Brian Smith and Secretary, Department of Social Services
[2013] AATA 787
[2013] AATA 787
Division GENERAL ADMINISTRATIVE DIVISION File Number
2012/2814
Re
Brian Smith
APPLICANT
And
Secretary, Department of Social Services
RESPONDENT
DECISION
Tribunal Dr M Denovan, Member
Date 8 November 2013 Place Brisbane The decision under review is affirmed.
.........................[Sgd]...............................................
Dr M Denovan, Member
CATCHWORDS
SOCIAL SECURITY – Pensions, benefits and allowances – Age pension – Disposal of asset – Lack of adequate consideration – Decision affirmed
LEGISLATION
Social Security Act 1991 (Cth) s 1123
CASES
Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634
SECONDARY MATERIALS
Guide to Social Security Law
REASONS FOR DECISION
Dr M Denovan, Member
8 November 2013
Mr Brian Smith is the applicant in these proceedings. At the time of the hearing, he was 74 years old. He has been in receipt of the age pension since 2003. He claims to have separated from his wife in 2007. In 2009 a jointly owned family home in the Northern Territory was sold. The proceeds of that sale, approximately $216,000, were transferred in full into his wife’s account. Centrelink made a decision that Mr Smith had disposed of his share of the money (half the proceeds of sale, approximately $108 000), under s 1123 of the Social Security Act 1991 (Cth) (“the Act”). The effect of that decision is that $98,000 of Mr Smith’s share is regarded as an asset, and affects the rate of age pension he receives for 5 years from the date he received that money.
In the case of a relationship breakdown where there is no court order, it is usual that 50% of the value of assets be held against each person. A person is deemed to have disposed of an asset if, amongst other things, they receive either no or inadequate consideration for that disposal. It is permissible to dispose of up to $10,000 under the Act, the remainder of any money disposed of is regarded as an asset for the purposes of calculating the rate of age pension a person receives. Exception is made for money disposed of that is the subject of a court ordered property settlement.
The parties agreed at the outset of the hearing on the amount of residual left after the sale of the family home in the Northern Territory, and that the majority of the proceeds of sale were transferred into Mrs Smith’s personal bank account. They also agree that there has been no court order made in relation to a property settlement. I must decide whether
Mr Smith received adequate consideration for his share of the proceeds of sale, which were transferred into his wife’s bank account.
Mr Smith has given a number of explanations as to why he believes he did receive adequate consideration for all of the money transferred. He claims that he owed his wife the money, as after the couple separated, she paid bills that they were jointly responsible for. These bills relate to the mortgage, and ongoing expenses for the property in the Northern Territory, and for utility and maintenance expenses for a property they bought together in Maryborough in 2006. Mrs Smith, it is claimed, used money she inherited from her recently deceased father to pay all of these bills.
Mr Smith also claims his wife, on his behalf, lent his share of the proceeds of sale to Concrete Pumpers & Sprayers NT PTY LTD “the family company”. The money was intended for the refurbishment of concrete pumps, owned by the company, which it was anticipated could be sold if refurbished.
The Respondents position is that Mr Smith gave the money to his wife in an attempt to avoid a reduction in his rate of age pension.
BACKGROUND PROVIDED BY THE APPLICANT
Mr Smith has provided a number of written statements, and also gave evidence in person at the hearing. The following is an outline of his case.
Mr and Mrs Smith (“the Smiths”) bought land in the Northern Territory sometime around 1989. They built a house on the land and moved in in around 1995.
In 2006 the Smiths decided to relocate to Queensland to be closer to Mrs Smith father, who was seriously ill. After they secured a contract on the sale of their Northern Territory home, they bought a home in Maryborough for $365,000 in March 2006, registered as joint tenants.[1] No mortgage was required as Mrs Smith’s father provided funds for the purchase by way of a loan.[2] It was anticipated that they would repay the loan when the family home in the Northern Territory sold. Unfortunately, one of the purchasers of that property had an accident and was unable to continue working, the bank denied the purchasers’ application for a mortgage, and the contract fell through. The Smiths now unexpectedly had two properties, and according to Mr Smith, it was for this reason, that they commenced living apart.
[1] Exhibit 1, p. 225.
[2] Exhibit 1, p. 105.
The Smiths were advised to borrow money for the purpose of subdividing the property in the Northern Territory, and separating the family home from a mango farm on the property, to expedite a sale. After the subdivision was completed, the lot with the family home on (“the family home”) and the lot with the mango orchard (“the orchard”) became two separate properties, numbered 22 and 24, respectively.
Sadly Mrs Smith’s father passed away in August 2007. The family home was sold in September 2009 for $735,000.[3] There was a mortgage over both the family home and the orchard, which was paid out in full at the time of settlement. A personal overdraft of about $60,000, and a business overdraft of just under $75,000 were also repaid from the proceeds of the sale.[4] Mr Smith’s share of the residual is the money Centrelink claims he disposed of.
[3] Exhibit 1, p. 142.
[4] Exhibit 1, p. 144.
The Smiths still own the orchard, on lot 24 in the Northern Territory. It has no dwelling, however it does have a shed, and large number of mango trees on it, which, according to Mr Smith are liabilities. There is also a power line easement burdening the property, which precludes any construction on part of the block. These reasons explain why the property has been on the market for some time without successfully selling.
Mr Smith told me he has no idea of the value of this property. He has stated he had received an offer of $150,000 which he rejected, and that there was a contract on the property for $180,000, however the contract fell through.
Mr Smith has operated a number of businesses in the Northern Territory throughout his working life. According to Mr Smith, at the time of this hearing the family company is the only company that has not been wound-up. That company is in the process of winding-up.
When the business ceased operating, it was in possession of a number of concrete pumping machines. About six of these machines were not certified for Australian standards, and were sent to Japan for scrap. Two other machines are certified but are not working and therefore difficult if not impossible to sell. The shareholders of the family company which owns the concrete machines are the Smiths and two of their adult children.
When the business ceased to operate in about 2006, there was an outstanding debt of about $75,000, in the form of a bank overdraft. As mentioned above, the Smiths paid out that overdraft when the family home was sold.
In 2010 the shareholders of the company agreed to invest money to bring the remaining machinery up to Australian standards so it could be sold. The company borrowed $100,000, and after refurbishing the machinery, successfully sold one machine in Maryborough, and another three in Darwin.
Mr Smith (in association with his wife, one of his sons and his daughter) also has an interest in a mango farm, this business operated through a company, BJR & DD Smith. The mango farm is located at the orchard, this being lot 24. It is no longer operating.
The Smiths married in 1969. When they separated, Mrs Smith took all the furniture and Mr Smith took sole possession of the family camper van. He claims to have been living in that van from the time of separation up until their recent reconciliation. Initially, after the family home sold, the van was usually parked at the orchard. Mr Smith used the van to travel to various places, including visits to his son’s property in Queensland, where he would stay for weeks at a time. In about 2010 Mr Smith relocated his van to the land at the rear of the joint property in Maryborough; he had access to some utilities and also had his own solar power. Although living in close proximity, he claims to have remained in the van and had no contact with his wife.
A property settlement was not finalised because of the high legal costs involved.
Mr Smith said religious reasons meant that the couple would likely never divorce.
A number of attempts to reconcile were made, usually whilst the couple holidayed overseas, and in late May or early June 2013, Mr Smith moved back into the home his wife was living in.
CONSIDERATION
Did Mr Smith receive adequate consideration for the $100,000 he transferred into his wife’s account, because he repaid a loan?
If indeed Mr Smith had a genuine debt owing to his wife, then there is no reason that debt should not be treated the same way as any other debt, such as the debt by way of mortgage to the ANZ bank was treated. It would be the case then, that by repaying that debt he would have received consideration that was reasonable.
I do not accept that was the case for a number of reasons, the most persuasive of which is that there is evidence from the Smith’s accountant, which I will refer to in due course, that the money was used for a different purpose.
Mr Smith was not a good historian, nor was he a credible witness. He claims that he has early Alzheimer’s disease, because of which he often becomes confused, and that is why his evidence was often vague and contradictory. There was no medical evidence to support this contention.
The Maryborough property
This property at Maryborough was purchased in March 2006, prior to the date Mr Smith claims the couple separated. The evidence suggests Mrs Smith’s father forgave the loan made by himself to the Smiths in his will. That being the case, there was no legal obligation for either Mrs or Mr Smith to repay that loan.
As the debt owed by the Smiths was waived in Mrs Smith’s father’s will, the Smiths owned the house outright, after Mrs Smith’s father died. Mr Smith had no legal obligation to pay any money to either the estate or to his wife for his share.
Mrs Smith’s father died after the date the Smiths claim to have separated. Had it been his intention to encumber his son-in-law with a loan to either his estate or to his daughter directly, presumably he could have changed his will or added a codicil.
Mr Smith claims he and Mrs Smith did not wish the loan forgiven. The Smiths signed a letter stating that they refused forgiveness of the loan.[5] Mr Smith has claimed that his wife repaid the estate $190,000, which represented part of his share of the loan from her father. He provided no proof of this, however even if Mrs Smith did repay the estate money, it was a personal choice and not a legal obligation, as the debt was forgiven in the will.
[5] Exhibit 1, p. 38.
Pursuant to s 4.1.5 of the Guides to Social Policy Law (“the Guide”), if a person waives their right to an interest in a deceased estate, without receiving any reasonable consideration, which is in effect what the Smiths claim they have done by not accepting the forgiveness of the loan granted by the will of Mrs Smith’s father, then they are deemed to have disposed of that asset. Whilst the Guide is not binding on the Tribunal, there are no cogent reasons that I can see which would suggest I should not follow it.[6]
[6] See Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634 at 639-645.
Mr Smith contends that he felt morally obliged to pay his estranged wife for his share of the property since his name was on the title. Even if Mr Smith gave his share of the proceeds of sale of the family home to his wife as part payment for his share of this property, and I do not accept that he did, he may have gained some moral comfort but he certainly gained no reasonable compensation in return.
Mr Smith produced receipts for plumbing and other expenses related to the property, which he claims some of the money he transferred to his wife was used to pay his share of. Whilst I agree Mr Smith would have be responsible for 50% of these bills if he was also getting the benefit of 50% ownership of the property, either by living in the property or by collecting rent. I do not accept that he was responsible for those fees given
Mrs Smith occupied the property exclusively after the couple separated, and she did not pay Mr Smith rent for the property whilst she was the sole inhabitant.
The only benefit Mr Smith gained from this property prior to reuniting with his wife was that he parked his campervan on the land, and had access to some utilities. He claims to have been paying half the rates for the property during the time he and his wife were estranged. His share of the rates for the six years the couple claim to have been separated would more than compensate for his parking on the land for some of that period.
As Mrs Smith was the sole occupier and not paying any rent to Mr Smith it is not unreasonable that she paid 100% of the ongoing running and maintenance expenses of that property, prior to the time they reconciled their marriage. Therefore, even if it was established that Mrs Smith was the only person paying all expenses associated with the running of this property, and there is no evidence to that effect before the Tribunal, I do not accept that Mr Smith had a debt to her for half of the value of those payments.
The family home in the Northern Territory
Mr Smith relies on a written document, which he claims proves the existence of a debt to his wife in relation to this property.[7] The “Deed” between himself and his wife, records the existence of the arrangement whereby she paid the expenses for the family home until it sold, and in effect half of those payments became a loan to Mr Smith. The wording of that deed is in the past tense, and is of a general nature. The address of the property, details of the mortgage, amount of mortgage and time frame are not mentioned in the “Deed”. It has been witnessed by a family member, but not by any other party.
The “Deed” is dated 8 January 2007, two months prior to the date the couple claim to have separated. I do not accept this document is evidence of a bona fide loan agreement between Mr Smith and his wife. The “Deed” also does not qualify as an exemption for the disposal of assets, as it is not sealed by the court.
[7] Exhibit 1 p. 39.
Even without a formal agreement, had the couple separated and from some time post separation Mrs Smith alone had been paying the mortgage and ongoing expenses, until the property sold, it would be reasonable to accept that there was an agreement between the parties for her to be reimbursed from Mr Smith’s share, when the family home sold.
Had the couple been separated, and such an agreement existed, I would expect there would have been some record keeping as to how the amount Mr Smith owed Mrs Smith was calculated. Especially if it was the case that Mr Smith was living on only his age pension and with no other liquid assets.
Mr Smith’s claim that his wife has paid $300,000 in mortgage payments alone is not supported by his own evidence.
Mr Smith has said that the mortgage payments were $3,013.25 per month, however at some point the bank agreed to reduce those payments to $2,327.87 per month. It is not clear when that reduction took effect from, however the bank statements provided show that the lesser amount was being paid into the loan account each month from March 2009 until the loan was finalised.[8] If the monthly payments were at the higher rate until March 2009, then the sum total of loan payments made from October 2007, when Mrs Smith had access to her inheritance, until 3 September 2009, when the last payment was made, is just under $66,500. Mr Smith’s share would be half, that is just under $33,250. If the reduction of the monthly repayments was made earlier, then of course this total would be considerably less.
[8] Exhibit 1, pp. 145-146.
On 28 January 2008, Mr Smith withdrew $13,029.39 from his superannuation account. He claims he deposited this amount into his wife’s account for the purpose of paying the loan and other expenses associated with the family home.[9] That money must be deducted from Mr Smith’s share of expenses, bringing the share possibly paid by
Mrs Smith to no more than $20,000. I understand there would have been additional costs associated with rates, repairs, maintenance and perhaps selling costs. No receipts have been provided, however Mr Smith did not mention any out of the ordinary expenses when questioned at the hearing. Allowing for those additional expenses, Mr Smith’s share, along with his share of the loan repayments could not have been anywhere near the $100,000 he transferred to his wife.
[9] Exhibit 1, p. 96.
Some bank statements from Mrs Smith’s account were available, however they did not show any repayments of the mortgage. Mr Smith was given leave after the hearing to provide evidence as to the exact value of the total mortgage and other payments made by Mrs Smith, and also to provide bank statements to show that the payments made were indeed made from Mrs Smith’s funds. Mr Smith did provide some receipts detailing payments, however he failed to provide any evidence to show they were made from his wife’s funds. Mr Smith asked for an extension of time to provide further documentation. This was denied, as, even if such evidence were available, it would not have changed my final decision.
Mr Smith contends that Mrs Smith must have paid the mortgage and other expenses, as there was no other source of money to pay these expenses, that argument is not persuasive. The mortgage repayments and other expenses must have been paid for many years prior to Mrs Smith receiving her inheritance. Although the family business was no longer operating, I note that the Smiths had a personal overdraft, which was drawn on to the value of $60,000 by the time the family home settled. Further, Mr Smith has mentioned the sale of some machinery in 2009, but there are no bank statements available, business or otherwise to demonstrate how much the sales were for, or where the money was deposited.
I accept Mrs Smith may have used some money from her inheritance to pay ongoing expenses and mortgage repayments relating to the family home. If the Smiths had been separated as claimed, I may have accepted Mr Smith owed half of those expenses proven to be made from Mrs Smith account, notwithstanding the fact that the amount Mr Smith would have owed his wife would have been considerably less than the $100,000 he transferred to her. I do not accept Mr Smith owes Mrs Smith money for his share of payments she made from her inheritance because I do not accept the couple were financially separated.
I accept the Smiths have spent a considerable amount of time not living under the same roof. That was a necessity of the circumstances they found themselves in, due to the delay in finding a buyer for the family home. Mr Smith has told Centrelink that he wants to use the camper van to travel around Australia, however his wife does not share his passion for road travel. This further explains why the couple may spend time apart. Living apart does not necessary mean a couple are financially independent of each other. Examination of their circumstances, including their financial arrangements must be considered.
There are a number of documents that refer to the Maryborough address as Mr Smith’s residential address from as early as January 2008. A separate PO Box address was provided as a postal address, suggesting Mr Smith was not simply using that address for his mail. This further suggests Mr Smith regarded that property as his residence, and that he intended to move to that address as soon as the family home sold.
It appears Centrelink was notified in June 2007 of the separation, which Mr Smiths claims happened in March 2007. This was only two months prior to the death of
Mrs Smith’s father, from whom she inherited a considerable amount of assets. No doubt, had the couple not separated, the increased assets shared by the couple as a result of impending inheritance from Mrs Smith’s then terminally ill father, would have precluded Mr Smith from receiving any further age pension.
It is understandable that whilst members of a separated couple are waiting for property to sell, and a family business to wind up it will difficult to have a swift and total financial break. One would expect however, that if the couple were separated as claimed,
Mr Smith would have had some degree of financial independence, and would have taken steps to secure his financial future. The evidence is that the couple’s finances remained largely enmeshed during the time they claim to have been separated. Mr Smith has continued to rely on Mrs Smith to make most of the financial decisions for both him and the family company. Mr Smith claims Mrs Smith has invested some of his money for him in a term deposit. He did not have his own bank account for the majority of time he claims he was separated.
In evidence are records from a joint bank account held by the Smith’s together.[10] These records show withdrawals and deposits from 18 September 2009 until 15 October 2009,
a time during which the Smiths claim they were separated. The records show a Centrelink pension payment (with the transaction reference bearing Mr Smith’s customer reference number) being deposited into the account along with a withdrawal from the Palmerston Coles supermarket. Along with these transactions is a withdrawal made from a bank branch in Maryborough and a deposit from an online saver account purported to be Mrs Smith’s.[11] All of these transactions have occurred in a two day period, with the withdrawals occurring on the same day. This record of transactions while providing only a brief snap shot, spanning little more than a month, shows a pattern of financial interdependence between the Smith’s.
[10] Exhibit 1, pp. 149-151.
[11] Exhibit 1, pp. 152-153.
Mrs Smith’s father died some six months after the couple claim to have separated. His will forgave the debt owing by both Mr and Mrs Smith. Had the couple genuinely separated, I consider it more likely the will would have been changed to ensure his estate was left exclusively to Mrs Smith.
In 2008, Mr Smith inherited approximately $13,000 from his mother’s estate. Rather than repay some of the purported loan he owed his wife, or put the money aside for his ongoing living expenses, he spent the entire amount on an overseas holiday with his wife.[12] He claims this was an attempt at reconciliation. This is not the behaviour one would normally expect from a man who was separated from his wife, and living in the financially impoverished position Mr Smith claims to have been in.
[12] Exhibit 1, p. 104.
Loan to the family company
In a letter dated 2 August 2013 Ms Janet Childs, accountant for the family, states that
Mr Smith lent the $100,000 he received from the sale of the family home to the family company.[13] I do not accept that Mr Smith would have agreed to lend all of the money he had access to, if the couple were genuinely separated. Especially as his wife had just inherited a large sum of money, and given the company that already owed him more than $300,000, was not trading, and was unlikely to ever be able to repay the money in full. The money was clearly needed by the company and was paid from Mrs Smith’s bank account. That the loan was attributed to Mr Smith on the company ledger, further raises the possibility that the couples finances were still enmeshed, and the reason the loan was attributed to Mr Smith, was in fact to reduce the value of Mr Smith’s assets for the purpose of his social security payments.
[13] Exhibit 2.
What further supports that theory is what happened in the 2013 financial year, which of course is from 1 July 2012 until 30 June 2013. Mr Smith’s loan to the family company actually decreased, by an amount in excess of $76,000. His wife loaned the company nearly $85,000 during the same period.
Mr Smith has not notified Centrelink that he received the $76,000. I suspect he did not receive the money and this was a ledger entry only. If the Smiths were living as a married couple at the time this change in the balance of the director’s loans was made, then one could presume that it was likely a ledger entry only, and that in effect, no money changed hands. However the Smiths claim to have been separated when this change was made.
A separated man presumably would not agree to having the change made without receiving the $76,000 in cash or some other equivalent form of payment. If Mr Smith allowed the change of director’s loans to be a ledger entry only, then he effectively gave his wife $76,000. That is understandable, only if the couple were not separated.
These matters, plus the lack of a formal property settlement; the two or more overseas trips taken together during the time they claim to have been separated; the lack of any formal loan agreements between the two; Mr Smith’s forgetfulness demonstrated at the hearing as to when he actually separated; all suggest the couple have been considerably closer than what is usually expected of separated couples. I find that there was no financial separation between the couple, and Mr Smith had no legal obligations to repay his wife money for joint expenses that she paid.
Did Mr Smith gain reasonable monetary compensation for the money he transferred to his wife by way of a loan to the family company?
The letter from Janet Childs, dated 2 August 2013, states that Mrs Smith contributed $100,000 on behalf of Mr Smith as a loan to the family company. Ms Childs identified the money from the proceeds of sale from the family home as the source of that transfer, and the period of time in which the transfer took place as being from 19 August 2009 to 19 April 2011.
Financial statements for the same company show the company had a loan from
Mr Smith of $368,868.04 as at 30 June 2013.[14] There are no financial statements available for 2010 and 2011, the first two of the years in which Mrs Smith made the said loan to the company on behalf of her husband, however I accept the evidence of Ms Child, who is a registered accountant.
[14] Exhibit 9, p. 4.
As there are no profit and loss statements for the company in evidence I can not be sure of its exact financial situation at the time Mr Smith’s money from the sale of the family home was provided by way of a loan. The company had assets valued at $74,251.23, and liabilities of $502,457.26, according to the tax return of 2013. At that time the majority of the loans were from Mr Smith. Mr Smith gave evidence that this company has been struggling during the recent economic downturn. Given the fact that the business had been in the process of winding up since 2010, when the machinery was been refurbished and sold, and the company was no longer trading, as well as the very small value of the company assets in 2013, I find that at the time the $100,000 was lent to the company, there was almost no chance of the loan being repaid in full. Mr Smith therefore disposed of his $100,000 and did not receive reasonable monetary compensation.
The balance sheet for the company indicates that Mr Smith’s loans to the company were reduced by more than $76,000 in the 2013 financial year. Even if one takes the view that this money was part repayment of the money deposited into the company on his behalf from his wife’s account from 2009 to 2011, rather than a deposit without consideration, the money has been an asset of Mr Smith’s the entire time. The effect on Mr Smith’s pension would be the same, from the time he received the money from the property settlement, he either had an asset by way of the loan to the company, or he had disposed of the asset without adequate consideration.
CONCLUSION
Mr Smith has given a number of different explanations as to what happened to his share of the proceeds from the sale of the family home, which were deposited into his wife’s account in September 2009. The only explanation with creditability is that the money was used as a loan to the family company.
The accountant states the money was transferred to the company over a period of time, from 2009 until 2012. Until transferred, the money was an asset of Mr Smith’s, held on trust by Mrs Smith. It remained an asset of Mr Smith’s until such time as it was transferred to the family company in the form of a loan. There was no reasonable monetary compensation in exchange for the loan to the company. This finding would be the same even if I accepted the couple were genuinely separated, as they claim.
Mr Smith received part repayment of his loan to the family company sometime in the 2013 financial year. It is not for me to decide whether that is a return in part of the $100,000 in question, or repayment of other money he lent to the company at an earlier date.
Mr Smith has told Centrelink that his wife invested the money he transferred to her, and it was his expectation that he was to get some back. He said he was expecting $54,000 back when the investment matured. At the hearing Mr Smith maintained that this was still the case. As the accountant has stated that $100,000 of Mr Smith’s share of the proceeds of sale of the family home was used as a company loan, then Mrs Smith must have been holding additional money on Mr Smith’s behalf.
DECISION
The decision under review is affirmed.
I certify that the preceding 59 (fifty-nine) paragraphs are a true copy of the reasons for the decision herein of
Dr M Denovan, Member............................[Sgd]............................................
Associate
Dated 8 November 2013
Date of hearing 7 August 2013 Date final submissions received 19 September 2013 Applicant In person Solicitor for the Respondent Mr Matthew Hawker, Sparke Helmore
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