Buck; Secretary, Department of Employment and (Social services second review)

[2016] AATA 167

Buck; Secretary, Department of Employment and (Social services second review) [2016] AATA 167 (22 March 2016)

Division	GENERAL DIVISION
File Number	2014/2556
Re	Secretary, Department of Employment
APPLICANT
And	Julie Buck
RESPONDENT

DECISION

Tribunal	Senior Member N A Manetta
Date	22 March 2016
Place	Adelaide

The decision of the Social Security Appeals Tribunal is varied by setting aside its directions and substituting the following direction in lieu thereof:

The Applicant Secretary is directed to recalculate Ms Buck’s parenting payment, and to pay her arrears, on the basis that Ms Buck did not derive any income from the Buck Family Trust after 15 June 2013 and that there should be no deemed attribution of income to her from the Trust after this date.

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Senior Member N A Manetta

CATCHWORDS

SOCIAL SECURITY - parenting payment- when income derived by beneficiary from a family trust - withdrawals of money from trust’s bank account in the course of a financial year- held withdrawals represented distribution of income from Trust

LEGISLATION

Social Security Act 1991

CASES

Re Duckworth and Secretary, Department of Social Security [1995] AATA 179; 39 ALD 674

REASONS FOR DECISION

Senior Member N A Manetta

22 March 2016

1. This is an application by the Secretary, Department of Employment seeking a review of the decision of the Social Security Appeals Tribunal (SSAT) dated 16 April 2014.  The SSAT set aside a decision[1] taken in the Secretary’s department concerning the calculation of the parenting payment the respondent, Ms Julie Buck, was eligible to receive under the Social Security Act, 1991 (the Act).  The Secretary’s department had included in the calculation, to the disadvantage of Ms Buck, an amount of some $47,689 said to have been income derived by Ms Buck from a family trust.  The SSAT decided that this inclusion was inappropriate.  The Secretary now seeks to have the SSAT’s decision reversed and the departmental decision reinstated.  At the hearing, Ms Shepherd appeared for the Secretary; Mr Shepley appeared for Ms Buck.

   [1] The SSAT recorded at [8] of its reasons that the “decision” under review is “each and every decision of Centrelink that determined Mrs Buck’s rate of parenting payment for any day between 13 January 2014 and 24 February 2014 inclusive”.

   ISSUE BEFORE TRIBUNAL

2. The issue dividing the parties is a discrete one.  It concerns the attribution of income to Ms Buck.  The income in question is admitted to have been derived from a family trust known as the Buck Family Trust (the Trust).  Mr Shepley submitted that Ms Buck derived income in the course of the 2012/2013 financial year and that she neither received nor derived any income after 30 June 2013.  He submitted her parenting payment, for which an application was made in January 2014, should not have been reduced by reference to this income.

3. Ms Shepherd submitted for the Secretary that although no monies were in fact paid to Ms Buck after 30 June 2013, the Secretary was, as a matter of law, bound to find that income was derived by Ms Buck on 26 September 2013 as a lump sum.  On this date, Ms Buck’s tax return was prepared and for the first time an amount ($47,689.00) was ascertained and written down representing, in the Secretary’s submission, a distribution of income from the Trust to her.  The Secretary’s position is that the monies accessed by Ms Buck in the course of the 2012/2013 financial year from the trustee’s bank account were properly characterised as “drawings” by her in advance of any distribution of income that might be resolved upon by the trustee in due course.  They were, therefore, in the nature of loan monies, and, in any event, they did not represent a distribution of income.  Ms Shepherd further submitted that the amount of $47,689.00 was properly averaged over the course of the 12 months following 26 September 2013.

   SUMMARY OF CONCLUSION

4. In my opinion, Ms Buck did not derive income on 26 September 2013 when the figure of $47,689.00 was prepared and inserted by the accountancy firm retained to prepare her return.[2] 

   [2] Nor did she receive that amount on 30 June 2013, which I take to be the view of the SSAT.

5. In my view, Mr and Ms Buck received income from the Trust in the course of the 2012/2013 financial year as and when they used the trustee’s bank account.  On the evidence before me, no income was received or derived by Ms Buck from the Trust after the end of the 2012/2013 financial year.    

6. I now set out the background facts and then my reasons for this conclusion.

   BACKGROUND FACTS

7. Ms Buck gave evidence, and her evidence was accepted in the main by the Secretary.  In addition, Ms Scott from the accounting practice retained by the Trust, Robins Harris Pty Ltd, was called to give evidence.  I note further that the parties have helpfully agreed a statement of facts and issues.[3] 

   [3] Exhibit A1.

8. Ms Buck gave evidence that she met her future husband some eight to ten years before the hearing in this matter in Moomba, South Australia.  They formed a relationship, had a child together, and subsequently married.  As I understand Ms Buck’s evidence, Mr Buck had been working for Transfield Services in 2007 as an employed welder on wages.  They decided in 2007 to set up a trust with a corporate trustee (of which they would be sole directors and shareholders) so that he could provide his services to Transfield Services as an independent contractor rather than as an employee.    

9. As I understood Ms Scott’s evidence, the family trust was a “tax-effective” means of “splitting” income amongst Mr Buck and his family members.  It is common knowledge that family trusts are often used for tax-planning purposes.  The Trust was established by a deed drawn by G V Lawyers Pty Ltd practising out of Perth, Western Australia[4] on 19 December 2007.  I shall return to the terms of the Trust in due course. 

   [4] The deed was intended to be governed by SA law:  see clause 31 of the deed and clause 10 of the schedule.  The deed was presented to the SA revenue office for stamping under the South Australian stamp duties legislation but was apparently assessed to be exempt from duty.

10. Mr and Mrs Buck were the sole directors and shareholders of the corporate trustee known as “SA and JA Welding Enterprises Pty Ltd”.[5]  The beneficiaries of the Trust included, but were not confined to, Mr Buck and Ms Buck (who was identified in clause 6 of the schedule under her maiden name).

    [5] Agreed fact 3.

11. As I have mentioned, Mr Buck offered his welding services to Transfield Services (and presumably other members of the public) as an independent contractor and, as a matter of law, through the Trust’s corporate trustee.  Ms Buck provided secretarial functions to the business, which included preparing invoices in relation to the welding work Mr Buck performed. 

12. Ms Buck gave evidence, which I accept, that she did not really understand the reason for setting up the Trust.  She continued, however, her family responsibility for managing the money “coming in” and for paying the family’s bills.  Her evidence was that Mr Buck was paid monthly by Transfield Services[6] and income was paid into the trustee’s business bank account. 

    [6] This evidence is supported by the bank statements appearing in the T Documents (Exhibit A2) at T11, pp99-151.

13. Ms Buck gave evidence, which I also accept, that she treated the monies coming in as, in effect, a continuation of the wage Mr Buck had received from Transfield Services when he was its employee (although they were gross amounts without any deduction for income tax).  She would use monies from the corporate trustee’s bank account to meet family and personal expenses as well as expenses associated with running the business.[7]  She was responsible for paying the family’s bills.  On many occasions, monies were not withdrawn as cash, but, rather, EFTPOS transactions were entered to pay for goods and services. 

    [7] This is reflected in the evidence Ms Buck gave concerning the entries in a bank statement appearing in the T documents (Exhibit 2) at page 113.

14. According to Ms Buck’s evidence, in April 2013, the business operating through the corporate trustee was winding up.  A decision was (or had been) taken to cease trading through it.  The last invoice was issued in April 2013.  The bank statements show a last monthly payment from Transfield Services on 14 May 2013, and nothing later.  It is agreed that in May 2013 at a meeting of the “Trustees” (sic) of the Buck Family Trust it was resolved to distribute the net income of the Trust for the year “ended” 2013.[8]  The date of the resolution (5 May 2013) predates the end of the financial year.  It is agreed that the Trust formally ceased to trade on 12 June 2013.[9]  The minutes of the resolution record relevantly:[10]

    “Under the terms of the Trust Deed it was resolved to distribute the net income of the Trust for the year ended 30 June 2013,

    As follows:-

    SA & JA Welding Pty Ltd       Up to $ 480.00

    Miss Jasmine Buck                Up to $ 416.00

    Mr Shane Buck  Up to 50%

    In the event that any change is made to the distributable amount for any reason whatsoever, then the excess, if any, is to be distributed to Mrs Julie Buck.”

    [8] Agreed fact 4.

    [9] Agreed fact 6.

    [10] Exhibit A3.

15. The wording of this resolution is obscure, but it is accepted by the parties that after payment to the corporate trustee and the Bucks’ daughter of the relatively small amounts listed, the net income of the Trust was to be divided on a 50-50 basis between Mr Buck and Ms Buck.  Ms Scott gave evidence that the wording was chosen in anticipation of a scenario where a single cent was left over for distribution.  In my opinion, there was no need for the resolution to be cast in these terms to achieve that trivial end; but I accept on the evidence before me that the resolution was intended to divide the income of the Trust on a 50-50 basis, which I assume was the most- or at least a-  tax-effective division.

16. As I have noted, it is agreed between the parties that the Trust formally ceased to trade on 12 June 2013.  On the evidence before me, the Trust received no income after 14 May 2013: and none appears in the bank statements.  It is further agreed[11] between the parties that the Trust’s financial statements show that the net profit of the Trust of $96,264.79[12] was distributed as follows:[13]

    Beneficiaries Share of Profit             2013

    -    Shane Buck  47,688.89

    -    Julie Sweet  47,688.90

    -    Jasmine Buck  416.00

    -    SA & JA Welding Pty Ltd                   471.00

    -    Total Profit  96,264.79

    [11] Agreed Fact 7.

    [12] Exhibit A2, T9 p 77.

    [13] Exhibit A2, T9, p 80.

17. The Trust’s financial statements appear to have been finalised in February 2014 only.  It is not unusual, of course, for accounting firms to prepare financial statements well after the end of the financial year to which they relate.  Importantly, there is a reference in the “Beneficiaries’ Profit Distribution Summary” to the “physical distribution” to Ms Buck of her share of the profits in the amount of $47,688.90.[14]  This is identical with the amount that is reported as her profit distribution.  This implies she had no further claim on the Trust in respect of its profits.

    [14] Exhibit A2, T9 p 81

18. Ms Buck’s tax return, which the parties agreed[15] was signed on 26 September 2013, also included a sum of $47,689 from the Trust (in addition to a distribution from another family trust called the Schumacher Family Trust which is not relevant to these proceedings). 

    [15] Exhibit A1, agreed fact 8.

19. Returning now to Ms Buck’s personal circumstances, I note that in January 2014 she separated from Mr Buck.  According to Ms Buck, the separation left her with little money but the responsibility to care for her daughter once Mr Buck had left the marital home.  Ms Buck made an application to Centrelink on 22 January 2014 for a parenting payment with which to support her daughter as well as herself.[16]  Ms Buck had executed documents the preceding day, on 21 January 2014, resigning as a director of the corporate trustee and transferring her shareholding in the corporate trustee to her husband. 

    [16] Exhibit A2, T6 p 46-56, (pages 1 & 2 of the 13 page form are omitted from the T documents).

    FINDINGS

20. At this point, it is convenient to record certain findings on the facts.  I accept that Mr and Ms Buck used money from the corporate trustee’s business account with one another’s express or tacit permission.  They were co-directors of the corporate trustee. I accept that they withdrew cash or paid for goods and services by EFTPOS during the course of the 2012/2013 year from this account.  I accept that Ms Buck did not withdraw sums after 30 June 2013 from that account under the terms of the Buck Family Trust.  I accept that the last receipt of income by the Trust took place on 14 May 2013 (from Transfield Services) and that the account was drawn down to zero by 15 June 2013[17].  I accept that during the course of the financial year, the final division of income between Mr and Ms Buck had yet to be decided, but all moneys withdrawn (or EFTPOS transactions made) were withdrawn for use in supporting them, their daughter and in meeting business expenses.

    [17] See entry at T11, p139.  Other amounts were either deposited to the account or transferred to it after that time, but on the evidence before me these were not instances of income earned by the trustee.  

    CENTRELINK’S DECISION

21. When it came to assess Ms Buck’s application for a single parenting payment, Centrelink discounted the parenting payment to which Ms Buck would otherwise have been entitled.  Centrelink (and subsequently the authorised review officer (ARO) on review) reasoned[18] that an amount of $47,689 was derived by Ms Buck on 26 September 2013 when her tax return was signed, this being the first time a distribution figure had been calculated by the Trust’s accountant.  The ARO found this amount to be deemed income to Ms Buck and used this figure to reduce Ms Buck’s parenting payment for 52 weeks from September 2013 onwards.  The ARO relied upon s 1073 of the Act to average what was said to be a derivation by Ms Buck of a lump sum of $47,689 over a 12-month period.  Critical to this conclusion is a finding that Ms Buck had a legal entitlement to a lump sum from the Buck Family Trust on this date.

    [18] Exhibit A2, T 19 p 160-162.

    SECRETARY’S SUBMISSION

22. Before me, and it would appear before the SSAT, the Secretary submitted that the cash amounts withdrawn by Mr and Ms Buck and the EFTPOS transactions made by them in the course of the 2012/2013 tax year did not represent a distribution of income to them from the Trust.  The submission was founded on a proposition of law that these monies had to be categorised as “drawings” or advances to them and could not involve the distribution of income. 

23. As I understood the submission, it was contended that in the absence of a formal determination of the level of the Trust’s annual income and a resolution of the corporate trustee permitting a distribution of that determined income, there could be, in law, no distribution of income.  It then followed that Ms Buck must be taken in law to have received advances, or loans, against a possible future distribution of income to her.  This second proposition follows on from the primary contention, which as I have said is one of law, that there can be no distribution of trust income without a formal resolution of the trustee in respect of an ascertained annual amount.  I do not accept that primary contention. 

    REASONS

24. There is no principle of law that requires this conclusion in my opinion.  A trust deed will usually set out how and when trust income may be distributed, as it does in this case.  Under Clause 3.1.1 of the trust deed,[19] the trustee was expressly authorised at any time before the expiration of any accounting period[20] to “determine” to pay to beneficiaries, including Mr and Ms Buck, all or any part of the net income of the trust fund.  I note that the power was exercisable before 30 June in any financial year. 

    [19] Exhibit R1.

    [20] Defined in Clause 1 to mean effectively a financial year.

25. The trustee was, therefore, expressly authorised to make a payment of the net income of the Trust fund as it arose during the course of the 2012/2013 financial year.  Indeed, clause 3.2.2 specifically addresses the situation where amounts paid under clause 3.1 (including cl 3.1.1) end up exceeding the net income of the trust fund as ascertained for the financial year.  Effectively, accumulated net income had to be debited, and, to the extent accumulated net income was insufficient to meet the deficit, the trustee would be deemed to have distributed capital.  I point to this provision as one clearly anticipating that income could be distributed before the end of the financial year and before ascertainment of the Trust’s net income. 

26. Clause 3.2.3 sets out the various ways a trustee’s determination under clause 3.1 may be “effectually made and satisfied” as follows:

    3.2.3 a determination to pay apply or set aside any amount to or for the benefit of any beneficiary may be effectually made and satisfied (inter alia):

    3.2.3.1 by placing such amount to the credit of such beneficiary in the books of account of the Trust Fund;

    3.2.3.2by drawing any cheque in respect of such amount made payable to or for the credit or benefit of such beneficiary;

    3.2.3.3by paying the same over to or for the benefit of such beneficiary in such manner and to such person on behalf of such beneficiary as the Trustee shall think fit; or

    3.2.3.4by a resolution of the Trustee that a sum out of or portion of the net income of the Trust Fund or the net income of the Trust Fund for the Accounting Period be paid, applied or set aside to or for the beneficiary or otherwise dealt with for the benefit of the beneficiary and any resolution of the Trustee as provided in this sub-paragraph shall be irrevocable and the net income of the Trust Fund shall be dealt with as required by the resolution;

    …”

27. I accept clause 3.2.3.4 does provide for the possibility of a formal resolution of the trustee, but it is only one of a number of ways a distribution could occur.  It is clear from the terms of clause 3.2.3.3 that there is no legal objection to the corporate trustee paying out income during the course of the 2012/2013 tax year in the absence of a formal resolution of the trustee.  The act of payment is itself prescribed to be an “effectual making and satisfaction” of a “determination” in this regard. 

28. The trustee in this case is, of course, a corporate trustee.  The trustee could only act through its directors, Mr and Ms Buck, with Ms Buck having day-to-day (but not exclusive) access to the bank account.  I accept that Ms Buck was primarily responsible for managing the family’s finances as she had been when Mr Buck was an employee of Transfield Services.  There is no evidence before me that Mr Buck objected to Ms Buck’s transfers. To the contrary, her evidence is consistent with an explicit, or at least tacit, authority from Mr Buck to apply the income from the business to support family members.  Accordingly, to the extent that the Secretary’s submission suggested that it is necessary for there to be a formal resolution of the trustee before the Trust’s income could be distributed I find that it is not supported by the terms of the trust deed or the day-to-day practice of Mr and Ms Buck. 

29. I also reject the Secretary’s further submission that there could be no distribution of income before the annual income had been ascertained at the end of the financial year.  In this regard, there may be some misunderstanding by the Secretary of the following passage in this Tribunal’s decision in Re Duckworth and Secretary, Department of Social Security:[21]

    “Upon the trustee declaring, pursuant to the terms of the discretionary trust, that the beneficiary be credited with a share of the trustee’s income for the year, that beneficiary then has an absolute, indefeasible and absolutely vested interest in that amount and is legally able to demand payment of that amount – it is a recoverable debt at that point in time; see for example Latham C J and Williams J in FCT v Whiting (1943) 68 CLR 199, 7 ATD 179 at 183 where their Honours speak of the right to demand payment of a vested right to income.  As such the amount is income derived by the beneficiaries, even though it may not have been paid over to them.”[22]

    [21] (1995) 39 ALD 674.

    [22] At p 677 (paragraph [15).

1. It is not said in this passage that income may only be received by beneficiaries after a formal resolution by a trustee, nor does it imply that the net income of the trust needs, as a matter of law, to be ascertained over an entire year before a transfer of monies to a beneficiary may be said to be a distribution of income.  The passage says, rather, that a formal resolution by a trustee to pay moneys results in an enforceable debt against the trustees (the assumption being that the trustee has not paid moneys to the beneficiaries as at the date of the resolution).  From that, it follows that the beneficiaries may[23] have deemed income at the point of the resolution.  As I have said, the trust deed in this case clearly permitted the trustee to distribute the income of the trust during the course of the financial year in which it was received. 

   [23] Whether income is derived at this point must depend on the statutory regime in question.

2. I should add that I accept that no consideration was given by Mr and Ms Buck or their accountants to the question of the division of the income of the Trust amongst the Bucks before the May 2013 resolution.  That fact does not prevent, in my opinion, a conclusion that the income of the Trust was distributed in the course of the year; and in any event by the time of the May 2013 resolution, the division of the income was settled.

3. I would also note that the Secretary’s submission does lead to an artificial categorisation in the circumstances of this case.  Mr Buck’s welding work led the corporate trustee to prepare invoices which were paid monthly.  The monies received were income in the bank account of the corporate trustee and that income was drawn upon by Mr and Ms Buck.  In withdrawing cash or in engaging in EFTPOS transactions, Ms Buck did not intend to borrow money from the corporate trustee in advance of a formal distribution.  She understood she was withdrawing what was hers and her husband’s, just as she had when Mr Buck was an employee.  The subsequent entry in Ms Buck’s tax return in September 2013, as well as in the Trust’s financial records in February 2014, of the figure of $47,689 did not crystallise an entitlement in Ms Buck to any payment, but, rather, confirmed her share of the distributions of income that had already occurred periodically in the course of the 2012/2013 financial year. 

4. It follows, in my opinion, that the income the parties agree Ms Buck received of some $47,689 was in fact received by her as income during the course of the 2012/2013 financial year, and not later. 

5. I note that the SSAT, which did not, unfortunately, have the trust deed before it, indicated that it thought a distribution had occurred on 30 June 2013.  The SSAT appears to have assumed that there had been no distributions of income prior to that date and further assumed that a declaration was made on 30 June 2013 entitling Ms Buck at that point in time to a payment of income.  Even so, the SSAT was prepared to attribute that income to the financial year 2012/2013 and find that no income was derived by Ms Buck after that date.  For the reasons I have given, I differ from the SSAT on the facts.  Income was in fact received periodically by Ms Buck during the course of the 2012/2013 financial year. 

6. My understanding of the Secretary’s case is that if I reject, as I have rejected, the primary submission that Ms Buck’s income was derived on 26 September 2013, the Secretary’s application to this Tribunal must fail. 

   FORMAL ORDER

7. While supporting the primary decision of the SSAT to set aside the departmental decision, I propose to set aside the directions the SSAT made (which depend on its own factual findings) and to substitute a direction that will leave matters clearer.  The substituted direction will be that Ms Buck’s rate of parenting payment is be recalculated, and any arrears to her paid, on the basis that she did not derive any income from the Buck Family Trust after 15 June 2013 and that there should be no deemed attribution of income to her from the Trust after this date. 

I certify that the preceding 36 (thirty -six) paragraphs are a true copy of the reasons for the decision herein of Senior Member N A Manetta

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Administrative Assistant

Dated 22 March 2016

Date(s) of hearing	4 May 2015
Advocate for the Applicant	Ms C Shepherd
Solicitors for the Applicant	Australian Government Solicitor
Advocate for the Respondent	Mr M Shepley
Solicitors for the Respondent	Welfare Rights Centre (SA) Inc