Bourton and Secretary, Department of Family and Community Services

[2005] AATA 482

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2005] AATA 482

ADMINISTRATIVE APPEALS TRIBUNAL               Nº V2004/1273

GENERAL ADMINISTRATIVE  DIVISION

Re:KENNETH EDGAR BOURTON and MARGARET SHIRLEY BOURTON

Applicants

And:SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES

Respondent

DECISION

Tribunal:       Mr B.H. Pascoe, Senior Member

Date:             27 May 2005

Place:            Melbourne

Decision:The Tribunal affirms the decision under review.

(sgd) B.H. Pascoe

Senior Member

SOCIAL SECURITY – reduction of age pension – attribution of income of controlled company – part income applied in repayment of loan to controllers – whether repayment of loan reduces attributable income

Social Security Act 1991 (Cth) s1207, 1208, 1209

REASONS FOR DECISION

27 May 2005  Mr B.H. Pascoe, Senior Member

1. This is an application for review of a decision of the Secretary to the Department of Family and Community Services (the respondent) dated 11 February 2004 to reduce the rate of age pension paid to Mr K.E and Mrs M.S Bourton (the applicants).  This decision was affirmed by the Social Security Appeals Tribunal on 5 October 2004.

2. At the hearing Mr Bourton represented himself and Mrs Bourton, and gave evidence.  The respondent was represented by Ms K. Paul, an advocate with Centrelink.

3. The basic facts of this matter were not in dispute.  The reduction in the applicants’ age pension was the result of the attribution of the net income of a company, TecQuip Pty Ltd (the company), controlled by them.  Mr and Mrs Bourton are directors and sole shareholders of the company.  In the year ended 30 June 2003, the company derived a net taxable income of $35,991 including a capital gain of $28,665 on the sale of public company shares.  Since 1995, when the company sold a business formerly carried on, the company has been solely an investment company.  Out of the proceeds from the sale of shares by the company, some $28,000 was utilised in part repayment of a loan from Mr and Mrs Bourton to the company.

4. The attribution of income derived by a company to an individual is dealt with in sections 1207 to 1209 of the Social Security Act 1991 (“the Act”). There is no dispute that Mr and Mrs Bourton were attributable shareholders in the company during the whole of the year ended 30 June 2003. As such s1207Y(1) of the Act applies to attribute 50 per cent of the ordinary income of the company to each of them. Sections 1208 and 1208B of the Act provide that the ordinary income of the company is the gross ordinary income from all sources reduced by allowable deductions under the Income Tax Assessment Act 1936 or the Income Tax Assessment Act 1997.  Under these provisions it is clear that the ordinary income of the company in the relevant year was $35,991 and this is not disputed by Mr Bourton.

5. The primary argument of Mr Bourton was that the income attributable to the shareholders should be reduced by the $28,000 repayment of the loan made by them to the company.  He maintained that the company had a responsibility to set aside the money required to repay the debt and only the remaining income should be regarded as attributable income.  He considered that it was incorrect to include as personal income of himself and Mrs Bourton that amount of $28,000, which was an amount of capital as debt repayment in their hands.

6. It seems clear that Mr Bourton has confused two separate and discrete issues.  One is that a company controlled by them derived an income of $35,991 and that income is attributable to them as if they had derived that amount of income in their own right.  The repayment of the loan is a separate and distinct matter, unrelated to the derivation of income by the company.  It is not the case that the repayment of part of their loan has been included as income.  The amount attributed to them would be the same whether the company had repaid $40,000 or nil.

7. It is clear that, contrary to Mr Bourton’s submission, amounts utilised by the company in repayment of a loan are not deductible in arriving at the ordinary income of the company.  The repayment of the loan by the company was an application of income rather than a loss or outgoing incurred to derive its income, or for the carrying on of its business for the purpose of deriving income.  The difference may be clearer to Mr and Mrs Bourton if it is said that the attribution of income of a controlled company is to treat such income as if it were derived by the individual.  The repayment of the loan was made to provide funds needed in the purchase of a new home.  The argument of Mr Bourton is equivalent to saying that they would be entitled to deduct from personal income such part of that income as is used to repay a debt or purchase a new home.  There is no doubt that such application of income for expenditure of a capital nature can not reduce the net income.

8. It follows from the foregoing that the decision under review should be affirmed.

I certify that the eight [8] preceding paragraphs are a true copy of the reasons for the decision herein of

Mr B.H. Pascoe, Senior Member

(sgd)       Olympia Sarrinikolaou

Clerk

Date of Hearing:  2 May 2005

Date of Decision:  27 May 2005
Advocate for the applicants:        Nil – Self‑represented

Advocate for the respondent:       Ms K. Paul, Legal Services Branch