ERIC BLAICH and and SECRETARY, DEPARTMENT OF EMPLOYMENT, EDUCATION AND WORKPLACE RELATIONS

[2012] AATA 597

[2012] AATA 597  

Division	GENERAL ADMINISTRATIVE DIVISION
File Number	2012/0835
Re	ERIC BLAICH
APPLICANT
And	SECRETARY, DEPARTMENT OF EMPLOYMENT, EDUCATION AND WORKPLACE RELATIONS
RESPONDENT
AND
File Number	2012/0836
Re	ROSELYS BLAICH
APPLICANT
And	SECRETARY, DEPARTMENT OF EMPLOYMENT, EDUCATION AND WORKPLACE RELATIONS
RESPONDENT

DECISION

Tribunal	Dr P McDermott, RFD, Senior Member
Date	6 September 2012
Place	Brisbane

The Tribunal affirms the decision under review.

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Dr P McDermott, RFD, Senior Member

CATCHWORDS

SOCIAL SECURITY – Pensions, benefits and allowances – Newstart allowance – Assets held by corporate trustee – Loans to corporate trustee made by applicants – Financial hardship – Assets test – Unrealisable assets – Disregarded assets – Complex assessment – Income test – Decision under review affirmed

PRACTICE AND PROCEDURE – Section 35 of the Administrative Appeals Tribunal Act (Cth) – Application for hearing to be closed – Application for decision to be confidential – Hearings to be held in public – No special circumstances to exclude public – No evidence of a confidential nature – Applications refused

LEGISLATION

Administrative Appeals Tribunal Act 1975 (Cth) ss 2A, 35, 42D,

Social Security Act 1991 (Cth) ss 4, 8, 11, 22, 593, 608, 611, 1068, 1131, 1132, 1207X, Part 3.18

Social Security (Administration) Act 1999 (Cth) s 8

CASES

Secretary, Department of Employment and Workplace Relations v Joss [2006] FCA 884

SECONDARY MATERIALS

A Guide to Australian Government Payments

REASONS FOR DECISION

Dr P McDermott, RFD, Senior Member

6 September 2012

INTRODUCTION

1. Roselys Blaich and Eric Blaich (“the applicants”) seek review of a decision dated 8 November 2011 to cancel newstart allowance (“NSA”) payments to each applicant from 6 April 2011. While I have sympathy for the position of the applicants, I consider that the decision must be affirmed having regard to the provisions of the social security law. The business structure that has been employed by the applicants whereby they make loans to a corporate trustee that conducts a business is the reason why I consider the applicants are not entitled to NSA. I give my reasons.

   BACKGROUND

2. On 10 April 2011, each applicant claimed NSA. On 11 May 2011, each applicant was granted NSA from 6 April 2011. On 8 November 2011, Centrelink made a decision to cancel the payment of NSA from 6 April 2011. The reason for this decision was because the total assessable value of their joint assets exceeded the NSA assets test limit.

3. On 14 November 2011, each applicant then claimed NSA pursuant to the financial hardship rules. On 16 November 2011, Centrelink rejected each applicant's claim for NSA pursuant to the financial hardship rules. The applicants sought further review and, on 20 November 2011, an Authorised Review Officer affirmed both the original and the second decision. The applicants sought further review of the decisions by the Social Security Appeals Tribunal (“SSAT”). On 31 January 2012, the SSAT considered the previous decisions in the context of reviewing “a Centrelink decision of 8 November 2011 to cancel payment of newstart allowance”.

4. On 29 February 2012, the applicants sought further review of the decision to this Tribunal.

5. When this application was first heard by the Tribunal it was apparent that the applicants had submitted material to the Tribunal which had not been considered by Centrelink. The advocate for the respondent submitted that, in the circumstances, the claim of the applicants should be reconsidered by the respondent. With the consent of the applicants this Tribunal made an order on 19 April 2012, pursuant to s 42D of the Administrative Appeals Tribunal Act 1975 (Cth), to enable the application to be reconsidered by the respondent. On 14 May 2012, a Complex Assessment Officer reviewed the assets and income of the applicants. The review occurred in accordance with the financial hardship rules. The Complex Assessment Officer determined that the applicants did not qualify for NSA pursuant to the financial hardship rules.

   RELEVANT LEGISLATION

6. The application has to be determined in accordance with the Social Security Act 1991 (Cth) (“the Act”).

7. The parties are both a member of a couple for the purpose of the social security law. They are legally married to each other and are not living separately and apart from that person on a permanent or indefinite basis (subs 4(1) and 4(2) of the Act).

8. NSA is a social security benefit under Part 2.12 of the Act.

9. An applicant who seeks NSA is required under social security law to satisfy both the assets test and the income test. When a person is a member of a couple, then an assets test limit is applicable to both of the members of the couple and an income test limit applies to each. NSA is not payable if a person's asset test limit or income test limit is exceeded (s 611 of the Act).

10. At all relevant times the asset test and income test limits were as follows:[1]

    [1] This information is extracted from the publications: A Guide to Australian Government Payments (20 March to 30 June 2011; 1 July to 19 September 2011; 20 September to 31 December 2011).

Date	Asset (Homeowner)	Income Limit (Each p/f)
6 April 2011	$258,000	$807.84
1 July 2011	$265,000	$807.84
8 November 2011	$265,000	$825.67

INCOME UNDER SOCIAL SECURITY LAW

1. The term “income” is defined under social security law to ascertain whether a person is currently in need of assistance. Therefore an assessment may not take into account past or future losses or past or future income. Similarly, the social security law uses a different treatment of deductions than that used in taxation law and not all deductions that reduce a business's taxable income are allowable as deductions from income for social security purposes. It should be mentioned that, generally speaking, under social security law the only expenses that are allowed as a deduction against gross business income are those necessarily incurred in earning business income. That is why some donations made by Kik Pty Ltd as trustee of the Tahoe Discretionary Trust have been disregarded as deductions and have been treated as being part of the income of Kik Pty Ltd. Ms C Hausmann, the accountant of the applicants, has in her letter of 12 July 2012 submitted a revised submission based on the disallowance of non-allowable donations.

   PRIVATE TRUSTS

2. There is no issue that Part 3.18 of the Act has relevance to this case. Part 3.18 provides for the attribution to individuals of the assets and income of private companies and private trusts (s 1207 of the Act). Part 3.18 provides for the income or assets of a company or trust controlled by a person or a person's associates, as defined by the Act, to be included in the value of a person's assets in an amount equal to an attribution percentage determined in accordance with the Part.

3. There is evidence before me that from 2006 to 2010 Kik Pty Ltd operated as a photography business. This photography business was operated by Mr Blaich. Kik Pty Ltd is now the trustee of the Tahoe Discretionary Trust. The applicants are both directors of Kik Pty Ltd and, accordingly, control both the company and the trust. In evidence there are various resolutions, which have been signed by the applicants, which provide for the trustee to borrow funds from the applicants. The provision of these loans is material in the determination of this application.

   FINANCIAL HARDSHIP RULES

4. The standard assets test presumes that persons who qualify for a social security benefit but have substantial assets use those assets to produce income for their own support. But if substantial assets are held and those assets produce little or no income and a person cannot obtain relief by rearranging their financial affairs or gaining other Commonwealth assistance, then it may be that a person can have certain assets disregarded when calculating their pension or benefit rate. This is done under the asset hardship provisions or the financial hardship rules.

5. To access the financial hardship rules there are a number of matters that must be satisfied under s 1131 of the Act. A person otherwise qualified for NSA must fail the assets test normally applicable to NSA; he or she and any partner must not be eligible for alternative Commonwealth assistance; he and any partner must have an unrealisable asset (see subs 11(12) and (13) of the Act); and they must request in writing that the financial hardship rules apply. There is no issue that these matters are not satisfied in this case. There is also a requirement that the Secretary must be satisfied that a person would be in severe financial hardship if the financial hardship rules did not apply (sub 1131(1)(g)). Only then can access be granted to the financial hardship rules.

6. Once a person qualifies for NSA as well as access to the financial hardship rules, then those rules are applied under s 1132 of the Act. Under sub 1132(1), the value of any unrealisable assets is to be disregarded when working out the person’s rate of NSA. A person's adjusted fortnightly rate of ordinary income includes, among other things, income from non-disregarded assets. A person's income from non-disregarded assets is an amount per fortnight equal to $1 for each $250 of the value of a person's non‑disregarded assets (sub 1132(3)(d)) and any amounts that are not income pursuant to sub 8(8)(zp) of the Act (sub 1132(3)(e)). Subsection 8(8)(zp) does not apply in this case.

7. Once an applicant’s adjusted rate of ordinary income is determined, then the adjusted rate of ordinary income is deducted from the maximum rate of NSA payable to a person. If the result of the deduction is nil or a negative number, then NSA is not payable (s 608 of the Act).

   CONSIDERATION

8. On the first occasion when there was a hearing the applicants sought to have the hearing held in private. The applicants also made an application for the reasons of this Tribunal to be confidential; this application was renewed on the second occasion when there was the hearing of the application. I informed the applicants that s 35 of the Administrative Appeals Tribunal Act 1975 (Cth) requires that hearings are to be in public unless there are special circumstances. I did not consider that there was sufficient reason why the hearing should be closed to the public. In any event, no member of the general public was in the room in which the hearing was held. I also was not satisfied that there was any evidence of a “confidential nature” within the meaning of s 35(2) of the Administrative Appeals Tribunal Act 1975 (Cth). Having regard to the normative function of this Tribunal (see Social Security (Administration) Act 1999 (Cth), s 8, para (f)), it is important that any decision of the Tribunal be accessible to the public.

9. The applicants are members of a couple for the purposes of the social security law. They own their own home. Each applicant commenced receiving NSA from 6 April 2011. Each applicant's NSA was cancelled on 8 November 2011. Each cancellation was backdated to 6 April 2011. On 14 November 2011, each applicant sought to have their claim for NSA reconsidered pursuant to the financial hardship rules.

10. The applicants are both directors of Kik Pty Ltd ABN 19 078 218 327 (“Kik”); this entity is the trustee of the Tahoe Discretionary Trust (“Tahoe”). The trustee has a business located in Gympie. Pursuant to Part 3.18 of the Act, and particularly s 1207X, 100% of the assets of the trustee are attributable to the applicants. Their personal assets and income are also attributable to them to the extent otherwise provided for by the Act. The material before me shows that for the period July 2011 to February 2012 the business conducted by the trustee operated at a net profit on each month. On the other hand, the Tahoe Profit and Loss Statement for the period July 2010 to June 2011 has also been provided and it shows a yearly gross profit of $172,975, down from $186,598 gross profit for the preceding financial year.

11. On 14 May 2012, a Centrelink Complex Assessment Officer considered the applicant's claims for payment of NSA pursuant to the financial hardship rules and rejected each claim on the basis that each applicant's adjusted fortnightly rate of ordinary income was such as to preclude payment. This reconsideration is challenged by the applicants.

12. To gain access to the financial hardship rules, each applicant must qualify for NSA and fail the NSA assets test found at ss 611 and 1068 of the Act. It is only when NSA is not payable to a person because of the application of the NSA assets test that a person might be considered for access to the financial hardship rules (sub 1131(1)).

13. To qualify for NSA in respect of a period a person must satisfy the Secretary “that throughout the period the person is unemployed” (see sub 593(1)(a)). The word “unemployed” is not defined in the Act, but was considered by the Federal Court of Australia in Secretary Department of Employment and Workplace Relations v Joss,[2] (“Joss”) where Justice Graham held that “a person will be ‘unemployed’ within the meaning of s 593(1) of the Act if that person is without work or employment and that situation is both temporary and involuntary”. His Honour held further that “a person carrying on business or engaged in work with a view of profit … could not be considered to be ‘unemployed’ for the purposes of s 593(1)”.

    [2] [2006] FCA 884.

14. One matter that was raised by the respondent was whether Mr Blaich could be regarded as unemployed in view of his activities in support of the business. I have decided that it is not appropriate for a number of reasons to make any finding on this issue. This issue was not raised before the SSAT. It was only raised before this Tribunal at a time when submissions were being made. Having regard to the fact that Parliament has expressly provided that one objective of this Tribunal is to provide a mechanism of review which is “fair”[3] I am reluctant to allow this issue to be raised at this stage.

    [3] Administrative Appeals Tribunal Act 1975 (Cth), s 2A.

15. I consider that the situation in Joss which is relied upon by the respondent should be distinguished from the situation of the applicants. This is because any profit from the business would be derived by Kik Pty Ltd, the corporate trustee, and not by Mr Blaich in his personal capacity. The situation that was considered by Graham J in Joss in considering the case of a self-employed person was quite different to the situation of the applicants. In Joss, Graham J remarked (at [35]): “once it be found that the person is self‑employed it seems to me impossible to conclude that such a person was, at the same time unemployed”. In this situation the business was being carried on by a corporate trustee and not by Mr Blaich as a self-employed person. In considering this application I have assumed that Mr Blaich is unemployed and so qualifies for NSA.

16. The respondent has, quite properly, also raised for consideration whether Mr Blaich may have been temporarily unemployed at the time that the business was not operating. However, there is no material before me to show when the business was not operating. In any event, I have assumed that Mr Blaich was unemployed.

17. The complex assessment officer, in her report of 6 June 2012, has concluded that both applicants satisfy s 1131 of the Act and qualify for access to the financial hardship rules. I consider that her opinion is correct.

18. I accordingly proceed to an assessment of the assets, and income of the assets, having regard to the considerations in s 1132 of the Act.

19. The complex assessment officer has reviewed the assets of the applicants. There is no issue that the applicants have assessable assets of $1,991,133 comprising: net assets of Kik Pty Ltd, $199,178; loans to Kik Pty Ltd as trustee of the Tahoe trust, $1,662,182; personal loan of Mr Blaich to Kik Pty Ltd, $433; excess curtilage of residence, $128,730; cash, $610.

20. There is also no issue that the complex assessment officer, after guidance from a senior officer, has made a decision to list disregarded assets of $1,790,912, being the loans to Kik Pty Ltd as trustee of the Tahoe trust, $1,662,182; and the excess curtilage of residence, $128,730. This decision has been made after the residence and the trust assets have been on the market. 

21. The total value of the disregarded assets of the applicant’s amount to $1,790,912. Their non-disregarded assets therefore amount to $200,221 in value.

22. As at 14 November 2011, the asset test required that a claimant have assets that did not exceed $265,000. The income test required that a claimant earn less than $62 per fortnight to be paid a full allowance and less than $825.67 per fortnight for the payment of part allowance. When a claimant is a member of a couple, this income limit is applicable to each of them.

23. The complex assessment officer has determined that the applicants have a joint assessable yearly income of $115,605. That officer also determined that under s 1132(3) of the Act they have an adjusted fortnightly income of $5334. The applicant has not challenged these calculations.

24. As at 14 November 2011, the maximum fortnightly rate of NSA which was payable to the applicants was $878.80. The adjusted fortnightly income of the applicants of $5334 has to be deducted from this maximum fortnightly rate (s 1132(8)). As the result of this deduction being a negative number, then NSA is not payable to the applicants (s 608).

25. The applicants have structured their business affairs in a manner that is not advantageous under social security law. The accountant of the applicants has quite properly advised the Tribunal that she was not aware of the position of the applicants under social security law at the time when the various loans were made.

    DECISION

26. I affirm the decision under review.

I certify that the preceding 36 (thirty-six) paragraphs are a true copy of the reasons for the decision herein of Dr P McDermott, RFD, Senior Member.

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Associate

Dated 6 September 2012

Dates of hearing	18 April 2012; 16 May 2012; 23 May 2012; 19 June 2012; 24 July 2012 and 6 August 2012
Applicants	In person
Advocate for the Respondent	Bob Hamilton