the purpose of the “asset” test under the legislation.
Mr Auckram applied to the Tribunal to state a case to the Federal Court on a question or questions of law. A case may be stated by the Tribunal with the approval of the President. However, the questions raised in this matter are appropriately resolved without recourse to a case being stated and so I have declined to do so.
THE ASSETS OF MR & MRS AUCKRAM
Firstly, there are the net assets of the company of $276,700.96 which includes the two loans of $188,703.06. The amount which is attributed to Mr Auckram is $276,700.96.
In addition there are personal assets which according to an Income and Assets Form dated 5 February 2016 submitted to the respondent by Mr and Mrs Auckram totalled $48,763.00 and which included household contents of $40,000.00.
Mr and Mrs Auckram had sought a review of the refusal and cancellation by the Social Security and Child Support Division of the Tribunal (AAT1). In a decision dated 4 May 2017, AAT1 reduced the figure for household and personal contents from $40,000.00 to $10,000.00. There was no other determination in favour of Mr and Mrs Auckram. I am prepared to accept for the purposes of the current application that the appropriate figure for household and personal contents is $10,000.00. This results in a total figure for personal assets of $18,763.00.
Adding together the figure of $18,763.00 for personal assets and the figure of $276,700.96 for the attributed assets of the company, gives a total asset figure of $295,463.96.
Mr Auckram submitted that the second loan by the company to him of $90,582.12 should not be included in his assets as it was a loan created by way of a second mortgage on the family home. He argued that as the family home is exempt so should the mortgage amount, and that this amount should not be regarded as an asset. Although such argument might have some attraction, the mortgage amount is included as an attributed “asset” of the company. The company acted as lender and so the loan becomes an asset of the company. Mr Auckram chose to organise his affairs in a particular way and the consequences which follow from that arise from the operation of the legislation. Accordingly, by attribution, the face value of the asset becomes part of the assets of Mr Auckram.
As the assets of Mr Auckram are $295,463, they exceed in value the applicable allowable limit of $286,500. Upon this basis, neither Mr Auckram nor Mrs Auckram qualify for Austudy benefits at the relevant time by reason of the assets limit for eligibility.
There are two tests for eligibility under the legislation and both have to be satisfied to qualify. The two tests are the assets test and the income test.
INCOME MAINTENANCE PERIOD
On 30 April 2015 Mr Auckram received the sum of $76,582 from the company by way of termination payments.
These payments are treated under the Legislation as income projected over a period of time and resulted in an income maintenance period being applied from 30 April 2015 to 27 July 2016.
An income maintenance period will not be applied if severe financial hardship exists because the person has incurred unavoidable or reasonable expenditure (Section 1067L – D12 of the Act). For the purposes of the Act, severe financial hardship will exist if the value of the couples’ liquid assets is less than twice the fortnightly amount of the maximum payment made of Austudy payments payable if the claim was granted (Section 19C(3) of the Act).
In the AATI decision it is stated that:-
“Mr Auckram provided a copy of his bank balances with accounts held at Westpac as at 20 February 2016. He had $1,655 in his account at that time … The maximum rate of Austudy he would have been entitled to receive was approximately $480 per fortnight. He and Mrs Auckram would have to have less than $960 in their bank accounts to be considered in severe financial hardship at that time.”
The maximum rate of Austudy properly calculated is $475.70 and twice that amount is $951.40. Accordingly, the ground of severe financial hardship is not made out on that ground even though the applicants may have had “unavoidable or reasonable expenses”.
CONCLUSION
Mr and Mrs Auckram, as members of a couple at the time of refusal of Mr Auckram’s application for Austudy and the cancellation of Mrs Auckram’s Austudy benefit, did have assets which exceeded the limit and so were precluded the payment of an Austudy benefit.
Also, Mr Auckram, as a member of the couple, was subject to an income maintenance period which alternatively precluded an Austudy benefit being paid.
The result is that the refusal of Mr Auckram’s application for Austudy was correct, as was the cancellation of Mrs Auckram’s benefit.
DECISION
The decision of AAT1 made on 4 May 2017 in relation to Mr Auckram is affirmed.
The decision of AAT1 made on 4 May 2017 in relation to Mrs Auckram is affirmed.
I certify that the preceding 41 (forty-one) paragraphs are a true copy of the reasons for the decision herein of Senior Member M J McGrowdie
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Associate
Dated: 20 August 2018
Date(s) of hearing: 23 February 2018 Applicant: In person Solicitors for the Respondent: Mr Karwan Eskerie, Sparke Helmore Lawyers Other Party: In person
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