Broad; Secretary, Department of Families, Housing, Community Services and Indigenous Affairs and
[2008] AATA 887
•19 September 2008
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2008] AATA 887
ADMINISTRATIVE APPEALS TRIBUNAL )
) No: 2007/3575 & 3577
GENERAL ADMNISTRATIVE DIVISION ) Re Secretary, Dept of Families, Housing, Community Services and Indigenous Affairs Applicant
And
Colin Broad
Helen Broad
Respondents
DECISION
Tribunal J.W. Constance, Senior Member Date 19 September 2008
Place Perth
Decision 1. The decision of the Social Security Appeals Tribunal made 19 June 2007 is set aside and in substitution it is decided that:
1) Mr Broad’s asset attribution percentage in relation to the CC Broad Family Trust at 14 December 2004 was 100%;
2) the distribution of $313,659.00 to Simon Broad from the proceeds of the sale of Milly Milly Station was a disposal of this amount by Mr Broad for the purposes of the calculation of Mr Broad’s assets pursuant to the provisions of the Social Security Act 1991;
3) from 18 October 2007 the amount of the disposal was reduced to $263,659.00;
4) the term investment of $60,000.00 is an asset of Mr Broad for the purposes of the Social Security Act 1991.
.
……(sgd) J W Constance.........................
J.W. Constance, Senior Member
CATCHWORDS
SOCIAL SECURITY – Appeal from Social Security Appeals Tribunal – Respondent a beneficiary of a trust – whether Respondent passes ‘control test’ - whether Respondent ‘attributable stakeholder’ for purpose of Act – whether asset gifted - assets attributable to Respondent – decision of Social Security Appeals Tribunal set aside.
Social Security Act 1991 (Cth) ss 1207P, 1207V, 1207X, 1208L
Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000
REASONS FOR DECISION
INTRODUCTION
2. On 17 March 2006 Mr and Mrs Broad applied for age pensions. These were granted from 13 March 2006 at a reduced rate by reason of the amount of their combined assets. As members of a couple their combined assets were divided equally between them for the purposes of calculating the pensions payable.
3. In calculating the pensions the Secretary included in Mr Broad’s assets an amount said to be a gift from Mr Broad to his son, Simon. This amount was part of the proceeds of the sale of the family property, Milly Milly, which was held by the CC Broad Family Trust. The Secretary argues that all of the proceeds should be attributed to Mr Broad and therefore a distribution to a person other than Mr Broad was a gift by him.
ISSUES FOR DETERMINATION
4. The following issues arise for determination.
1)Was Mr Broad the controller of the Broad Family Trust on 14 December 2004 (being the date the property was sold)?
2)If so, was Mr Broad an attributable stakeholder of the Broad Family Trust on 14 December 2004?
3)If he was, what percentage of the trust assets are attributable to him?
4)Did Mr Broad make a gift to his son, Simon Broad, of all or part of any assets attributable to him?
5)Is a term deposit of $32,000.00 held by Mr Broad an asset to be taken into account in determining his entitlement to the age pension?
FACTS
5. Unless stated otherwise the following findings of fact are based on the documents filed in the Tribunal and taken into evidence as exhibit T1. A reference to a document with a “T” prefix is a reference to a document forming part of exhibit T1. I am satisfied of the facts found on the balance of probabilities.
6. The facts set out in this paragraph are taken from the facts set out in the Secretary’s Statement of Facts and Contentions and are not in dispute. I am satisfied of these facts on the basis of the documents which are part of exhibit T1.
· Mr and Mrs Broad were the Trustees of the CC Broad Family Trust which was set up on 1 July 1981 to purchase a pastoral lease to operate Milly Milly Station.
· The Trust Deed gave the Trustees the absolute and uncontrolled discretion to distribute income and capital to the primary beneficiaries until the vesting date (2060), or until the death of both Mr and Mrs Broad after which the trust entitlements were fixed.
· The Primary Beneficiaries listed in the Deed were Mr and Mrs Broad and their three sons, David, Simon and Eric.
· On 31 July 1994 a Deed of Variation was made; it included a clause that allowed Trustees (with the consent of Mr and Mrs Broad, or the survivor of them) to vary the Trust terms and conditions.
· Mr and Mrs Broad retired as Trustees under a Deed of Retirement dated 1 August 1994 and appointed Jilwest Pty Ltd as the new Trustee.
· Jilwest Pty Ltd had been incorporated in June 1994 and had issued 9 shares; Mr Broad held 6 shares and his three sons held 1 share each.
· Mr Broad and two of his sons, Eric and Simon, were the directors of Jilwest Pty Ltd and Mrs Broad was the company secretary.
· The pastoral lease to the station was sold on 14 December 2004 for $950,000.
· On 10 December 2006 Mr and Mrs Broad signed statements relinquishing their beneficial interest in the Trust.
CONSIDERATION OF THE ISSUES
Issue 1: was Mr Broad the controller of the CC Broad Family Trust on 14 December 2004?
7. It is not in dispute that the Broad Family Trust was at all relevant times a designated private trust within the meaning of section 1207P of the Social Security Act 1991 (Cth). The trust becomes a controlled private trust in relation to Mr Broad if he “passes the control test” set out in section 1207V of the Act.
8. Subsection 1207V(2) provides:
For the purposes of this section, the individual passes the control test in relation to a trust if:
(a) the individual, or an associate of the individual (other than an
associate covered by paragraph 1207C(1)(j)), is the trustee, or any of the trustees, of the trust; or
(b) a group in relation to the individual was able to remove or appoint the trustee, or any of the trustees, of the trust; or
(c) a group in relation to the individual was able to vary the trust deed or to veto the decisions of the trustee; or
(d) the aggregate of:
(i) the beneficial interests in the corpus or income of the trust held by the individual (whether directly or indirectly); and
(ii) the beneficial interests in the corpus or income of the trust held by associates of the individual (whether directly or indirectly);
is 50% or more; or
(e) a group in relation to the individual had the power (by means of the exercise by the group of any power of appointment or revocation or otherwise) to obtain, with or without the consent of any other entity, the beneficial enjoyment of the corpus or income of the trust; or
(f) a group in relation to the individual was able in any manner whatsoever, whether directly or indirectly, to control the application of the corpus or income of the trust; or
(g) a group in relation to the individual was capable under a scheme of gaining the enjoyment or the control referred to in paragraph (e) or (f); or
(h) a trustee of the trust was accustomed or under an obligation (whether formally or informally) or might reasonably be expected to act in accordance with the directions, instructions or wishes of a group in relation to the individual.
9. In deciding whether the control test has been met in relation to Mr Broad it is necessary to look at the history of the trust. Mr and Mrs Broad were the trustees appointed in the Trust Deed executed in 1981.[1] Under clause 5, whilst Mr Broad was alive and whilst they were trustees, Mr and Mrs Broad had absolute discretion to pay the whole of the capital and accumulated income of the trust to all or any of the Primary Beneficiaries. At all relevant times the Primary Beneficiaries were Mr Broad, Mrs Broad and their sons. The deed provided also that the Trustees could change the terms of the deed, subject only to a proviso that any law against perpetuities not be infringed.[2]
[1] T6.
[2] Clause 21.
10. The Deed of Variation,[3] executed the day before the appointment of Jilwest Pty Limited as trustee, provided that the trustee could only amend the Deed ‘with the consent of Colin Campbell Broad and Helen Winifred Broad or the survivor of them, and with the consent of all living Primary Beneficiaries after the death of the said Colin Campbell Broad and Helen Winifred Broad.’ From the time of the appointment of the new trustee until Simon and his wife took control of the trust in July 2005, there were no further amendments of the Trust Deed.
[3] T6.
11. The Articles of Association of Jilwest Pty Ltd [4] provide that the company may remove and/or appoint directors by resolution. As Mr Broad held the majority of the shares he was in a position to determine the resolutions passed by the company and thus determine who would be directors at any time.
[4] Ex.T2.
12. I am satisfied that after the appointment of Jilwest Pty Limited as trustee Mr Broad was able to control the decisions of the company if he wished so to do. In addition he retained control of any amendments to the trust deed.
13. Subsection 1207V(4) provides:
A reference in this section to a group in relation to an individual is
a reference to:
(a) the individual acting alone; or
(b) an associate of the individual acting alone; or
(c) the individual and one or more associates of the individual acting together; or
(d) 2 or more associates of the individual acting together.
An associate of an individual includes a relative, making Mrs Broad an associate of Mr Broad for the purposes of determining the control of the trust.[5] Jilwest Pty Ltd is also an associate of Mr Broad for this purpose. [6]
[5] S,1207C.
[6] S.1207C.
14. I am satisfied that Mr Broad passes the control test by the application of subsection 1207V(2)(c). Between 1 August 1994 and 1 July 2005 the group of Mr Broad, Mrs Broad and the company was able to vary the trust deed by reason of the operation of clause 21 of the deed.
15. In addition Mr Broad passes the control test under sub paragraph (f) in that the group comprised of him and the company was able to control the corpus of the trust. This power was given to the group by clause 5 of the deed.
16. Having determined that Mr Broad passes the control test it follows that the trust is a controlled private trust in relation to Mr Broad.[7]
[7] Subsection 1207V(1).
Issue 2: was Mr Broad an “attributable stakeholder” of the trust on 14 December 2004?
17. Subsection 1207X(2) provides that (subject to provisions not relevant to these applications) if a trust is a controlled private trust in relation to an individual the individual is an attributable stakeholder of the trust ‘unless the Secretary otherwise determines.’ The Secretary (and therefore this Tribunal) must comply with relevant decision making principles in making such a determination.[8]
[8] Subsection 120-7X(5).
18. The principles are contained in Part 2 of the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000. The Secretary must consider the relationship between the individual and the trust having regard to (a) the reason why the individual, but for the determination, would be an attributable shareholder and (b) the circumstances mentioned in Part 2.[9] It is necessary to consider whether the effect of one or more of the circumstances to which I shall now refer provide a sufficient basis to determine that Mr Broad is not an attributable shareholder. The relevant Principles are set out in the schedule to these Reasons.
[9] Principle 6.
Principle 7: Circumstances affecting relationship with trust
19. From the outset the legal structure of the trust gave Mr and Mrs Broad control of it. This control was exercised initially as trustees and then through Mr Broad’s role in the decision-making of Jilwest Pty Limited and the need for the consent of Mr and Mrs Broad to any amendment of the trust deed.
20. Although Simon took over the day-to-day running of Milly Milly in about 2000 this does not mean that he took over the running of the trust. There is evidence that he not only managed the property and stock but also attended to the necessary bookwork and made decisions in relation to the operation of the enterprise. However these are activities which could have been undertaken by a trusted employee and do not of themselves indicate a role in the administrative arrangements of the trust.
21. When he gave evidence Mr Broad said that during negotiations to sell Milly Milly he rejected one proposal in the following terms:
You can go jump in the lake. No way I am going to accept that offer.
This indicates that Mr Broad was continuing to exercise his control at the time of sale.
22. In evidence Mr Broad said that he did not recall how it was determined that the trust funds be distributed or how it came about that $60,000.00 was transferred from Simon’s account to him. However the Social Security Appeals Tribunal noted in its decision:
When the pastoral lease was sold Mr Broad decided that the amount of $60,000 should be paid to him and his wife from the proceeds of sale. Simon did not make this decision and simply “let Dad (Mr Broad) take what amount he required”. [10]
[10] Ex.T1 p-8.
Further Mr Broad told the Social Security Appeals Tribunal that up until 1 July 2005 he remained involved in the trust for the express purpose of overseeing the appropriate disbursements of the remaining sale proceeds.[11] At the hearing before me the representative for Mr and Mrs Broad informed me that the history determined by the Tribunal was not in dispute.
[11] Ex.T1 p-23.
23. This evidence indicates that Mr Broad continued to exercise his control of the trust until the proceeds of the sale of its assets had been distributed.
24. Taking into account the history of the trust it could reasonably be expected that Mr Broad would exercise effective control of it at the time Milly Milly was sold and the proceeds distributed. I take into account that at the time the property was acquired there can be no doubt that Mr and Mrs Broad exercised control and the sons were much younger than they were in 2005. On the basis of the evidence of Mr Broad and Mr Adam, the trust’s accountant, the rationale behind the change of trustee was to ensure maximum protection of the family farm from possible claims by all or any of the sons’ partners at some future time. I am satisfied that the change of trustee was not designed to reduce the control of Mr Broad although it did reduce the control of Mrs Broad, a situation which caused her some concern. I also take into account that Mr Broad did not resign as a director of the trustee company and Mr and Mrs Broad did not re;inquish their beneficial interest in the trust until after the sale had been completed and the proceeds distributed.
25. The legal and administrative arrangements, along with the manner in which the trust had been controlled over more than 20 years cause me to conclude that the application of Principle 7 does not provide a basis for determining that Mr Broad was not an attributable stakeholder.
Principle 8: Contribution to trust
26. There is no evidence as to the direct financial contribution (if any) made by Mr Broad to the purchase of Milly Milly by the trust. However I am satisfied on the basis of the evidence of Mr Broad that he, along with other family members made a very substantial contribution towards the running of the property and therefore to the maintenance of the trust’s asset.
27. Mr Broad and other family members received the benefit of residing on the trust property. It appears that he and others received other benefits in relation to living expenses from the trust but there is insufficient evidence to allow me to make findings as to the extent of these benefits.
Principle 9: Past benefit by distribution from trust
28. From the proceeds of the sale of the property Mr Broad’s loan account with the trust ($54,013.00) was paid out. In effect this was a distribution of this amount to Mr Broad to enable him to pay out his loan account.[12] I am unable to determine whether there had been any other distributions to Mr Broad.
[12] T1, p.388.
Principle 10: Future benefit from distribution by trust
29. As the trust property has been sold and the trust has operated a separate business venture (not involving Mr and Mrs Broad) since 1 July 2005, it is not reasonably foreseeable that Mr Broad may receive a future distribution from the trust.
Principle 11: Benefit from assets or income of trust
30. The Balance Sheet of the trust as at 30 June 2005 shows that Mr Broad had the benefit of a loan of $54,013.00 to which I have already referred.[13] He also enjoyed the benefit of living on the trust property until about 2000.
[13] T1, p.388.
Principle 12: Existing attribution to individual
31. There is no evidence to suggest that Mr Broad is an attributable stakeholder in any other company or trust under the relevant legislation.
Principle 13: Other circumstances
32. On the evidence before me there are no other circumstances that affect the involvement of Mr Broad with the activities and/or administration of the trust.
Conclusion as to whether Mr Broad is an “attributable stakeholder“ of the trust
33. Having considered the evidence referred to above in applying the Principles set out there is nothing which causes me to determine otherwise than that Mr Broad is an attributable stakeholder of the trust in accordance with subsection 1207X (2) of the Act.
Issue 3: what percentage, if any, of the trust assets are attributable to Mr Broad?
34. Subsection 1207X(2) provides that (subject to provisions not relevant to these applications) if an individual is an attributable stakeholder his or her asset attribution percentage is 100% or such lower percentage as is determined by the Secretary. As is the case in determining whether the individual is an attributable stakeholder the Secretary, and on review the Tribunal, must comply with the relevant decision making principles.
35. The relevant principles are contained in Part 3 of the Principles to which I have already referred.
36. Principle 15 provides:
(1) This Part applies if, but for a determination by the Secretary, the asset
attribution percentage of the attributable stakeholder, in relation to the
company or trust, would be 100%.
(2) The Secretary must consider the relationship between the individual and the company or trust, having regard to the circumstances mentioned in this Part.
(3) In particular, the Secretary must consider whether the effect of one or more of the circumstances mentioned in this Part, in relation to the individual and the company or trust, provides a sufficient basis on which to determine a percentage lower than 100% as the asset attribution percentage.
37. In determining whether the asset attribution percentage should be less than 100% I am to comply with Principles 15 (set out above) and Principles 16 to 22 of Part 3. Principles 16 to 22 require the same considerations as Principles 7 to 13 of Part 2 to which I have already referred. For the same reasons that led me to conclude that Mr Broad is an attributable stakeholder I am satisfied that there is nothing in the applicable Principles to cause me to decide that Mr Broad’s asset attribution percentage should be other than 100%.
38. However it is also necessary to consider whether there are stakeholders other than Mr Broad to whom part of the assets should be attributed. This is required by clause 4.12.2.10 of The Guide to Social Security Law which provides in part:
When determining the attribution percentage to an individual(s) of a controlled private trust or controlled private company the assessor should also have regard to the following:
If the individual(s) is/are…. Then…. multiple stakeholders of a controlled private company or a controlled private trust (other than a concessional primary production trust), attribute the assets AND income of the structure to the stakeholders in the percentage determined by the level of control exhibited by the individuals.
39. Whilst I am satisfied that from 2000 Simon was responsible for the day-to-day running of Milly Milly, for the reasons already stated I am not satisfied that he was an attributable stakeholder as I am not satisfied that he passes any of the control tests in relation to the trust. His activities in running the property, including managing the finances, do not show that he exercised any control of the trust itself. Although Simon held one share in the trustee company from 1994 onwards, Mr Broad held six of the nine issued shares, which enabled him to out-vote all of the remaining shareholders even if they voted together. No-one, other than Mr Broad, held more than one share.
40. Having applied the relevant Principles and the relevant provisions of the Guide I am satisfied that there is no basis on which to decide that Mr Broad’s asset attribution percentage should be other than 100%.
Issue 4: did Mr Broad make a gift to his son, Simon Broad, of all or part of any assets attributable to him?
41. Subsection 1208L(1) of the Act provides that if an individual is an attributable stakeholder of a trust and the trust disposes of an asset, this disposal will be treated as a disposal by the individual.
42. It is not in dispute that after settlement of the sale of Milly Milly various debts of the trust were paid from the proceeds of sale. It is also undisputed that the balance of the sale proceeds were applied as follows:
· Repayment of loan by trust to Mr Broad $54,013.00
· Repayment of loan by trust to Mrs Broad $25,445.00
· Repayment of loan by trust to Simon Broad $84,048.00
· Credit to Simon Broad’s current account with trust $233,944.00
· Payment of sundry expenses on behalf of S Broad $ 5,670.00
43. Having decided that 100% of the assets are attributable to Mr Broad it follows that distributions to others (as distinct from the paying of the trust’s liabilities) are disposals of assets by Mr Broad for the purposes of the Social Security Act. On this basis the Mr Broad disposed of $323,650.00 to Simon from the sale proceeds being the total of the repayment of Simon’s loan account, the credit to his current account and the payment of the expenses on his behalf.
44. Mr & Mrs Broad have argued that the distribution to Simon was in respect of forgone wages and should not be considered to be a gift. There is insufficient evidence to enable me to make such a finding. In any event Chapter 4.1.7 of the Guide (which relates to the forgoing of wages) does not apply to the distribution of proceeds after a sale of a property.
45. On the same basis as previously referred to in relation to Simon Broad, the repayment of Mrs Broad’s loan account was a gift but this makes no difference to the calculation of the pension entitlements of Mr & Mrs Broad.
46. In August 2006 Simon transferred $60,000.00 from his beneficiary loan account to Mr Broad. On 18 October 2007 the policy regarding the return of the whole or part of a gift changed. As a result the Secretary accepts that from that date Simon repaid $60,000.00 of the earlier gift to him and that the amount gifted by Mr Broad is reduced by $60,000.00.
Issue 5: is the term deposit of $40,000.00 held by Mr Broad an asset to be taken into account in determining his entitlement to a pension?
47. Mr Broad invested $40,000.00 of the $60,000.00 transferred to him in a term deposit. The Secretary argued that this is an asset to be taken into account in addition to the gift made by Mr Broad to Simon. Mr Broad said that this was counting the same asset twice.
48. As the term deposit was an investment of part of the $60,000.00 which is now not to be regarded as part of the gift to Simon it is properly to be regarded as an asset of Mr Broad. There is no ‘double counting’ of assets in these circumstances.
DECISION
49. The decision of the Social Security Appeals Tribunal made 19 June 2007 is set aside and in substitution it is decided that:
5)Mr Broad’s asset attribution percentage in relation to the CC Broad Family Trust at 14 December 2004 was 100%;
6)the distribution of $313,659.00 to Simon Broad from the proceeds of the sale of Milly Milly Station was a disposal of this amount by Mr Broad for the purposes of the calculation of Mr Broad’s assets pursuant to the provisions of the Social Security Act 1991;
7)from 18 October 2007 the amount of the disposal was reduced to $263,659.00;
8)the term investment of $60,000.00 is an asset of Mr Broad for the purposes of the Social Security Act 1991.
I certify that the 49 preceding paragraphs are a true copy of the reasons for the decision herein of Mr J.W.Constance, Senior Member.
Signed: (sgd) P Horobin.....
Peter Horobin
AssociateDate of Hearing 11 July 2008
Date of Decision 19 September 2008
Representative for the Applicant Margaret Conlon
Centrelink Legal Services Branch
Representative for the Respondent Paul J. Adam
Adam Hunter Pty Ltd.
Schedule
Part 2Determination that individual is not attributable stakeholder
5 Purpose
This Part sets out decision-making principles with which the Secretary must comply in making a determination, under paragraph 1207X (1) (a) or (2) (c) of the Act, that an individual is not an attributable stakeholder of a company or trust.
6 Application
(1) This Part applies if, but for a determination by the Secretary, the individual would be an attributable stakeholder of the company or trust.
(2) The Secretary must consider the relationship between the individual and the company or trust having regard to:
(a) the reason why, but for a determination, the individual would be an attributable stakeholder; and
(b) the circumstances mentioned in this Part.
(3) In particular, the Secretary must consider whether the effect of one or more of the circumstances mentioned in this Part, in relation to the individual and the company or trust, provides a sufficient basis on which to determine that the individual is not an attributable stakeholder of the company or trust.
7 Circumstances affecting relationship with company or trust
(1) The Secretary must consider whether there are relevant circumstances that make it inappropriate for the individual to be an attributable stakeholder of the company or trust.
(2) For subsection (1), relevant circumstances include the extent to which the relationship between the individual and the company or trust is affected by any of the following circumstances:
(a) circumstances arising from the legal structure of the company or trust;
(b) circumstances arising from the administrative arrangements of the company or trust;
(c) whether, having regard to the relationship between the individual and the company or trust, the individual can reasonably be expected to exercise effective control in relation to the company or trust.
8 Contribution to company or trust
If the individual has made a contribution to the company or trust, the Secretary must consider the circumstances in which the contribution was made and, in particular:
(a) the value of the contribution; and
(b) the proportion that the value of the contribution has to the total assets of the company or trust at the time of the contribution; and
(c) the effect of the contribution on the financial position of the company or trust; and
(d) if the individual received consideration for the contribution, the amount of consideration.
9 Past benefit from distributions by company or trust
(1) The Secretary must consider whether the individual has received a benefit from a distribution made by the company or trust.
(2) If an individual has received a benefit, the Secretary must also consider:
(a) the value of the benefit; and
(b) if the individual has received a benefit on more than 1 occasion, the frequency with which the individual has received benefits.
(3) For this section, a distribution includes distributions:
(a) in the case of a distribution by a company — of the capital or income, or both, of the company; and
(b) in the case of a distribution by a trust — of the corpus or income, or both, of the trust.
10 Future benefit from distributions by company or trust
(1) The Secretary must consider whether it is reasonably foreseeable that the individual may receive a benefit from a future distribution by the company or trust.
(2) If subsection (1) applies, the Secretary must also consider the likely value of the benefit.
(3) For this section, the Secretary must have regard to:
(a) the constituent documents of the company; or
(b) documents, if any, establishing the terms of the trust.
(4) For this section, a distribution includes distributions:
(a) in the case of a distribution by a company — of the capital or income, or both, of the company; and
(b) in the case of a distribution by a trust — of the corpus or income, or both, of the trust.
11 Benefit from assets and income of company or trust
(1) The Secretary must consider whether the individual receives or derives any kind of benefit (other than a benefit mentioned in section 9 or 10) from the assets or income, or both, of the company or trust.
(2) For this section, benefit:
(a) is not limited to a benefit to which the individual has a legal or equitable entitlement; and
(b) includes benefits received or derived in the form of property or services.
12 Existing attribution to individual
(1) The Secretary must consider whether the individual is:
(a) under the Act — an attributable stakeholder of any other company or trust; or
(b) under the Veterans’ Entitlements Act 1986 — an attributable stakeholder of the company or trust, or of any other company or trust.
(2) If subsection (1) applies, the Secretary must also consider:
(a) the asset attribution percentage attributed to the individual, if any; and
(b) the income attribution percentage attributed to the individual, if any.
13 Other circumstances
The Secretary must consider any other circumstance that affects the involvement of the individual with the activities or the administration of the company or trust.
0
0
0