Elliott; Secretary, Department of Employment and Workplace Relations

[2006] AATA 970

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2006] AATA 970

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No  Q2005/731

GENERAL ADMINISTRATIVE DIVISION		)
Re		SECRETARY, DEPARTMENT OF EMPLOYMENT AND WORKPLACE RELATIONS

Applicant

And  PAUL ELLIOTT

First Respondent

EMILSE ELLIOTT

Second Respondent

DECISION

Tribunal  Senior Member B J McCabe

Date 15 November 2006

Place Brisbane

Decision  The decision under review is set aside. The Tribunal decides in substitution that the respondents are not eligible to receive the benefits for which they have applied because the trust must be treated as a controlled private trust within the meaning of s 1207V.

............[Sgd]...............

BJ McCabe

SENIOR MEMBER

CATCHWORDS

SOCIAL SECURITY – trusts and trustees – testamentary trust – beneficiaries of a testamentary trust – controlled private trust – respondents ineligibility to receive social security payments because they cannot satisfy the assets test – decision under review set aside.

Social Security Act 1991

Australian Securities Investments Commission; In the matter of Richstar Enterprises Pty Ltd v Carey (No 6) [2006] FCA 814

Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226

Gartside v Inland Revenue Commissioners [1968] AC 553

R & I Bank of Western Australia Ltd v Anchorage Investments Pty Ltd (1992) 10 WAR 59

REASONS FOR DECISION

15 November 2006	Mr B J McCabe, Senior Member
introduction

1.Mr Paul Elliott and his wife, Emilse Elliott, are in receipt of pensions paid by the applicants. They are also named as beneficiaries of a testamentary trust established by Mr Elliott’s late father. The applicants say the assets of the trust should be attributed to Mr and Mrs Elliott pursuant to part 3.18 of the Social Security Act 1991 – and that if one does so, the respondents become ineligible to receive social security payments because they cannot satisfy the assets test.

2.The Social Security Appeals Tribunal (the SSAT) concluded the trust in question was not a controlled private trust within the meaning of s1207V of the Act. The applicants disagreed. They have now asked this Tribunal to consider the issue.

the material before the tribunal

3.The applicants provided the documents required under s 37 of the Administrative Appeals Tribunal Act 1975. The respondents filed witness statements and led evidence from Mr Anthony Walstab (the solicitor who prepared the will) and Mr Peter Saunders (one of the trustees). Mr Belcher appeared on behalf of the applicants and Mr Nevison of counsel appeared on behalf of the respondents.

the factual background to the dispute

4.The late Mr Gregory Elliott was the father of the male respondent in this case. Prior to his death, Mr Elliott Snr instructed his solicitor, Mr Walstab, to prepare a will. Mr Walstab explained his client was worried about leaving his estate in the hands of his son and daughter-in-law. They both experience health problems that I need not describe in detail here. It was also suggested they were not good managers of their resources. Mr Elliott Snr nonetheless wanted to make provision for them both out of his estate, and for their daughter who is a teenager. Mr Walstab drew up a will which directed how his personal chattels were to be distributed, and which provided for a bequest in the amount of $30,000 to the male respondent. The residue of the estate was to be held on trust. The testamentary documents are set out at page 7 of exhibit one.

5.The will actually provides for the creation of two trusts: a life discretionary trust, and a contingent fixed trust which follows the termination of the life discretionary trust provided certain circumstances prevail. I do not need to detail those circumstances here. The beneficiary of the contingent fixed trust is the testator’s granddaughter (ie, the daughter of Mr and Mrs Elliott).

6.Most of the pertinent details of the life testamentary trust are set out in clause 5(b) of the testator’s will. The will authorises the trustees to apply the income (and, if they see fit to do so, the capital) of the trust:

…in and towards the maintenance education advancement or benefit of my said son Paul Gregory Elliott and his wife Emily Elliott or of my grandchildren and their descendants (including future descendants) or any of them to the exclusion of the other or others and in such proportions as my trustees in their absolute discretion determine…

7.The clause goes on to say:

…in exercising their discretion to pay or apply the income or capital my trustees shall always have primary regard to the needs of my said son and shall also have regard to the impact of any payment or application on the social security entitlements of my said son or his said wife.

8.Several propositions can be divined from the wording of the trust documentation. Firstly, the trustees are not obliged to pay any amount to the respondents in any given year. Secondly, the trustees are required to have regard to the interests (if not the representations) of the respondents when exercising the discretion. Thirdly, the only individuals who are (or who could be) beneficiaries under the trust are members of the same family.

9.Mr Saunders gave evidence at the hearing and filed a statement. He is one of the trustees. He was a friend of the testator but said he does not know the respondents well. He explained the trust funds have been invested. He also explained how the trustees have disbursed money to the beneficiaries. He said a monthly payment was made to the respondents. These payments were intended to supplement the social security benefits they received. Those amounts were increased after the reviewable decision was made to stop the social security payments. He said in addition the trustees paid for health insurance for the respondents and their daughter and met some medical bills. The trustees have also paid for the school fees of the respondents’ daughter and made further payments to assist her in her studies. Some other payments have been made on an ad hoc basis: eg, the trustees purchased a family car and funded a family holiday. But Mr Saunders pointed out a number of requests from the respondents have been declined. As he explained in his statement (at paragraph 27):

The trustees consider all requests made by the Elliotts but certainly do not grant all of them.

10.I accept the trustees are administering the trust at arms’ length, and that they apply their independent judgement when considering whether or not to exercise their discretion to make payments. I accept they do not habitually accede to the respondents’ requests although I acknowledge the respondents have regularly received payments.

the legislation

11.Part 3.18 of the Act includes a number of provisions permitting the decision-maker to attribute the assets and income of companies and trusts to individuals in certain circumstances. The income or assets of a trust will not be attributed to an individual unless the trust in question is a controlled private trust within the meaning of s 1207V and the individual is an attributable stakeholder within the meaning of s 1207X.

12.Section 1207V(1) says a trust will qualify as a controlled private trust if several criteria are met. Firstly, it must be a designated private trust. Section 1207P establishes the conditions which must be satisfied if the trust is not to be considered a designated private trust. The life testamentary trust in question here does not meet the conditions because, inter alia, it is not a fixed trust. It follows the life testamentary trust is a designated private trust for the purposes of s 1207V.

13.The second criterion referred to in s 1207V(1) requires the decision-maker to determine if the individual (ie, the person who has applied for benefits) passes either the control test or the source test. We are concerned here with the control test, which relates to assets. Section 1207V(2) sets out the various circumstances in which an individual might satisfy the control test.

14.I do not propose to deal with each of the circumstances identified in s 1207V(2) that would result in a finding that the trust is a controlled private trust. It is sufficient if I turn to s 1207V(2)(d). Section 1207V(2)(d) says the individual will satisfy the control test if:

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;…

15.The respondents say they do not fit within s 1207V(2)(d) because – as beneficiaries under a discretionary trust - they do not have any beneficial interest in the income or corpus of the trust. They referred to a number of authorities for this proposition, including Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226 and Gartside v Inland Revenue Commissioners [1968] AC 553; see also R & I Bank of Western Australia Ltd v Anchorage Investments Pty Ltd (1992) 10 WAR 59 at 79 per Owen J and Australian Securities Investments Commission; In the matter of Richstar Enterprises Pty Ltd v Carey (No 6) [2006] FCA 814 at para. 28 per French J.

16.The applicants say the words of the section change whatever the position might be at general law. Mr Belcher argued use of the word aggregate “requires consideration of what the combined beneficial interest of the beneficiaries would be as if they were collected or united into one.” The only persons who can benefit under the trust are the respondents, their daughter and other persons who, upon their birth, would be relatives of the respondents. The beneficiaries at any given time are therefore associates of each other. Between them, they account for the whole of the beneficial interest in the property. I agree with this approach. While the individual respondents do not hold any beneficial interest under the general law, the use of the word aggregate in the statute requires the decision-maker to recognise a kind of group right arising when the beneficiaries between them control the whole of the beneficial interest in the corpus of the trust: cf Gartside at 606 per Lord Reid. The use of the associate concept requires the “group” interest to be attributed to the respondents because they are related to the other group members. It follows the respondents hold in excess of 50% of the beneficial interest in the corpus of the trust assets. They therefore satisfy the control test.

conclusion

17.The decision under review is set aside. The trust must be treated as a controlled private trust within the meaning of s 1207V. It follows the respondents’ are not eligible to receive the benefits which they have sought.

I certify that the 17 preceding paragraphs are a true copy of the reasons for the decision herein of  

Signed: Ben Christoffel
  Associate

Date/s of Hearing  25 July 2006
Date of Decision  15 November 2006
Counsel for the Applicant         Mr Belcher
Counsel for the Respondent     Lee J Nevison
Solicitor for the Respondent     Ben Van de Beld