Dunn and Minister for Veterans' Affairs
[2004] AATA 487
•17 May 2004
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2004] AATA 487
ADMINISTRATIVE APPEALS TRIBUNAL )
) No Q2003/458
GENERAL ADMINISTRATIVE DIVISION ) Re GARRY ROBERT DUNN Applicant
And
MINISTER FOR VETERANS' AFFAIRS
Respondent
DECISION
Tribunal Senior Member McCabe Date 17 May 2004
PlaceBrisbane
Decision The Tribunal affirms the decision under review. ...............Sgd..........................
Senior Member
CATCHWORDS
DEFENCE SERVICES – benefits and entitlements – applicant is member of Army reserve – applicant is director of company which employs him - applicant applied for employer support payment – whether applicant’s principal source of income was salary from employer company – decision affirmed
Defence Act 1903
Defence Determination 2002 (Employer Support Payments)
Defence Instruction (General) Personnel 05-30
Lee v Lee’s Air Farming Ltd [1961] AC 12
REASONS FOR DECISION
17 May 2004
Senior Member McCabe Introduction
1. Mr Dunn has applied to the Tribunal for review of a decision of the respondent dated 19 May 2003. The respondent affirmed an earlier decision of 4 April 2003 denying Mr Dunn and his company Employer Support Payments (ESP).
2. The matter was heard on 12 February 2004. The applicant represented himself. The respondent was represented by Mrs Ferry and Mr Clark of counsel.
The Material Before the Tribunal
3. The Tribunal had before it documents lodged pursuant to section 37 Administrative Appeals Tribunal Act 1975 (including a supplementary set of T-documents), as well as the following documents:
· A statement prepared by Colonel Malcolm Douglas Steadman dated 23 January 2004;
· A statement prepared by Sergeant Malcolm Douglas Gray dated 30 January 2004;
· The applicant’s written response to the respondent’s statement of facts and contentions dated 30 September 2003,
· A copy of the summons delivered to the applicant dated 29 August 2003;
· A copy of the applicant’s employment contract with GM Property and Investments Pty Ltd;
· A copy of the applicant’s job description prepared by GM Property and Investments Pty Ltd;
· A copy of the applicant’s Business Activity Statement (BAS) for the period January – March 2003 as originally provided by the applicant in complying with the summons;
· An amended copy of the applicant’s BAS for the period January – March 2003, as provided by the applicant on the second day of hearing;
· A statement of the bank account of GM Property and Investments Pty Ltd, held by Queensland Credit Union Ltd, covering the period 10 April to 12 May 2003;
· A tax invoice from LRK Walkers (accountants) directed to the applicant, dated 23 July 2003.
The Facts
4. Mr Dunn is a director of GM Property and Investments Pty Ltd (“the company”). The company was duly incorporated on 7 January 2004. He is also an employee of the company. The company is in the business of property renovation and investment and maintenance. Mr Dunn is also an army Reservist.
5. Mr Dunn says the company pays him a salary for his services. An employment contract and a job description (exhibits 6-7) were admitted into evidence. Also in evidence are six pay-slips which indicate the company paid Mr Dunn a net weekly salary of $724.54 from 10 January 2003 to 14 February 2003 (T14 ff 156-161 of the T-documents). The pay-slips are all dated 9 April 2003. The applicant also tendered a deposit slip indicating he received $4347.24 in salary on 9 April 2003 (exhibit 10).
6. In cross-examination Mr Dunn said the sum he received on 9 April 2003 was a lump-sum payment of six weeks pay. He said the pay-slips and the receipt of pay from the company are all dated 9 April 2004 because the company was having technical difficulties in setting up a pay system. He also said in cross-examination the company paid him an hourly rate, and the amount of pay was the same each week ($724.54) because he had worked the same number of hours each week.
7. On 12 February 2003 the applicant and his co-director and partner Maryline Jung lodged an ESP claim as a self-employed member under the ESP Scheme.
8. On 4 April Lieutenant Colonel Roach made a decision to deny the claim for ESP payment. The claim was denied on the basis that the main source of income considered for the purposes of the ESP Scheme must be realised or actual income, and could not be potential or projected income. Lieutenant Colonel Roach considered the rental income the company would receive as well as capital profit from the sale of the company’s properties was projected income. Furthermore Lieutenant Colonel Roach considered money paid to the company could not be considered as the applicant’s income as it did not reach his hands unless paid to him in the form of salary or dividends. Lieutenant Colonel Roach noted the applicant and his co-director had agreed to forgo salary payments until a later point in time.
9. On the applicant’s request, the decision was reviewed on 19 May 2003 by Colonel Stedman. He affirmed the decision on the basis the applicant was unable to demonstrate his principal employment was with the company, or that the company was his main source of income.
10. Mr Dunn has now applied to this Tribunal for review.
The Law
11. The ESP scheme is governed by the Defence Determination 2002 (Employer Support Payments) (“the Determination”). The Determination is given force of law by s58B Defence Act 1903 which empowers the Minister for Veterans’ Affairs to make determinations for various purposes including payments to the employers of Army Reservists.
12. Mr Dunn applied for ESP as a ‘self-employed member’ of the army Reserve. Section 3 of the Determination defines ‘self-employed member’ as a member who
a.) conducts a recognised business as a sole trader or in partnership with another person from which the member receives his or her main source of income; or
b.) is employed by a company in which the member has a controlling interest and from which the member receives his or her main income.
Mr Dunn defined himself as ‘self-employed’ under subsection (b) (T6 f67C of the T-documents).
13. “Income” is not defined in the Determination. The Defence Instruction (General) Personnel 05-30 (“the Instruction”) is helpful in interpreting the Determination. The Instruction says
Income means income from all sources, including Reserve salary and any taxable pension being received by the member
The Instruction is issued under s9A Defence Act 1903 and also has force of law.
14. Section 7 of the Determination says an employer of a Reservist who has been absent on defence service may claim ESP if the employee’s absence meets the section’s criteria.
The Issues before the Tribunal
15. The decision-maker has a wide discretion to allow ESP payment under the Determination. I think this matter turns on whether Mr Dunn can satisfy the second limb of the definition of ‘self-employed’ in s3 of the Determination during the relevant period. It says a self-employed member must be:
employed by a company in which the member has a controlling interest and from which the member receives his or her main income.
16. There is no doubt Mr Dunn is an employee of the company. He is a director along with his de facto spouse and have control of the general meeting between them. But is his employment with the company his “main source of income”?
17. In the course of answering this question, it is necessary to consider the period over which the assessment is to be made. Mr Dunn argued a mere week of employment and income should be enough to satisfy the decision-maker as to the question of “main source of income”.
Main Source of Income
18. Mr Dunn says the company was his main source of income for the period in question. He said if a reservist can show he has been employed for even one week, this should satisfy the decision-maker. The evidence of Sergeant Gray supported his argument (exhibit 8).
19. The decision-maker has a wide discretion under the Determination. There is little guidance as to how he or she should exercise it. In this case Colonel Stedman decided it was appropriate to assess the sources of Mr Dunn’s income over a longer period in order to accurately determine the main source of that income. That is reasonable.
20. It is evident Mr Dunn received income from several sources in the weeks and months before making his claim for ESP. He was receiving income from his employment with the Australian Defence Force: the evidence before the Tribunal is incomplete but I note he received $14,677 for the period 15 February 2003 to 30 June 2003 (exhibit 3). From mid-October 2002 to mid-February 2003 he also received over $7000 in Reserve salary (exhibit 3). How much income did he receive from the company?
21. His employer, GM Property and Investments Pty Ltd, was created on 7 January 2003 (f77 T9 of the T-documents). I accept Mr Dunn may have been receiving income (e.g. rental income) from his activities on the property market before 7 January 2003. However he applied for ESP on the basis that he was “employed by a company in which [he] has a controlling interest” (T6 f67C of the T-documents). This obviously refers to GM Property and Investments. Clearly I cannot look beyond the date of the creation of the company when assessing his main source of income.
22. On April 9 2003 he received pay of $4347.24 from the company. This transfer is recorded on the company account record (exhibit 10). Mr Dunn said the company was newly formed and it was not at the stage where it could regularly pay him. He argued new businesses often cannot pay their employees regularly. This may be so. No doubt Mr Dunn intended the company to become his primary employment and source of income. But it is not for the decision-maker to consider prospective or projected income, but rather the main source of the individual’s income at the time of the decision.
23. Mr Dunn also made statements about the company’s earnings. I accept the company may have made profits. No doubt it received an amount of rental income from the properties it managed. But the company is a separate legal entity, distinct from its directors. Its earnings are not the earnings of the directors or members. Lieutenant Colonel Roach made this point in the original decision. He did so correctly: the point was settled by the Privy Council in Lee v Lee’s Air Farming Ltd [1961] AC 12.
24. It was suggested in Mr Dunn’s cross-examination that the payslips were created by the company in order to fulfil the legislative requirement that his employment there was his “main source of income”. It was suggested they do not accurately reflect the arrangement between him and the company. There is evidence that the company’s directors (including Mr Dunn) had “agreed to forgo their salary payments until such time as the company profits are distributed” (ff70-71 T8 of the T-documents).
25. Furthermore there is in evidence a letter written by the co-director Ms Jung on 9 April 2003 to the authorities regarding ESP (ff154-155 T14 of the T-documents). This letter was written following the Colonel Roach’s decision to deny ESP. Ms Jung wrote
[Mr Dunn] has been paid for his services from the 7th January to the 14th February 2003. Please find attached evidence of the salary payment made to him over this period. I therefore believe that this application now meets the requirements as stated in tour correspondence…Garry Dunn is now a salaried employer [sic]. There is now “realised or actual income”…I believe I have now satisfied the condition under which the claim was initially denied. [emphasis mine]
Attached to the letter were copies of the six pay-slips. To my mind the peculiar wording of this letter indicates the pay-slips were created to comply with the legislative scheme.
26. I do not accept the payslips accurately reflected Mr Dunn’s arrangement with the company. The payment of wages by the company recorded in the payslips is clearly intended to make the company appear to be the applicant's main source of income. The payslips can only have that appearance if the decision-maker makes his or her assessment over the very short time frame during which the payments were made. I think the decision-maker was right to take a longer view and make an assessment over a longer period. When that is done, it becomes apparent the applicant's main source of income was his army reserve pay.
27. Issues of credit were also raised in relation to the original BAS (exhibit 9), filed and served by Mr Dunn in compliance with the summons (exhibit 5). The document had several boxes blacked out, so as to render its contents illegible. Mr Dunn said he blacked the boxes out because the profitability or otherwise of his company was no business of the Tribunal’s. I disagree. The profitability of the company is highly relevant. For one, it goes to whether the company could afford to pay him the wages he says constituted his main source of income.
28. After I ordered him to do so Mr Dunn then filed and served a legible copy of the company’s BAS on the second day of the matter (exhibit 12). The statement revealed the company made GST free sales of $200 from 7 January to 31 March 2003. But Mr Dunn’s credit was irretrievably damaged by this episode.
Findings of the Tribunal
29. As a question of fact I do not accept Mr Dunn’s employment with the company was his main source of income for the relevant period. His main source of income was his army reserve pay. Accordingly the Tribunal affirms the decision under review.
I certify the 29 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member McCabe
Signed: .....................................................................................
Associate: Thomas RitchieDate/s of Hearing: 18 February 2004, 19 February 2004
Date of Decision: 17 May 2004
The Applicant represented himself.
The Respondent was represented by Mrs Ferry of Phillips Fox Lawyers and Mr Clark of counsel.
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