Cayeux and Department of Family and Community Services

[2000] AATA 434

DECISION AND REASONS FOR DECISION [2000] AATA 434

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No   W1999/272

GENERAL ADMINSTRATIVE  DIVISION        )                 W1999/273   
           Re      PHILIPPE JOSEPH CAYEUX AND GRAZIELLA CAYEUX  
  Applicants
           And    SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES        
  Respondent

DECISION

Tribunal       Mr R D Fayle           

Date19 May 2000

PlacePerth

Decision      Pursuant to s 43 of the Administrative Appeals Tribunal Act 1975, the decision under review is set aside and the matter remitted to the respondent with the direction that, for the purposes of calculating the applicants' financial asset value pursuant to section 1122 of the Social Security Act 1991, no value be included for any debt purportedly owed by The Philippe Cayeux Family Trust to Mr Cayeux.
  ...........(sgd R D Fayle)...........
  Senior Member
CATCHWORDS
SOCIAL SECURITY – age pension – debt by family trust – whether financial asset – debtor and sole trustee one and the same – whether trust owes debt to trustee

Social Security Act 1991, ss 1121, 1122
Hughes v Secretary, Department of Social Security 25 ALD 754
Re Gowans and Repatriation Commission  14 ALD 377

REASONS FOR DECISION

2 June 2000 Mr R D Fayle, Senior Member                 

1. On 19 May 2000 the Tribunal handed down an oral decision in this matter. On 22 May 200 the respondent, pursuant to s43(2A) of the Administrative Appeals Tribunal Act 1975, lodged with the Tribunal a request for written reasons. This is the statement in writing of the reasons of the Tribunal for its decision.

2. This is a joint application by Mr Philippe Joseph Cayeux and Mrs Graziella Cayeux ("the applicants") to the Tribunal for review of a decision of the Social Security Appeals Tribunal, dated 27 July 1999, to treat a loan owed to Mr Cayeux by the The Philippe Cayeux Family Trust ("the Trust") as a financial asset pursuant to s1122 of the Social Security Act 1991 ("the Act"). The effect of this loan being treated as a financial asset was to reduce the rate of Age Pension payable to the applicants.

3. At the hearing the applicants were represented by Mr P Cayeux, and the Secretary to the Department of Family and Community Services ("the respondent") was represented by Mr A Jones of the Advocacy and Administrative Law Team, Centrelink.

4. The Tribunal had before it the documents filed by the respondent pursuant to s37 of the Administrative Appeals Tribunal Act 1975 ("the T documents") and the following documentary exhibits tendered by the parties:

• Statutory Declaration of Marie Eliza Jeanne Rousset dated 21 January 2000 (A1)

• Deed dated 23 July 1992 with the lender named as Mrs M E J Rousset and the borrower and nominated trustee named as Mr J A P Cayeux (A2)

• Deed dated 10 December 1994 with the lender named as Mrs M E J Rousset and the borrower named as Mr J A P Cayeux (A3)

• Letter from the Advocacy and Administrative Law Team, Centrelink Perth, signed by Mr A Jones, to Mr Cayeux dated 12 November 1999 (R1).

The Factual Background

1. The relevant factual background as found by the Tribunal on the basis of the evidence before it, and which was not in dispute between the parties, is as follows.

2. Mr Cayeux was made sole trustee of The Philippe Cayeux Family Trust by Deed of Settlement dated 26 June 1984 (T4).  Mr Cayeux was also the sole member of the class of beneficiaries known as Primary Beneficiaries and the Appointer, that is, the person with the power to appoint another or additional trustees.  (T documents, pp 22, 58 and 59)

3. In July 1992 Mr Cayeux borrowed $360,000 from his mother in law, Mrs Rousset, for the purposes of acquiring interests in a farming business.  This is evidenced in a loan deed dated 23 July 1992 (A2), showing Mrs Rousset as lender and Mr Cayeux and Mr Cayeux as Trustee for the Trust as borrowers. Apparently the farm was purchased by Mr Cayeux as trustee of the Trust. The farming business was not as profitable as anticipated and Mr Cayeux (as trustee) subsequently sold the business and in 1995 repaid Mrs Rousset an amount of $300,000 from the sale proceeds. At the time Mrs Rousset was still owed $60,000. In May 1995 Mr Rousset advanced a further $100,000 to Mr Cayeux for investment in a packaging business.  It is not entirely clear from the evidence whether the packaging business was acquired by Mr Cayeux in his own right or as Trustee of the Trust.  However, as will be seen, that has had no bearing on the outcome of these proceedings.  This $100,000 debt, like the previous one, was unsecured.  The packaging business subsequently failed and the monies invested cannot be recovered.  The outstanding debt owed by Mr Cayeux to Mrs Rousset following this business failure was evidenced in a deed dated 24 February 1999 stating the amount then outstanding to be $200,000 (T16).

4. The balance sheets for the Trust for the financial years between 1993 and 1998 show an unsecured loan to Mr Cayeux in varying amounts (T34).  The amount shown in the Trust accounts as owing to Mr Cayeux at the time in question was $159,264.

5. The applicants each applied for an age pension on 23 and 24 December 1998 respectively and a reduced rate of pension was deemed to be payable because the respondent treated a sum of $159,264 as a financial asset pursuant to s1122 of the Act, this being the unsecured loan supposedly advanced by Mr Cayeux to the Trust and not repaid at the date of application for the age pensions.

6. The applicants requested the respondent's Authorised Review Officer ("ARO") to reconsider the decision to treat the debt of $159,264 as a financial asset.  In a letter dated 20 April 1999, the ARO affirmed the decision (T27).  The applicants then requested that the decision be reviewed by the Social Security Appeals Tribunal, which affirmed the decision of the ARO (T1).  It is that decision which is under review by this Tribunal.
   The Applicants' Evidence

7. Mr Cayeux gave oral evidence as to the origin and state of affairs of the Trust and the loans made by Mrs Rousset.

8. The applicant stated that the Trust was created solely for the purpose of tax planning at the behest of his accountant.  His belief, on the advice of the accountant, was that this was the most effective way to run his business at the time. 

9. He gave evidence that at all times he was the sole trustee of the Trust and the only person able to access the funds of the trust.  He viewed the bank account held in the name of the Trust to be in the nature of a trading account and stated that the only reason the account was in the Trust name was at the insistence of the Bank.  He also stated that the Trust never made distributions and that, for all intents and purposes, he viewed the Trust as himself. 

10. The applicant stated that the money lent to him by Mrs Rousset was for commercial purposes and deposited into the Trust bank account, his only trading account, for the purposes of carrying on business. 

11. With respect to the unsecured loan owed to him by the Trust, as stated in the Trust balance sheets (T34), the applicant stated that this money was unable to be recovered as the Trust had no assets and no funds with which to pay the debt.  He also acknowledged that $200,000 is still owed to Mrs Rousset.
    The Legislation

12. Section 1064 of the Act provides that the rate of age pension is to be calculated with reference to an asset test. This test is explained under Module G of the Pension Rate Calculator A.

13. Section 1122 of the Act states:

    "1122        If a person lends an amount after 27 October 1986, the value of the assets of the person for the purposes of this Act includes so much of that amount as remains unpaid but does not include any amount payable by way of interest under the loan."

1. The respondent contended that the money lent to Mr Cayeux by Mrs Rousset was then on-lent to the Trust, and this has resulted in a financial asset for the purposes of s1122 of the Act. The respondent submitted that the value attributable to the loan is the face value, regardless of whether it is recoverable, and that being the case the loan evidenced in the Trust accounts must stand as an asset for the purposes of s1122. (See Hughes v Secretary, Department of Social Security 25 ALD 754).

2. The applicant submitted that the debt in question was not able to be recovered, as the Trust had no capital and no funds. Therefore, he submitted, the debt should not be treated as an asset for the purposes of s1122 of the Act.

3. Section 1121 of the Act relevantly states:

   "1121(1)     If there is a charge or encumbrance over a particular asset of the person, the value of the asset, for the purpose of calculating the value of the person's assets for the purposes of this Act, is to be reduced by the value of that charge or encumbrance.    

1. The respondent submitted that s1121 does not apply in this case to reduce the asset value as the loans by Mrs Rousset were unsecured. Similarly, the respondent contends that the loan by Mr Cayeux to the Trust was unsecured. Therefore the loan by Mr Cayeux to the Trust is to be valued by reference to the "amount as remains unpaid", which is $159,264. (see Re Gowans  v Repatriation Commission 14 ALD 377.)

Discussion

1. In the Tribunal's opinion there appears to be a fundamental flaw in the respondent's case - that is, that the money received by Mr Cayeux from Mrs Rousset was then on-lent to the Trust and this resulted to the debt in question.  To say that a person may borrow money and then on lend it to him or herself is inconceivable.  The respondent's case relies on a contention that what was deposited into the Trust bank account by Mr Cayeux, being cheques made payable to Mr Cayeux by Mrs Rousset, is a loan by Mr Cayeux to the Trust.  This proposition requires Mr Cayeux to be both borrower from Mrs Rousset and lender to himself, by the simple expedient of depositing the cheques in a bank account in his name over which he had sole authority to operate.  That cannot be a loan by Mr Cayeux unless it is a loan to the bank, which has not been contended.

2. The contention that there was a financial asset, being a loan from Mr Cayeux to himself, is insupportable.  This does not in any way affect the fact that Mr Cayeux may have acquired property in trust with money he borrowed from Mrs Rousset. In fact, Mrs Rousset in her Statutory Declaration stated that she "was aware that [the applicant] had a family trust and that the investment may be made through that entity". (A1)

3. In the opinion of the Tribunal the financial reports for the Trust do not accurately reflect the actual transaction – that the trust at best borrowed from Mrs Rousset, for the trustee cannot borrow from himself.  A trust is not a juristic person with a legal personality distinct from that of the trustee and beneficiaries.  This holds as a matter of law despite whatever accounting entries may have been made.  Book entries do not alter the fact of a transaction.  That being so there is no financial asset owed by the trustee to Mr Cayeux (although there may well be a debt to Mrs Rousset).

4. The Tribunal was referred by the respondent to the case in Re Hughes which determined that money owed by a family trust to a husband was in fact a financial asset.  In that case, the husband transferred to the Family Trust the beneficial ownership of units in a unit trust, giving rise to a debt owed to him by the Family Trust for the value of these. The joint trustees of the Family Trust were the husband and the wife together, and therefore the persona of the trustee and the lender were legally different.  That is not the fact in this case and that decision can be distinguished on that ground alone.

5. This being the case, the Trust accounts recording an unsecured loan to Mr Cayeux do not reflect the true state of affairs – that is, that the debt is at best owed to Mrs Rousset for money Mr Cayeux borrowed as trustee.  Therefore, the assets of both applicants in relation to their applications of age pension on 23 and 24 December 1998 respectively have been overstated by $159,264.
   Decision

6. For the reasons outlined above, pursuant to s43 of the Administrative Appeals Tribunal Act 1975, the Tribunal sets aside the decision under review and remits the matter to the respondent with the direction that, for the purposes of calculating the applicant's financial asset value pursuant to s1122 of the Social Security Act 1991, no value be included for any debt purportedly owed by The Philippe Cayeux Family Trust to Mr Cayeux.

   I certify that the 27 preceding paragraphs are a true copy of the reasons for the decision herein of Mr R D Fayle

   Signed:         

   ....................….(sgd S Railton)...........................
   Associate

   Date of Hearing  19 May 2000
   Date of Decision  19 May 2000
   Counsel for the Applicant        In person
   Solicitor for the Applicant         -
   Counsel for the Respondent    Mr A Jones

   Solicitor for the Respondent    Advocacy and Administrative Law Team,     Centrelink