Dart and Secretary, Department of Family and Community Services
[2005] AATA 154
•21 February 2005
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2005] AATA 154
ADMINISTRATIVE APPEALS TRIBUNAL )
) No Q2003/589, Q2004/136
GENERAL ADMINISTRATIVE DIVISION ) Re JOHN DART Applicant
And
SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES
Respondent
DECISION
Tribunal Mr SC Fisher, Member Date21 February 2005
PlaceBrisbane
Decision The Tribunal affirms the decisions under review.
....................[Sgd]........................
S C Fisher
Member
CATCHWORDS
SOCIAL SECURITY – Pensions Benefits and Allowances – Age Pension – Assets Test – Whether applicant is an attributable stakeholder in discretionary trusts – Whether income from trusts should be included in applicant’s income – Applicant is an attributable stakeholder – Decision under review affirmed.
Social Security (Administration) Act 1999 Part 4, Division 5
Social Security Act 1991 s1207, 1208, 1123, 1124, 1126Dart v Secretary, Department of Family & Community Services [2002] AATA 1289; (2002) 72 ALD 521
Dart v Secretary, Department of Family & Community Services [2004] FMCA 485
Department of Social Security v Murphy Federal Court, 29 June 1998, 908/98; (1998) 52 ALD 269
Ajka Pty Ltd v Australian Fisheries Management Authority [2003] FCA 248; (2003) 74 ALD 21
Bantick and Secretary, Department of Family and Community Services [2003] AATA 472
Bramwell v Repatriation Commission (1998) 51 ALD 56
Collins v Minister for Immigration and Ethnic Affairs (1981) 36 ALR 598; (1981) 4 ALD 198
Hanrick and Secretary, Department of Family and Community Services [2003] AATA 549REASONS FOR DECISION
21 February 2005 Mr SC Fisher, Member Introduction and background
1.This appeal concerns two applications by Mr John Peden Dart (the Applicant) for merits-based administrative review of two decisions: Q2003/589 and Q2004/136.
2.Q2003/589 stems from an age pension application dated 14 June 2002 which was rejected by Centrelink (in practice, the Secretary, Department of Family and Community Services) (the Respondent) on 4 November 2002. This decision was reviewed by the Social Security Appeals Tribunal and affirmed on 25 June 2003. This decision was appealed to this Tribunal on 14 July 2003.
3.Q2004/136 stems from an age pension application dated 6 June 2003, which culminated in a decision of the Social Security Appeals Tribunal dated 30 January 2004. From that decision, the Applicant appealed to this Tribunal on 18 February 2004. Underlying both appeals are decisions of the Respondent to refuse that the Applicant’s claims for age pension on the basis that the Applicant did not satisfy the age pension assets test.
4.A previous application by the Applicant for age pension was made on 18 July 2001 was refused by the Respondent. This culminated in an earlier appeal to this Tribunal in which McCabe M (as he then was) affirmed the decision of the Respondent on 13 December 2002 (see Dart v Secretary, Department of Family & Community Services [2002] AATA 1289; (2002) 72 ALD 521). This led to an appeal by the Applicant to the Federal Court of Australia, and Spender J remitted that appeal to the Federal Magistrates Court of Australia for hearing. The appeal was heard and determined by Baumann FM, who on 6 August 2004 dismissed the appeal: see Dart v Secretary, Department of Family & Community Services[2004] FMCA 485.
5.The hearing of these appeals was deferred pending the outcome of the decision in Dart v Secretary, Department of Family & Community Services [2004] FMCA 485. In that case, the Federal Magistrates Court dismissed the appeal by the Applicant which stemmed from administrative decisions made by the Respondent in connection with the 18 July 2001 age pension application of the Applicant. Consequently, the 18 July 2001 age pension application is to be determined by Centrelink in accordance with the decision and reasons for decision of the Federal Magistrates Court.
6.In this case, the parties were content for both appeals to be heard together on the basis of common material and submissions, and so they were.
Jurisdiction
7.In a procedural sense, the Tribunal has jurisdiction in this appeal by virtue of Part 4, Division 5 of the Social Security (Administration) Act 1999 (“the Administration Act”). In a substantive sense, the merits of this appeal are governed by the Social Security Act 1991 (“the Act”).
The Decisions under Review
8.The decisions under review have been described earlier in these Reasons for Decision under the heading "Introduction and Background".
The Role of the Tribunal
9.The role of the Tribunal is to review the merits of the decision before it: section 43 of the Administrative Appeals Tribunal Act 1975 and Secretary, Department of Social Security v Murphy Federal Court, 29 June 1998, 908/89; (1998) 52 ALD 269. The Tribunal is guided by the norm that it should reach the correct and preferable decision on the basis of the material before it: Ajka Pty Ltd v Australian Fisheries Management Authority [2003] FCA 248 at [33]. The Tribunal is required to stand in the shoes of the original decision-maker and consider all evidence anew, bearing in mind statutory provisions and any significant legal precedent: Bantick and Secretary, Department of Family and Community Services [2003] AATA 472 at [23]. The Tribunal proceeds de novo: Bramwell v Repatriation Commission (1998) 51 ALD 56 at 60 per Weinberg J. The Tribunal must base its decision upon the material that is logically probative of the existence of facts that emerge from the evidence before it: Collins v Minister for Immigration and Ethnic Affairs(1981) 36 ALR 598 at 601.
10.This Tribunal is not vested with a general discretion to circumvent, override, sidestep or supplant the otherwise very clear terms of legislation that determines income support entitlements such as age pension.
The Material Before the Tribunal
11.The following documentary evidence was before the Tribunal:
Exhibit 1 Bundle of handwritten notes and submissions of the Applicant.
Exhibit 2Documents lodged pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 in relation to Q2004/136 (documents T1 – T54).
Exhibit 3Documents lodged pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 in relation to Q2003/589 (documents T1 – T31).
12.The Applicant was self-represented. Exhibit 1 was lodged on behalf of the Applicant.
13.The Respondent lodged documents T1 to T54 under section 37 of the Administrative Appeals Tribunal Act 1975 in connection with Q2004/136. The Respondent lodged documents T1 to T31 under section 37 of the Administrative Appeals Tribunal Act 1975 in connection with Q2003/589. These documents were taken into evidence as Exhibit 2 and 3 respectively.
14.The Respondent was represented by Mr R McQuinlan, a departmental advocate. The Respondent’s advocate provided a Statement of Facts and Contentions to the Tribunal.
15.The Applicant lodged an outline of submissions with the Tribunal. The Tribunal considered carefully all of the documentary and oral evidence before it.
16.There was a considerable volume of documentary evidence before the Tribunal in determining these appeals. The parties assisted the Tribunal by taking the Tribunal to the salient portions of this volume of evidence in the hearing of the appeals.
Evidence
17.The Applicant was cross-examined in a very short cross-examination. The evidence that emerged in cross examination is summarised below:
A.The Applicant conceded that he was aware of information and requirements concerning private companies and private trust from copies of Centrelink documentation contained in the T documents.
B.The Applicant conceded that he did not read all of the Centrelink forms and documents relating to private companies and private trusts when he lodged his age pension claims.
C.The Applicant conceded that he was a director of his corporate trustees.
Previous Evidence and Facts
18.In Dart v Secretary, Department of Family & Community Services [2002] AATA 1289; (2002) 72 ALD 521 this Tribunal (differently constituted) reviewed the evidence relating to the circumstances surrounding a claim of the Applicant for the age pension of 18 July 2001. In the interests of brevity, and recalling also that that evidence and facts relate to the Decision and Reasons for Decision dated 13 December 2002, it is both helpful and interesting to recall what McCabe M then found. McCabe M said (at [5] -- [12]):
“5. The Applicant is a successful Brisbane businessman. He has been involved in the business of selling edible nuts and dried fruit for many years.
6. Mr Dart has resided in a house in Corinda since May 2001. The house is owned by Fastcombe Pty Ltd, the trustee of the Dart Security Trust. Mr Dart is not a beneficiary under that trust, but he is one of three directors and the majority shareholder in Fastcombe Pty Ltd. The company purchased the house for Mr Dart because he needed somewhere to live following the breakdown of his marriage. During the period in question he paid rent of $646 per month. He does not have a formal lease and he said in evidence he did not know whether the rent was at the market rate. He said the company determined the amount of the rent by fixing a 5% rate of return on the purchase price of the house. He pointed out the return on other assets held by the trust was only 4%, so he (and the company, it seems) regarded the rental arrangement as a good deal.
7. The Dart Security Trust holds a number of property assets purchased over the years. The Applicant said the Dart Security Trust held the family's property assets, while the trading operations (the fruit and nut business) were conducted by Trumps Pty Ltd as trustee for the Trumps Trust. Mr Dart is not a beneficiary of the Trumps Trust, but he is one of three directors and the major shareholder in Trumps Pty Ltd. Both trusts are discretionary trusts.
8. Mr Dart had not drawn a salary from Trumps for a period of time. The company owed him money as a result. The company was meeting some of his expenses, but he was still owed $44,171.19. The Applicant was drawing money from the Dart Security Trust to fund his living expenses in the absence of money from Trumps. The drawings were debited against his name and he owed $48,438.83 at 30 June 1996. The Applicant explained in his evidence that these were really accounting entries, and the books were subsequently balanced with the exchange of cheques between the two companies occurring on 26 March 2002.
9. Mr Dart has eight children from two marriages. He wanted to make arrangements for control of his business in the wake of his retirement. He proposed a transfer of the trading operations to one of his children, Declan, who showed a keen interest in the business. The transfer was effected by allocating to Declan a controlling shareholding in Saharra Pty Ltd, the company receiving profits from the Trump Trust. Declan also became a director (along with the Applicant and Declan's mother, who was also a minority shareholder) of Trumps Pty Ltd. The business borrowed $1.4 million from the Dart Security Trust in connection with these transactions. The Applicant proposed transferring shares in Sobrante Pty Ltd, the company receiving profits from the Dart Security Trust, to his children. In order to preserve his control in the interim, the 65 shares transferred to the children were declared to be non-voting. The Applicant retained 20 shares that did not include a right to receive dividends but retained voting rights. Five other non-voting shares remained on issue.
10. Mr Dart said he wrote to his children on 5 May 1996 explaining the proposal. He asked each of the children to sign the letter they received and return it to confirm they accepted his plan. A copy of the letter apparently sent to one of the children was included in the T documents (T30, pp 488-489), although I note the letter is dated 29 April 1996. Mr Dart also recorded his wishes in his will executed on 4 May 1996. He says he instructed his accountants to attend to the share transfers and other documentation, but nothing was done at the time.
11. The Applicant's solicitors subsequently prepared a deed of gift, share transfer forms and draft minutes of a meeting. They were forwarded to him under cover of a letter dated 23 June 1997. The deed was executed on 24 June 1997, over twelve months after the Applicant's proposal was announced to family members.
12. Mr Dart is now 75 years old. He applied to Centrelink for an aged pension on 18 July 2001. He was rejected after a Complex Assessment Officer reviewed his business affairs and determined he did not satisfy the relevant assets test”.
19.In the subsequent appeal to the Federal Magistrates Court (following the remittal from the Federal Court), the Federal Magistrates Court found that there was no error of law in connection with the 13 December 2002 decision of this Tribunal, and so the Applicant's appeal to that Court was dismissed (see Dart v Secretary, Department of Family & Community Services [2004] FMCA 485). The previous Tribunal and Federal Magistrates Court decisions do not, strictly speaking, have any bearing upon the issues in this appeal (but they do form part of the factual and legal matrix that constitutes the background to these appeals in this matter).
20.For completeness, the Tribunal observes that the Applicant has engaged in certain asset transfers since the proceedings described above. The effect or effects of those transfers fall(s) to be considered in these current proceedings.
21.The hearing in appeal number Q2003/589 is a continuation of a previously part-heard hearing by a former member of this Tribunal.
Discussion of the Evidence
22.There was nothing particularly salient or remarkable in the cross-examination of the Applicant in this hearing. The issues in this appeal (identified below) centre upon the effect of transactions recorded in various documents and instruments to which the Applicant is a party.
Issues
23.The issues in the appeals are:
(1)whether the Applicant is an attributable stakeholder in the Trumps Trust and the Dart Security Trust and of or in relation to Sobrante Pty Ltd; and
(2)does the amount of the Applicant's income include income from the Trumps Trust and the Dart Security Trust and Sobrante Pty Ltd; and, if so,
(3)does either or both of the amount of assets or income of or attributable to the Applicant preclude the payment of age pension.
Applicant’s Submissions
24.The Applicant's submissions are as follows:
A.The value of the shares in his companies is the same as their nominal value, not the net asset backing value (or some other measure). The Applicant fundamentally disagreed with the Respondent: his contention that the value of the shares in the relevant companies are the values attributed to them by officers of the Respondent.
B.The Applicant has relinquished control of the shares in the relevant companies and trusts, not just legal control of the relevant shareholdings.
C.Sections 1207 and 1208 (described as "frivolous") should be applied in favour of the Applicant and not against him.
D.The Applicant complained that Centrelink had not informed him about the new rules contained in Part 3.18 of the Act, and that had Centrelink done so, he would not be in the position he now is in.
25.The Tribunal took into account as part of the Applicant's submissions his previous contentions contained in earlier Social Security Appeals Tribunal hearings and correspondence on file.
Respondent’s Submissions
26.In connection with appeal No Q2003/589 and appeal No Q2004/136, the Respondent’s contentions were as follows:
A. The decision under review relates to Mr Dart’s claim for age pension lodged on 14 June 2002 and his circumstances at that time.
B. Mr Dart could only be granted age pension from 14 June 2002, if the level of his assets and income was below the relevant thresholds.
C. In June 2002, the asset cut out point for single age pensioner homeowners was $283,750 and for non-homeowners it was $384,750. The income cut out point was $1181 per fortnight.
D. On 1 January 2002, the Social Security Law was amended by the Social Security and Veterans’ Entitlements Legislation amendment (Private Trusts and Private Companies-Integrity of Means Testing) Act 2000 (No 132, 2000).
E. Mr Dart’s involvement in the various Trusts and Companies detailed above means that the assets and income of these entities can be attributed against him.
F. Sections 1207P, 1207V and 1207X of the Social Security Act define the terms designated private trust, controlled private trust, controlled private trust and attributable stakeholders respectively.
G. Pursuant to section 1207Q of the Act, Mr Dart may be held as having control of the companies referred to above because he had a direct voting interest of more than 50%. Since these companies act as trustees to the respective trusts, he was therefore in a position of having control over the income of the trusts at the time he claimed age pension in June 2002.
H. This means Mr Dart is an attributable stakeholder of these trusts and on that basis his income includes the income of the Trumps Trust and the Dart Security Trust (i.e. in the amounts of $483,480 and $92,186 respectively).
I. As these combined figures exceeded the income cut out point for age pension, Centrelink was correct in rejecting Mr Dart’s claim for age pension.
Findings of Fact
27.Based upon the evidence before it, the Tribunal makes the following findings of fact:
A.Mr John Peden Dart (the Applicant) was born on 19 October 1927.
B.The Applicant is of age pension age at all material times.
C.The Applicant is not a member of a couple.
D.The Applicant claimed age pension on 14 June 2002 and on 6 June 2003.
E.The Applicant is a director of Trumps Pty Ltd and of Fastcombe Pty Ltd.
F.The Applicant was the registered holder of seven out of the 10 issued shares in the capital of Trumps Pty Ltd and the Applicant transferred these shares to family members on or about 8 May 2003 (which transfers were stamped on 28 May 2003).
G.Trumps Pty Ltd is the trustee of the Trumps Trust (a discretionary trust).
H.Profit distributions from the Trumps Trust are paid to Saharra Pty Ltd.
I.The Applicant is a director of Saharra Pty Ltd.
J.Mr Declan Dart is the sole shareholder of Saharra Pty Ltd.
K.The Applicant was the registered holder of seven out of the 10 issued shares in the capital of Fastcombe Pty Ltd and the Applicant transferred these shares to family members on or about 8 May 2003 (which transfers were stamped on 28 May 2003).
L.Fastcombe Pty Ltd is a trustee of the Dart Security Trust (a discretionary trust).
M.Profit distributions from the Dart Security Trust are paid to Sobrante Pty Ltd.
N.As at 30 June 2001, the assets of the Trumps Trust had a value of $483,733.
O.The Applicant is a director of Sobrante Pty Ltd.
P.The Applicant holds 20 "Z" class voting shares in the capital of Sobrante Pty Ltd which do not carry dividend rights.
The Legislation
28.Part 3.18 of the Act (means test treatment of private companies and private trusts) affects the way that individuals can continue to be eligible for and receive income support payments under the Act when they utilise private trusts and private companies for asset-protection purposes or for maximising income support entitlements.
29.Section 1207 is found within Part 3.18 of the Act. Section 1207 contains a simplified outline of the Act, which is set out in part next:
For an asset or income to be attributed to an individual:
(a)the company must be a designated private company or the trust must be a designated private trust (sections 1207N and 1207P); and
(b)the company must be a controlled private company in relation to the individual or the trust must be a controlled private trust in relation to the individual (sections 1207Q and 1207V); and
(c)the individual must be an attributable stakeholder of the company or trust (section 1207X).
•A company or trust will be a controlled private trust or a controlled private company if the individual passes a control test or a source test.
•An individual will not be an attributable stakeholder of a trust if the trust is a concessional primary production trust in relation to the individual.
•The asset deprivation rules and the income deprivation rules are modified if attribution happens.
30.In the case of private companies, the asset and income attribution rules are contained within sections 1207N, 1207Q and 1207X of the Act. The first two of these provisions read:
“1207N Designated private companies
1207N(1) For the purposes of this Part, a company is a designated private company at a particular time if:
(a) the company satisfies at least 2 of the following conditions in relation to the last financial year that ended before that time:
(i)the consolidated gross operating revenue for the financial year of the company and its subsidiaries is less than $10 million;
(ii)the value of the consolidated gross assets at the end of the financial year of the company and its subsidiaries is less than $5 million;
(iii)the company and its subsidiaries have fewer than 50 employees at the end of the financial year; or
(b)the company came into existence after the end of the last financial year that ended before that time; or
(c)the company is a declared private company (see subsection (2)); and the company is not an excluded company (see subsection (5)).
Declared private company
1207N(2)The Secretary may, by writing, determine that each company included in a specified class of companies is a declared private company for the purposes of this section.
1207N(3)A determination under subsection (2) has effect accordingly.
1207N(4)A determination under subsection (2) is a disallowable instrument for the purposes of section 46A of the Acts Interpretation Act 1901.
Excluded companies
1207N(5)The Secretary may, by writing, declare that each company included in a specified class of companies is an excluded company for the purposes of this section.
1207N(6)A declaration under subsection (5) has effect accordingly.
1207N(7)An instrument under subsection (5) is a disallowable instrument for the purposes of section 46A of the Acts Interpretation Act 1901.
Definitions
1207N(8) In this section:
consolidated gross operating revenue has the same meaning as in section 45A of the Corporations Act 2001.
financial year, in relation to a company, means:
(a) a period of 12 months beginning on 1 July; or
(b) if some other period is the company’s tax year—that other period.
value of consolidated gross assets has the same meaning as in section 45A of the Corporations Act 2001.
1207Q Controlled private companies
1207Q(1) For the purposes of this Part, a company is a controlled private company in relation to an individual if the company is a designated private company and:
(a) the individual passes the control test set out in subsection (2); or
(b) the individual passes the source test set out in subsection (3).
Control test
1207Q(2) For the purposes of this section, an individual passes the control test in relation to a company if:
(a) the aggregate of:
(i)the direct voting interests in the company that the individual holds; and
(ii)the direct voting interests in the company held by associates of the individual;
is 50% or more; or
(b) the aggregate of:
(i)the direct control interests in the company that the individual holds; and
(ii)the direct control interests in the company held by associates of the individual;
is 15% or more; or
(c) the company is sufficiently influenced by:
(i) the individual; or
(ii) an associate of the individual; or
(iii) 2 or more entities covered by the preceding subparagraphs; or
(d)the individual (either alone or together with associates) is in a position to exercise control over the company.
Source test
1207Q(3) For the purposes of this section, an individual passes the source test in relation to a company if:
(a)the individual has transferred property or services to the company after 7.30 pm, by standard time in the Australian Capital Territory, on 9 May 2000; and
(b)the underlying transfer was made for no consideration or for a consideration less than the arm’s length amount in relation to the underlying transfer.
No double counting
1207Q(4) In calculating the aggregate referred to in paragraph (2)(a), a direct voting interest held because of subsection 1207R(2) is not to be counted under subparagraph (2)(a)(i) to the extent to which it is calculated by reference to a direct voting interest in the company that is taken into account under subparagraph (2)(a)(ii).
1207Q(5) In calculating the aggregate referred to in paragraph (2)(b), a direct control interest held because of subsection 1207T(4) is not to be counted under subparagraph (2)(b)(i) to the extent to which it is calculated by reference to a direct control interest in the company that is taken into account under subparagraph (2)(b)(ii).”
31.When an income support claimant has an interest in a private trust, sections 1207P, 1207V and 1207X apply. The first two provisions read:
“ 1207P Designated private trusts
1207P(1) For the purposes of this Part, a trust is a designated private trust unless:
(a) all of the following conditions are satisfied:
(i)the trust is a fixed trust;
(ii)the units in the trust are held by 50 or more persons;
(iii)the trust was not created, continued in existence or operated under a scheme that was entered into or carried out for the sole or dominant purpose of enabling any individual or individuals to avoid the application of this Part and/or Division 11A of Part IIIB of the Veterans’ Entitlements Act; or
(b) the trust is a complying superannuation fund (see subsection (3)); or
(c) the trust is an excluded trust (see subsection (4)).
1207P(2) For the purposes of subparagraph (1)(a)(ii), an individual and his or her associates are taken to be one person.
Complying superannuation funds
1207P(3) For the purposes of this section, a fund is a complying superannuation fund at a particular time if:
(a)that time occurs during a particular tax year of the fund; and
(b)under section 45 of the Superannuation Industry (Supervision) Act 1993, the fund is a complying superannuation fund for the purposes of Part IX of the Income Tax Assessment Act 1936 in relation to that tax year.
Excluded trusts
1207P(4) The Secretary may, by writing, declare that each trust included in a specified class of trusts is an excluded trust for the purposes of this section.
1207P(5) The declaration has effect accordingly.
1207P(6) An instrument under subsection (4) is a disallowable instrument for the purposes of section 46A of the Acts Interpretation Act 1901.
Definitions
1207P(7) In this section:
fixed trust means a trust where persons have fixed entitlements to all of the income and corpus of the trust.
income means income within the ordinary meaning of that expression.
unit, in relation to a trust, includes a beneficial interest, however described, in the property or income of the trust.
1207V Controlled private trusts
1207V(1) For the purposes of this Part, a trust is a controlled private trust in relation to an individual if the trust is a designated private trust and:
(a) the individual passes the control test set out in subsection (2); or
(b) the individual passes the source test set out in subsection (3).
Control test
1207V(2) 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.
Source test
1207V(3) For the purposes of this section, an individual passes the source test in relation to a trust if:
(a)the individual has transferred property or services to the trust after 7.30 pm, by standard time in the Australian Capital Territory, on 9 May 2000; and
(b)the underlying transfer was made for no consideration or for a consideration less than the arm’s length amount in relation to the underlying transfer.
1207V(4) 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.
Income
1207V(5) In this section:
income means income within the ordinary meaning of that expression.
Section 1207X of the Act contains common attribution rules for designated private companies and designated private trusts. This provision reads (in part):
1207X Attributable stakeholder, asset attribution percentage and income attribution percentage
Company
1207X(1) For the purposes of this Part, if a company is a controlled private company in relation to an individual:
(a)the individual is an attributable stakeholder of the company unless the Secretary otherwise determines; and
(b)if the individual is an attributable stakeholder of the company—the individual’s asset attribution percentage in relation to the company is:
(i)100%; or
(ii)if the Secretary determines a lower percentage in relation to the individual and the company—that lower percentage; and
(c)if the individual is an attributable stakeholder of the company—the individual’s income attribution percentage in relation to the company is:
(i)100%; or
(ii)if the Secretary determines a lower percentage in relation to the individual and the company—that lower percentage.
Trust
1207X(2) For the purposes of this Part, if:
(a) a trust is a controlled private trust in relation to an individual; and
(b) the trust is not a concessional primary production trust in relation to the individual (see section 1208U);
then:
(c)the individual is an attributable stakeholder of the trust unless the Secretary otherwise determines; and
(d)if the individual is an attributable stakeholder of the trust—the individual’s asset attribution percentage in relation to the trust is:
(i)100%; or
(ii)if the Secretary determines a lower percentage in relation to the individual and the trust—that lower percentage; and
(e)if the individual is an attributable stakeholder of the trust—the individual’s income attribution percentage in relation to the trust is:
(i)100%; or
(ii)if the Secretary determines a lower percentage in relation to the individual and the trust—that lower percentage.”
32.Where income support claimants dispose of their interests in private companies or private trusts, then section 1208M applies:
1208M Individual ceases to be an attributable stakeholder of a company or trust
If:
(a)an individual ceases to be an attributable stakeholder of a company or trust on or after 1 January 2002; and
(b)immediately before the cessation, the company or trust owned a particular asset (whether alone or jointly or in common with another entity or entities);
Division 2 of Part 3.12 and sections 93U, 93UA and 198F to 198MA (inclusive) have effect as if:
(c)the individual had disposed of an asset of the individual; and
(d)the amount of the disposition referred to in paragraph (c) were equal to the individual’s asset attribution percentage of the value of the asset referred to in paragraph (b), worked out immediately before the cessation.”
33.Section 1208M relies on Division 2 of Part 3.12. Relevant excerpts from Division 2 of Part 3.12 are set out next:
“1123 Disposal of assets
1123(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.
Note: If Part 3.14A or 3.14B applies in relation to the transfer by a person of a qualifying interest or an eligible interest in a farm or relevant farm asset, that transfer and certain transfers by the person’s partner are taken not to be disposal of assets (see sections 1185D and 1185T).
1123(2) For the purposes of subsection (1), a person has a purpose of obtaining a social security advantage if the person has a purpose of:
(a)obtaining a social security pension, a social security benefit, a parenting allowance, a service pension or an income support supplement or enabling the person’s partner or someone else of whom the person is a family member to obtain such a pension, benefit, allowance or supplement, or a youth training allowance; or
(b)obtaining a social security pension, a social security benefit, a parenting allowance, a service pension or an income support supplement, or enabling the person’s partner to obtain such a pension, benefit, allowance or supplement, or a youth training allowance, at a higher rate than would have otherwise been payable; or
(c)ensuring that the person or the person’s partner would be qualified for fringe benefits for the purposes of this Act or the Veterans’ Entitlements Act.
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.
1126AA Disposal of assets in income year—individuals
Disposals to which section applies
1126AA(1) This section applies to a disposal (the relevant disposal) on or after 1 July 2002 of an asset by a person who is not a member of a couple at the time of the relevant disposal.
Increase in value of assets
1126AA(2) 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 during the income year in which the relevant disposal took place, 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 person’s assets for the period of 5 years starting on the day on which the relevant disposal took place:
(a) the amount of the relevant disposal;
(b)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 during the income year in which the relevant disposal took place, exceeds $10,000.
Previous joint disposals
1126AA(3) If, during the income year in which the relevant disposal took place but before the time of the relevant disposal, the person was a member of a couple who jointly disposed of an asset, a reference in subsection (2) to the amounts (if any) of other disposals of assets previously made by the person during that income year includes a reference to one‑half of the amount of the joint disposal.
1126AB Disposals of assets in 5 year period—individuals
Disposal to which section applies
1126AB(1) This section also applies to a disposal (the relevant disposal) on or after 1 July 2002 of an asset by a person who is not a member of a couple at the time of the relevant disposal.
Increase in value of assets
1126AB(2) If:
(a)the sum of the amount of the relevant disposal and the amounts of any previous disposals of assets made during the rolling period by the person;
less
(b)the sum of any amounts included in the value of the person’s assets during the rolling period under section 1126AA, 1126AC or 1126AD or any previous application or applications of this section;
exceeds $30,000, then, for the purposes of this Act, the lesser of the following amounts is to be included in the value of the person’s assets for the period of 5 years starting on the day on which the relevant disposal took place:
(c) an amount equal to the excess;
(d) the amount of the relevant disposal.
Previous joint disposals
1126AB(3) If, during the rolling period but before the time of the relevant disposal, the person was a member of a couple who jointly disposed of an asset, the reference in paragraph (2)(a) to the amounts of any previous disposals of assets made during the rolling period by the person includes a reference to one‑half of the amount of the joint disposal.
Rolling period
1126AB(4) For the purposes of this section, the rolling period is the period comprising the income year in which the relevant disposal took place and such (if any) of the 4 previous income years as occurred after 30 June 2002.”
Tribunal’s Reasons
34.It has been recognised by this Tribunal that there may be unintended and unforeseen consequences for some income support claimants when those claimants have utilised private trusts and private companies for asset-protection purposes or for maximising income support entitlements. In Hanrick and Secretary, Department of Family and Community Services [2003] AATA 549, the Tribunal said this: “If one is to make use of complicated structures in the course of managing one’s affairs in order to take advantage of the legal consequences of those structures, one cannot ignore the structure and its consequences when it suits one to do so” (at para [20]).
35.Given the successive age pension applications made by the Applicant, and also the transactions that took place in May 2003 regarding changes in the ownership of the capital of the companies Trumps Pty Ltd and Fastcombe Pty Ltd, the Tribunal determined that it was appropriate to take a global view of the circumstances of the Applicant in resolving these appeals. In particular, the Tribunal thought that it would be artificial to resolve appeal no Q2003/589 independently of appeal no Q2004/136.
36.The Applicant was until 28 May 2003 the majority shareholder of the companies Trumps Pty Ltd and Fastcombe Pty Ltd. Until 28 May 2003, the Applicant satisfied the control test under section 1207Q(2) in relation to those companies. On a day sometime in May 2003 (and certainly by 28 May 2003 when the relevant share transfers were stamped), the Applicant transferred his majority shareholdings in these companies to two of his adult children (by way of transfer of separate parcels of shares to each child). These share transfers attract the operation of section 1208M. From the material before the Tribunal it does not appear that the Respondent has taken account of this provision (although the Social Security Appeals Tribunal did in its decision on 30 January 2004 in connection with the decision that is the subject of the appeal no Q2004/136). No argument or submissions were put to the Tribunal on behalf of the Respondent in relation to Section 1208M during the hearing. Section 1208M sweeps up Division 2 of Part 3.12 and sections 93U, 93UA and 198F to 198MA (inclusive). Relevant excerpts from Division 2 of Part 3.12 have been extracted above. The way that these provisions apply in the circumstances of the Applicant is as follows. Section 1123 treats the transfer of the shares in May 2003 by the Applicant to his children as a disposal of those shares (see in particular section 1123(1)(a)(ii) read with section 1123(1)(b)(ii) or 1123(1)(b)(iii)). Asset disposal quantification rules are contained in, among other provisions, section 1124 and section 1126AB. Of these two provisions, section 1126AB is more pertinent as it more closely fits the circumstances of the Applicant in the May 2003 share transfer transactions. The effect of section 1126AB is to maintain the amount of the disposal above a floor of $30,000 in the hands of the Applicant for a period of four years from the end of the income year in which May 2003 occurs (which for all intents and purposes is a five-year period).
37.As at 30 June 2001 (the last balance sheet available to the Tribunal), the assets of the Trumps Trust had a value of $483,733. The Applicant at that time (and since) satisfied the requirements of section 1207P in relation to the Trumps Trust and the Dart Security Trust (and neither Trust falls within any of the exceptions to "designated private trust" in that provision). The value of these assets "passes through" the Trumps Trust by a combination of sections 1207P, 1207V and 1207N and 1207Q to the Applicant (when read with section 1207X). Similar reasoning applies to the Applicant's interest in the share capital of Fastcombe Pty Ltd (the trustee of the Dart Security Trust) that was also disposed of in May 2003, except that the value of the assets owned by the Dart Security Trust is $1,730,581. There is no material before the Tribunal that justifies a determination of an asset attribution percentage of less than 100% when it comes to the application of sections 1207X(2) or (3). No evidence was referred to or argument was made by the Applicant in this respect.
38.Even without considering any share transfer transactions affecting Sobrante Pty Ltd, it is clear that the asset attribution rules in Part 3.18 of the Act operate in such a way as to preclude the Applicant from any entitlement to age pension having regard to asset thresholds. This makes it unnecessary for the Tribunal to consider the income attribution rules in Part 3.18.
39.It appeared to the Tribunal that the Applicant's efforts to shed his assets progressively from his business asset portfolio since 1997 produces effects that he is not aware of (considering the asset deprivation and income deprivation rules of the Act). In general, these transactions have ongoing income support ramifications for up to five years after those transactions take place. The Applicant has failed to take advice about these rules (apparently), and his contentions and submissions to the Tribunal in the course of hearing these appeals glossed over them.
40.The Tribunal agrees substantially with the decision of the Social Security Appeals Tribunal of 30 January 2004 in relation to appeal no Q2004/136. The one point of departure is that this Tribunal prefers to rely upon section 1126AB instead of section 1126AA (the provision relied on implicitly by the Social Security Appeals Tribunal).
41.The Tribunal notes that no argument was put to it by the Respondent to the effect that section 1209D of the Act applies to strike down the Applicant's efforts to restructure the ownership of his assets in such way as to obtain a social security advantage.
Tribunal’s Conclusion
42.Based upon the material before it, and for these Reasons, the Tribunal concludes that the correct and preferable decision is that section 1208M of the Social Security Act 1991 applies to the circumstances of the Applicant in relation to the disposal by the Applicant of his shareholding in the companies Trumps Pty Ltd and Fastcombe Pty Ltd. Accordingly, the Respondent may maintain the values of the shares disposed of by the Applicant in those companies as part of his assets in accordance with section 1208M.
Tribunal’s Order
43.The Tribunal decides to affirm the decisions under review.
I certify that the 43 preceding paragraphs are a true copy of the reasons for the decision herein of Mr SC Fisher, Member
Signed: Camille Banks
Associate
Date/s of Hearing 13 November 2003, 5 November 2004
Date of Decision 21 February 2005
The Applicant was unrepresented and appeared in person
For the Respondent Mr R McQuinlan, Departmental Advocate
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