Barbara Downes and Secretary, Department of Social Services
[2014] AATA 492
[2014] AATA 492
Division GENERAL ADMINISTRATIVE DIVISION File Number(s)
2014/1115
Re
Barbara Downes
APPLICANT
And
Secretary, Department of Social Services
RESPONDENT
DECISION
Tribunal Senior Member Bernard J McCabe
Date 17 July 2014 Place Brisbane The decision under review is set aside and remitted to the respondent for reconsideration in accordance with the finding of fact that the financial asset in question was disposed of in 1999.
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Senior Member Bernard J McCabe
CATCHWORDS
FAMILY ASSISTANCE AND SOCIAL SECURITY – Dispute over rate of age pension – Applicant contends she made gift of $75,000 to son in 1999 – Respondent contends there was no delivery of gift until 2011 – Finding of fact that disposal of financial asset occurred in 1999 – Reviewable decision set aside and remitted to respondent.
LEGISLATION
Social Security Act 1991 (Cth) ss 1123; 1126AC
REASONS FOR DECISION
Senior Member Bernard J McCabe
17 July 2014
Mrs Barbara Downes receives the Age Pension. This case arises out of a dispute over the rate at which the pension should be paid. The dispute arose because Mrs Downes and her husband made a payment of $75,000 to her son in 2011. The Secretary says that payment is a disposal of an asset within the meaning of s 1123 of the Social Security Act 1991 (Cth) (“the Act”). If the Secretary is right, the money (or $65,000 of it, at any rate) must continue to be treated as if it were still available to the applicant for five years after the date of disposal: s 1126AC of the Act. If that money is counted in the assets and income test under the legislation, Mrs Downes is entitled to receive about $50 less per fortnight. But Mrs Downes says that, in reality, the money was given to her son at the end of 1999, long before she was on the pension. If that is right, the amount actually paid to her son in 2011 should not continue to be included in her assets for the purpose of assessing the rate of pension.
The applicant says she and her husband ran a small business and had access to surplus cash in the late 1990s. The couple have two sons. The younger son was in the air force. He had a home with a mortgage. Mrs Downes says she found out that son owed around $75,000 on the mortgage. Mr and Mrs Downes decided they would gift that amount to their son so he could pay out the mortgage. They decided they would gift the same amount to their other son, as both sons had to be treated equally. Mrs Downes said she and her husband had decided there was no point requiring the sons to wait for their parents to die; the money would be useful to both sons and their families in 1999, and Mrs Downes and her husband were able to afford to make the payment.
Mrs Downes explained in her oral evidence that she presented cheques to each son enclosed in Christmas cards at the end of 1999. The cheques were drawn on the business trading account that was held in the joint names of Mrs Downes and her husband.
The younger son duly cashed the cheque and paid off his mortgage. But sometime in early January, the elder son spoke with Mrs Downes about the cheque he was given.
Mrs Downes recalled she was told her elder son was experiencing marital difficulties at the time. He was concerned that if he actually cashed the cheque the money would form part of the joint assets of the marriage which would be available for distribution if the marriage were dissolved. He endorsed the cheque which was drawn on the joint trading account in favour of his mother and asked that she deposit the money in an account in her own name. Mrs Downes recalled (and her son confirmed) that she would “hold onto” the money until it could safely be paid at some future point. Both of them insisted in evidence that they understood the money had been gifted to the son, so it was his money.
I note there is a copy of an extract from the applicant’s financial records at p 111 of exhibit one. The entry for 24 December 1999 records two cheques in the amount of $75,000. One of them is in favour of a pair of individuals whom I understand to be the applicant’s younger son and his wife. The other entry notes the cheque was paid to
“B. Downes (T. Downes) GIFT”. That evidence is consistent with the explanation of the transaction offered by Mrs Downes. There are no other records of the transaction.
The arrangements between Mrs Downes and her son were not otherwise documented and the cheques are not in evidence.
Mrs Downes recalled specifically that the cheque she gave her elder son was returned to her with an endorsement by him and a direction that the money be paid to her. I have no reason to doubt that evidence.
The cheque was duly presented to the bank and deposited in a new account opened in the applicant’s name. Those facts suggest there was a trust created with respect to the money, with Mrs Downes as trustee.
Over the course of the next five years or so, Mrs Downes agreed she accessed the account from time to time and used the money to pay for various personal expenses, including the cost of two trips to the United Kingdom. She agreed she declared the interest earned on the account for tax purposes. She said it was understood she could use the money in this way but there was never any doubt the money would have to be paid out to her son at some indeterminate point in the future. She agreed she actually used up all of the money in the account over a four or five year period. When the final payment was made to her son in 2011, the obligation to pay was met out of funds derived from the sale of an investment property. That is not what trustees should do, of course.
After hearing the applicant, I decided it was appropriate to take evidence from her son. Mrs Downes was not expecting this, but agreed he should be called. I did so without allowing an opportunity for anyone to call the applicant’s son and alert him to the purpose of the call. When he was on the line, he agreed he was aware his mother was involved in the Tribunal proceedings and was generally aware of the nature of the dispute with Centrelink. When I asked him to describe his understanding of the transaction in 1999, he substantially confirmed the evidence given by his mother. He confirmed in particular that he was motivated by his marital difficulties at the time, although he noted he and his wife are still together. He said he asked his mother to hold the money for him but insisted the money was his and expected that it would be paid on demand, noting that his brother had already received his payment and there was no reason why he should not have received the same amount of money.
The applicant’s son did go on to say it was his understanding that the money was deposited in an interest-bearing account and that he assumed the interest would accrue – although he agreed he only received $75,000 in 2011, which did not include an interest component. He did not agree he had told his mother she could access the money for her own purposes while it was in the account, but insisted he had no doubt his mother would have produced the money when required because he trusted her.
Mr Burgess, who represented the Secretary, said the fact Mrs Downes effectively used the money as if it were her own tended to suggest she had never given it away in the first place. He said I should treat the payment in 2011 as the disposal of the funds. He argued the applicant’s failure to act as a trustee was explained by the fact she was not really a trustee of the money at all: she had never completed the gift and it remained her money to use as she saw fit.
I accept the applicant and her son were witnesses of truth, although I note there were inconsistencies between them as to how the money was to be dealt with once it was deposited in the applicant’s account. The applicant did not clearly recall her son’s instructions on how the money was to be dealt with; it seems she just took liberties with the money pursuant to some sort of maternal prerogative rather than acting as a trustee should. But the evidence about the applicant’s performance as a trustee – if that is what she was – does not cause me to doubt the evidence about the original transaction.
The applicant’s evidence on this point was clear and consistent with the evidence given by her son and the entry in her accounts. The applicant’s son did not simply return the cheque with an instruction that his mother make the gift at a later point. The gift was complete and effective at the moment he accepted the cheque and dealt with it in a way that was consistent with him accepting the money as a gift. The fact he did not present the cheque to his bank but chose instead to endorse the cheque and give it back to his mother with a direction that she deposit the funds and hold them does not change the character of the earlier transaction. Any subsequent breach of duty on the applicant’s part is ultimately irrelevant to the process of characterising the original transaction, once it is accepted both witnesses were truthful in their evidence about that transaction.
I am satisfied the financial asset in question was disposed of in 1999. In those circumstances, I set aside the decision under review and remit the matter to the respondent for reconsideration in accordance with that finding of fact.
I certify that the preceding 12 (twelve) paragraphs are a true copy of the reasons for the decision herein of Senior Member Bernard J McCabe. ........................................................................
Associate
Dated 17 July 2014
Date of hearing 11 July 2014 Applicant In person Advocate for the Respondent Mr A Burgess
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