Damhuis and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs
[2011] AATA 700
•11 October 2011
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2011] AATA 700
ADMINISTRATIVE APPEALS TRIBUNAL )
) Nos 2011/0113-0114
GENERAL ADMINISTRATIVE DIVISION ) Re ARNOLD AND HELEN DAMHUIS Applicants
And
SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS
Respondent
DECISION
Tribunal Senior Member K Bean Date11 October 2011
PlaceAdelaide
Decision The decision under review is affirmed.
..............................................
K BEAN
(Senior Member)
CATCHWORDS
SOCIAL SECURITY – Pensions – Age pension – Disposition of assets – Applicants in receipt of large lottery win – Whether sons legally entitled to a share of the winnings – No legal entitlement established – Amounts transferred to sons from winnings constitute a disposition of assets – Decision under review affirmed.
Social Security Act 1991 ss 55, 1064-92, 1123, 1124, 1126AC
REASONS FOR DECISION
11 October 2011 Senior Member K Bean introduction
1.The day of 12 June 2010 was an extremely good one in the lives of the applicants, Mr and Mrs Damhuis. On that day, they won a first division prize of $666,666 in a competition operated by SA Lotteries and known as “X-Lotto”. They were naturally overjoyed and so were their sons, Paul and Ben Damhuis.
2.Mr and Mrs Damhuis have consistently said that they intended to share the winnings equally with their sons. However, when they sought financial advice they were advised that any money they gave to their sons may be treated as a disposal of assets by Centrelink, which may affect their entitlements to Age Pension (AP). In light of that advice, they ultimately decided to give $100,000 each to Ben and Paul.
3.As their financial adviser had predicted, Centrelink did treat each of those transfers as a disposal of assets by Mr and Mrs Damhuis with the effect that their respective AP entitlements were reduced.
4.Mr and Mrs Damhuis sought review of the decisions relating to each of them, submitting that in fact an arrangement existed within the family whereby any X-Lotto win was to be divided equally between the family members. Accordingly, Mr and Mrs Damhuis contended that in giving the boys $100,000 each, they were not giving them a gift but rather transferring to them a share of what was rightfully theirs.
5.Nevertheless, on 24 August 2010 a Centrelink Authorised Review Officer (ARO) affirmed the original decisions and on 23 November 2010, the Social Security Appeals Tribunal (SSAT) affirmed the decisions of the ARO. On 12 January 2011, Mr and Mrs Damhuis applied to this Tribunal for review of the decision of the SSAT, giving rise to these proceedings.
the legal framework
6.Section 55 of the Social Security Act 1991 (the Act) provides that a person’s AP rate is worked out using Pension Rate Calculator A at the end of s 1064.
7.A person’s rate of Age Pension is affected by the value of their assets. Section 1064-G2 of the Rate Calculator provides:
“1064‑G2 For the purposes of this Module:
(a)the value of the assets of a member of a couple is to be taken to be 50% of the sum of:
(i) the value of the person’s assets; and
(ii) the value of the person’s partner’s assets; and
(b)the value of the assets of a particular kind of a member of a couple is to be taken to be 50% of the sum of:
(i) the value of the person’s assets of that kind; and
(ii) the value of the person’s partner’s assets of that kind.”
8.Section 1126AC of the Act deals with the situation where there has been a “disposal of assets” by a member of a couple. Sub-section 1126AC(2) relevantly provides:
“1126AC Disposal of assets in income year—members of couples
…
Increase in value of assets
(2)Subject to this section, if the amount of the relevant disposal, or the sum of that amount and the amounts (if any) of other disposals of assets previously made by the person, the person’s partner, or the person and the person’s partner, during the income year in which the relevant disposal took place (whether before or after they became members of the couple), exceeds $10,000, then, for the purposes of this Act, the lesser of the following amounts is to be included in the value of the assets of the person and in the value of the assets of the partner for the period of 5 years starting on the day on which the relevant disposal took place:
(a) one‑half of the amount of the relevant disposal;
(b)one‑half of the amount by which the sum of the amount of the relevant disposal, and the amounts (if any) of other disposals of assets previously made by the person, the partner, or the person and the partner, during the income year in which the relevant disposal took place, exceeds $10,000.”
9.Section 1123 of the Act also defines when a person is taken to have disposed of assets, as follows:
“1123 Disposal of assets
(1) For the purposes of this Act, a person disposes of assets of the person if:
(a) the person engages in a course of conduct that directly or indirectly:
(i) destroys all or some of the person’s assets; or
(ii) disposes of all or some of the person’s assets; or
(iii) diminishes the value of all or some of the person’s assets; and
(b) one of the following subparagraphs is satisfied:
(i)the person receives no consideration in money or money’s worth for the destruction, disposal or diminution;
(ii)the person receives inadequate consideration in money or money’s worth for the destruction, disposal or diminution;
(iii)the Secretary is satisfied that the person’s purpose, or the dominant purpose, in engaging in that course of conduct was to obtain a social security advantage.
…”
10.Further, s 1124 of the Act determines the amount of a disposition of assets. It relevantly provides:
“1124 Amount of disposal or disposition
If a person disposes of assets, the amount of the disposal or disposition is:
(a)if the person receives no consideration for the destruction, disposal or diminution—an amount equal to:
(i) the value of the assets that are destroyed; or
(ii) the value of the assets that are disposed of; or
(iii)the amount of the diminution in the value of the assets whose value is diminished; or
(b)if the person receives consideration for the destruction, disposal or diminution—an amount equal to:
(i) the value of the assets that are destroyed; or
(ii) the value of the assets that are disposed of; or
(iii)the amount of the diminution in the value of the assets whose value is diminished;
less the amount of the consideration received by the person in respect of the destruction, disposal or diminution.”
the issues
11.It follows that the issues for determination by me are as follows:
(a) whether Mr and Mrs Damhuis disposed of assets within the meaning of the above provisions; and
(b) if so,
(i) the value of those assets;
(ii)whether they received any or adequate consideration for those assets; and
(iii)how those assets should be treated for the purposes of assessing their rate of AP pursuant to the Act?
12.However, before addressing each of these issues I propose to discuss the most relevant aspects of the evidence which is before me.
the evidence
13.There is no dispute that Mr Damhuis has been in receipt of AP since 11 July 2004 and Mrs Damhuis has received AP since 21 February 2007.
14.There is also no dispute that on 2 July 2010 the amount of $666,666 was paid into Mr and Mrs Damhuis’ joint bank account. As referred to above, this payment resulted from them holding the winning entry in a X-Lotto competition operated by SA Lotteries.
15.Mr and Mrs Damhuis also acknowledge that on 12 July 2010 they transferred $100,000 from their joint bank account to their son, Ben, and on 19 July 2010 they transferred $100,000 from their joint bank account to their son, Paul.
16.However, the parties disagree as to whether the transfer of these amounts constituted a disposal of assets. Mr and Mrs Damhuis contend that in fact, those amounts were transferred pursuant to a firm understanding with their sons that their sons were entitled to a half share, or a quarter share each, of any X-Lotto winnings received by their parents.
17.Mr and Mrs Damhuis relied in part on the oral evidence of their son, Mr Ben Damhuis. He confirmed that from an early age he had understood that if his parents had a significant X-Lotto win, he and his brother would be entitled to a half share. He said this understanding was formed approximately 35 years ago and that his parents had sat down with the boys at the time the understanding was reached, and they had selected their X-Lotto numbers together. He explained that until he was 18, he would not have expected to actually receive a share of any winnings in cash, given he was still in his parents’ care. However from the time he was 18, he understood that he would actually receive in cash a quarter share of any significant X-Lotto win.
18.Mr Ben Damhuis also said that on the basis of that understanding, he did not expect to receive birthday or Christmas presents, or at least presents other than of a low value, as he said it was understood between he, his brother and his parents that his entitlement to a share in the X-Lotto winnings was linked to the understanding that he and his brother would not receive any significant presents from their parents. In other words, he and his brother forewent such presents in the expectation that instead they would receive a half share of any significant X-Lotto winnings. He said that the X-Lotto tickets were purchased in the name “Family Ties” and the same arrangements pertained to his brother. He confirmed that he did not contribute any money towards the purchase of the X-Lotto tickets.
19.Under cross-examination, Mr Ben Damhuis was asked why, if he was entitled to a quarter share of the winnings, his parents had only given him $100,000. He indicated that it was his understanding that his parents could not afford to give he and his brother any more money. He confirmed that although the arrangement was a firm one from his point of view, it was not a formal one as nothing was recorded in writing. He said it was his understanding that following the win, his parents had sought financial advice and following receipt of that advice had ultimately decided to give their sons only $100,000 each, rather than their full half share of the winnings. He said that even if the arrangement did not have a legal footing, it certainly had a moral one. He said that in his parents’ minds, only half of the winnings were theirs. He said that on the night of the win, he and his brother believed that they too had won X-Lotto and would receive a half share.
20.Mr Arnold Damhuis also gave evidence and his evidence was largely consistent with that of his son. He confirmed that before he and his wife collected the winnings they went to a financial adviser who told them to be careful what they did with their winnings as giving away some of the winnings might be treated as a disposition of assets by Centrelink. He said that once they became aware that giving the boys some of the winnings would affect their pension, they calculated that the most they could afford to give their sons was $100,000 each. However, he also said that from his point of view, this was simply a compromise amount or part payment until this application was dealt with. He said that if he and his wife were successful in their application, they would pay the boys the balance of the winnings to which they were entitled.
21.Under cross-examination, Mr Damhuis was asked why, if the boys were in effect members with their parents of a X-Lotto “syndicate” the boys’ names were not on the relevant application form. Mr Damhuis responded by indicating that no more than two names could be put on the relevant form, and that evidence is consistent with the other evidence before me[1].
[1] See Exhibit 2
22.Mrs Helen Damhuis also gave evidence, confirming that the understanding within the family was always that the boys were entitled to a half share of any X-Lotto win.
23.In relation to presents however, her evidence was slightly different from that of her husband and son in that she indicated that she tended to make rather than buy presents in any event and that was what she had always done. She said she was “not a believer in spending money on buying presents”. She also confirmed that she and her husband had decided to give their boys $100,000 each rather than their full half share once they realised that, if they gave the boys more, given the way Centrelink would treat the winnings, they would not be left with enough to live on.
consideration
24.I propose to consider each of the issues identified above, by reference to the evidence before me and the contentions of the parties.
Did Mr and Mrs Damhuis dispose of assets on 12 and 19 July 2010?
25.As was pointed out by the SSAT[2], when it comes to characterising the monies paid by Mr and Mrs Damhuis to their sons, there are really only two alternatives. Either Mr and Mrs Damhuis made a gift to their sons of proceeds from their X-Lotto win, or their sons had a legal entitlement to a share in the winnings. Any right their sons had would need to be either a legal or equitable right or interest.
[2] T2/13.
26.The difficulty for Mr and Mrs Damhuis however is that there is very little in the evidence to support a conclusion that Ben and Paul Damhuis had an enforceable legal or equitable right to a half share of the winnings. The winning entry was purchased by Mr and Mrs Damhuis with no contribution from either of their sons. Therefore there is little basis for a conclusion that Ben and Paul Damhuis had any equitable or beneficial entitlement to a share in the winnings, and I am not satisfied that they had any such entitlement.
27.As to whether they had a legal right based on the understanding within the family, there is a rebuttable presumption that family agreements are not intended to be legally enforceable[3]. There is also little in the evidence before me to suggest that Ben and Paul Damhuis intended the arrangement to be legally enforceable against their parents. The agreement was not recorded in writing. Furthermore, it is significant that, in the event, Mr and Mrs Damhuis have not in fact paid their sons a quarter share each of the winnings. Nevertheless, neither of their sons has taken any action to enforce the agreement, or suggested that they may do so. This also militates against the existence of a legally binding contract.
[3] Allen, D.E. & Hiscock, M.E., Law of Contract in Australia, 2nd Edition, 1992, CCH Australia, Sydney, p.365.
28.In addition, in order for a contract to exist, it would be necessary for Ben and Paul to have provided some consideration in exchange for the benefit of a half share in the X-Lotto winnings. While Ben Damhuis and his father both gave evidence that the boys had foregone Christmas and birthday presents in exchange for an expectation of sharing in any X-Lotto winnings, the evidence of Mrs Damhuis was not entirely consistent with that proposition. Furthermore, I am not satisfied in any event that this consideration was adequate, or sufficiently connected to the boys’ expectation of sharing in the winnings, so as to give rise to a legal contract.
29.In the absence of any legally enforceable entitlement on the part of Paul and Ben Damhuis to a defined share in the proceeds of the X-Lotto win, I have concluded that the whole of the winnings of $666,666 was an asset of Mr and Mrs Damhuis. It therefore also follows that when they transferred $100,000 to each of their sons on 12 and 19 July 2010, they disposed of assets within the meaning of s 1126AC of the Act.
The value and treatment of the assets disposed of
30.As set out above, I am satisfied that the value of each of the transfers was $100,000, giving a total of $200,000 and Mr and Mrs Damhuis did not receive any consideration in return for the transfer of these funds. It therefore follows that, for the purposes of the Act, Mr and Mrs Damhuis disposed of assets to the value of $200,000. However, as s 1126AC(2) requires $10,000 of that amount to be disregarded, they are taken to have disposed together of the amount of $190,000, and that amount is taken to be included in their assets for five years.
conclusion
31.I have accordingly concluded that although they may have felt morally obliged to do so, Mr and Mrs Damhuis were not legally obliged to share their X-Lotto winnings with their sons. It follows that in giving them each $100,000 from their winnings, Mr and Mrs Damhuis disposed of an asset within the meaning of the Act. It also follows that, pursuant to the relevant provisions of the Act, they are taken to have disposed of an amount of $190,000 and that amount is to be included in the value of their assets for five years for the purposes of calculating their respective pension entitlements.
decision
32.The decision under review is affirmed.
I certify that the 32 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member K Bean
Signed: .............J Coulthard..................................
AssociateDate of Hearing 11 August 2011
Date of Decision 11 October 2011
Advocate for the Applicant Self-representedAdvocate for the Respondent Mr A Parker
Program Litigation and Review Branch
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