Forner and Secretary, Department of Social Services (Social services second review)
[2018] AATA 1512
•8 June 2018
Forner and Secretary, Department of Social Services (Social services second review) [2018] AATA 1512 (8 June 2018)
Division:GENERAL DIVISION
File Number(s): 2017/7257
Re:Valerie Forner
APPLICANT
AndSecretary, Department of Social Services
RESPONDENT
DECISION
Tribunal:Mark Hyman, Member
Date:8 June 2018
Place:Canberra
The tribunal varies the decision under review, and decides that Mrs Forner has deprived assets of:
(a)$3,237.42 for five years from 13 November 2016; and
(b)$15,431.59 for five years from 27 December 2016.
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Mark Hyman, Member
Catchwords
SOCIAL SECURITY – age pension – disposal of assets – accounts for the benefit of grandchildren – whether assets were disposed of – treatment of disposed assets – amount of disposal – date of disposal – decision under review varied
Legislation
Administrative Appeals Tribunal Act 1975 s 37
Social Security Act 1991 ss 8, 9, 11, 55, 1064, 1077, 1083, 1123, 1124, 1126AC
Cases
Damhuis and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2011] AATA 700
Pratap and Secretary, Department of Social Services (Social services second review) [2017] AATA 843
Stavrinidis and Secretary, Department of Social Services (Social services second review) [2018] AATA 169
Winch and Secretary, Department of Social Services (Social services second review) [2016] AATA 286
Zielke and Secretary, Department of Social Services (Social services second review) [2017] AATA 478
REASONS FOR DECISION
Mark Hyman, Member
8 June 2018
The applicant, Mrs Valerie Forner, set aside money for each of her grandchildren at the time of their birth. Later, she transferred the accrued amounts to her children and grandchildren. This decision is about whether the funds so transferred should continue to be treated as her assets for social security purposes. In January 2017 The Department of Human Services (the Department) decided that the amounts transferred remained Mrs Forner’s assets for social security purposes for five years after the transfer, and that decision was affirmed by an authorised review officer on 22 August 2017, after Mrs Forner sought review of the Department’s decision. Mrs Forner applied to this tribunal for review and on 20 November 2017 the tribunal, in a first review, affirmed the Department’s decision. Mrs Forner has sought further review, and the matter has come before the tribunal once again, this time for second review.
The tribunal held a hearing on 22 May 2018. Mrs Forner represented herself and a departmental advocate, Ms Charlie Inglis, represented the Secretary.
The documentary evidence before the tribunal comprised the documents and supplementary documents submitted under section 37 of the Administrative Appeals Tribunal Act 1975 (the AAT Act) (the T-documents and ST-documents).
LEGISLATION
The legislation governing this matter is set out in the Social Security Act 1991 (the Act).
Section 55 of the Act provides that the rate at which age pension is paid is worked out under section 1064. The latter section includes a rate calculator at point 1064-A1, which provides a method statement for calculating the rate. The method statement establishes a maximum payment rate which is then subject to separate reductions for the person’s income and assets; the lower of the assets reduced and income reduced rates is adopted. Point 1064-A2 provides that the rate paid to a person who is a member of a couple is based on the pooled and then halved income and assets of both members of the couple.
Point 1064-E1 includes a method statement for applying the income test. After a person’s income exceeds a threshold it may reduce a person’s rate of age pension (depending on the outcome of the assets test). Point 1064-E2 provides that for members of a couple their yearly income is added and then halved. Section 8 of the Act defines income very broadly.
Division 1B of Part 3.10 of the Act deals with income from financial assets: section 1077 deals with how income from financial assets of members of a couple is worked out. Income from such assets is deemed to have been derived in accordance with thresholds and rates set in the sections that follow. This deemed income takes the place of any actual earnings on the financial asset (section 1083 provides that the actual earnings on a financial asset are not to be regarded as income).
Point 1064-G1 sets out the method for applying the assets test. If a person’s assets are below a certain threshold they do not have any effect on the rate of age pension; if they are above the threshold the excess may reduce the person’s rate of age pension (depending on the outcome of the income test). Point 1064-G2 states that the value of the assets of a person who is a member of a couple is half the sum of the value of the person’s assets and those of their partner.
Section 11 of the Act defines assets for social security purposes. The definition is very broad: subsection 11(1) defines an “asset” as property or money. Section 9 provides definitions of terms used in connection with financial assets. It defines “deprived asset” in subsection 9(4) to mean an asset that has been disposed of and is included in a person’s assets under (relevantly) section 1126AC. It also defines “financial investment” in subsection 9(1) to include “deposit money”; and subsection 8(1) defines “deposit money” to mean a person’s money that is deposited in a financial institution.
Section 1123 deals with assets that are disposed of; subsection 1123(1) reads as follows:
(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.
Section 1124 states that the amount of a disposal of an asset is, relevantly, the value of the asset disposed of. The sections that follow deal with disposals at various times and vary according to whether the person is a member of a couple or not. The relevant section for present purposes is section 1126AC. That section provides that for a person who is a member of a couple and where the disposal took place after 1 July 2002, the lesser of two amounts is to be included in the assets of each of the person and their partner, namely half the amount disposed of, or half the amount by which the amount and the sum of any other disposals in that year exceed $10,000. The amount is included in the assets of each for a period of five years starting on the day of the disposal.
ISSUES
The issues before the tribunal are:
whether the amounts Mrs Forner transferred to her children and grandchildren are her assets for social security purposes;
whether those assets became her deprived assets when transferred; and
if so, the amounts of those assets, and the dates and periods from and for which they are her deprived assets.
CONSIDERATION
The facts of the matter are not themselves in dispute. Mrs Forner is a member of a couple with her husband, Mr Iseo Forner. She began receiving the age pension on 1 October 2014. Although nothing in the present matter turns on the distinction, it appears that Mrs Forner’s age pension rate was calculated on an income basis from 1 October 2014 to 12 January 2016 and on an assets basis from 13 January 2016 to 24 January 2017 (the record at ST5 is incomplete).
Mrs Forner deposited $1,000 on the birth of each of her grandchildren into two accounts, one for her daughter’s children (born 1994 and 1996) and one for her son’s children (born 1998, 2000 and 2003) (T9, misidentified in the documents as T8). These amounts were left to accrue interest, without further deposit; Mrs Forner stated that she always intended that the funds would go to her grandchildren, that she did not at any stage withdraw any funds from the accounts, and that she allowed the accounts to grow so as to increase the amounts that each grandchild would subsequently receive (T8).
Mrs Forner says that she was advised by the Australian Taxation Office (and her accountant) that the interest she received on these accounts was part of her taxable income (T8). For that reason she decided to close the two accounts and transfer the funds to the control of her children and grandchildren. She closed the account for her daughter’s children on 13 November 2016, transferring $13,237.42 (T9); she closed the account for her son’s children on 27 December 2016, transferring $15,431.59 (T9).
Did Mrs Forner dispose of her assets?
Mrs Forner has not contested the way in which her age pension was calculated up to the time she closed the accounts she had created for her grandchildren and transferred the amounts to her children and grandchildren. During that period the Department assessed her and her husband’s income and assets, applying the Act to deem income on her financial assets and take that income into account in determining the rate of Mrs Forner’s age pension.
The amounts in Mrs Forner’s two accounts were described by the Department as amounts held in trust for her grandchildren (T9) and the names of the term deposit accounts at the Commonwealth Bank were “Valerie Forner ITF George Giannitsios and Jacob Giannitsios” and “Valerie Forner ITF Isaak Andre Forner and Adam Forner and Alexia Forner”; in those names I take “ITF” to signify “in trust for”. The Act has special provisions in Part 3.18 governing trust funds but, as the Secretary contended and Mrs Forner acknowledged, it appears that there was in practice no formal trust arrangement. Mrs Forner said that there was no trust deed or instrument and it was plain from her oral evidence that she had not established a formal trust nor taken on the fiduciary duties of a trustee. The trust on which she held the funds for her grandchildren was therefore an informal arrangement; she retained control over the funds, even if she chose not to exercise that control except for her grandchildren’s benefit.
I am satisfied that up to the time of transfer, the funds in the two accounts remained Mrs Forner’s assets; that flows clearly from the previous paragraph and from the definitions in sections 8, 9 and 11. When Mrs Forner closed the accounts and transferred the funds to her children and grandchildren it is incontrovertible that she disposed of the assets she had previously held. Mrs Forner acknowledged in her oral evidence that she did not receive anything in return for the disposal; the disposal, therefore, was for no consideration. It falls squarely within subparagraphs 1123(1)(a)(ii) and 1123(1)(b)(i) of the Act.
The legislation is tightly drafted and makes no provision for the exercise of discretion. The case law confirms that. There are occasions where a person has apparently disposed of an asset but the asset has been excluded from subsequent consideration for social security purposes, but only where it has been established that the person to whom the asset has passed had some entitlement, legal or equitable, to the asset in question: see for example Stavrinidis and Secretary, Department of Social Services (Social services second review) [2018] AATA 169. In other cases the provisions of the Act have been applied strictly and the asset disposed of remains the person’s deprived asset: see for example Winch and Secretary, Department of Social Services (Social services second review) [2016] AATA 286; Zielke and Secretary, Department of Social Services (Social services second review) [2017] AATA 478; Damhuis and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2011] AATA 700.
What are the amounts, start dates and periods applying to the disposal?
Under section 1124, the value of the disposal equals the amount transferred. Section 1126AC is the relevant section for determining how the assets are to be treated, and the assets plainly meet the definition of deprived assets in subsection 9(4) of the Act.
Subsection 1126AC(2) provides that the amount to be included in Mrs Forner’s assets is the total amount transferred less the first $10,000 (the Department automatically makes an adjustment to share that value with her husband). The period covered is five years, but, as contended for by the Secretary, in accordance with the same subsection, the start date is the date of the disposal rather than the date on which the disposal came to the attention of the Department. On 13 November 2016 Mrs Forner transferred $13,237.42 to her family; applying subsection 1126AC(2), $10,000 is deducted, leaving $3,237.42 as Mrs Forner’s deprived asset for five years from that date. The second transfer, for $15,431.59, is Mrs Forner’s deprived asset for five years from the date of its transfer, 27 December 2016.
Mrs Forner clearly sees the operation of the law in this area as grossly unfair. She appears to have accepted that the law operates to treat the funds she gifted to her grandchildren as her assets even though she made clear arrangements to ensure that the benefit of the funds would pass to them from the time of the first deposit, but sees it as a form of punishment that she does not deserve. She has repeatedly noted that she was not behaving deceptively or attempting to deceive the Department or the Australian Government more broadly.
I accept Mrs Forner’s account of her motives and behaviour. I have absolutely no doubt that she has been completely open and truthful in her dealings with the Department and with the tribunal. And in particular, she did not reduce her assets in order to gain the age pension or increase the rate at which it was paid. But paragraph 1123(1)(b) makes it plain that the provisions on disposal of assets are not there just to capture those attempting to “game” the social security system; subparagraph 1123(1)(b)(iii) is included for that purpose but the evident intention of subparagraphs (i) and (ii) is to capture all those who reduce their assets through disposal, whatever the motivation or intention. Mrs Forner has not been caught out by some quirk or unintentional operation of the legislation: it is clearly intended to capture precisely the kind of action that she took.
I certify that the preceding 23 (twenty-three) paragraphs are a true copy of the reasons for the decision herein of Mark Hyman, Member.
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Associate
Dated: 8 June 2018
Date(s) of hearing: 22 May 2018 Date final submissions received: 22 May 2018 Applicant: In person Solicitors for the Respondent: Ms Charlie Inglis, Department of Human Services
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