GALLOWAY and AITKEN and SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS

[2010] AATA 586

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2010] AATA 586

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No  2009/5550

GENERAL  ADMINISTRATIVE   DIVISION		)
Re		JAMES GALLOWAY and PAULINE MARY AITKEN

Applicants

And SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS

Respondent

DECISION

Tribunal Mr John Handley, Senior Member

Date9 August 2010

PlaceMelbourne

Decision The Tribunal affirms the decision of the Social Security Appeals Tribunal made on 30 October 2009.

(sgd) John Handley

Senior Member

SOCIAL SECURITY – Applicants members of the Pension Bonus Scheme – entitlement to pension bonus (PB) subject to being accruing members – PB entitlement lost if persons are non accruing members – persons will be non accruing if a disposition of $10,000 or more is made in an income year – financial equity of $212,325 held by Applicants in a partnership transferred to a family trust – Applicants' sons were beneficiaries of trust – transfer alleged to have occurred by inadvertence or error by the Applicants' accountants – trust wound up in 2005 – equity held by sons in the trust transferred to the Applicants – whether monies transferred in 2001 were incorporated in the transfers of 2005 – whether the character of the disposition in 2001 is altered if equity was re-credited ‑ whether Applicants subject to disposal preclusion period.

Social Security Act 1991 (Cth) s 92C, s 92N and s 93U

REASONS FOR DECISION

9 August 2010   Mr John Handley, Senior Member

1.      An Authorised Review Officer (ARO) of Centrelink made five decisions on 9 July 2009 which were affirmed by the Social Security Appeals Tribunal (SSAT) on 30 October 2009.  Those decisions were as follows:

a)that Mr and Mrs Aitken were subject to a disposal preclusion period from 1 July 2001 to 30 June 2006;

b)that Mr and Mrs Aitken were subject to a further disposal preclusion period from 1 July 2005 to 30 June 2010;

c)that Mr and Mrs Aitken were accruing members of the pension bonus scheme from 22 October 2000 to 30 June 2001;

d)that as Mr and Mrs Aitken did not accrue a full-year bonus period, they are not eligible for any amount of pension bonus;

e)the amounts of pension bonus received by Mr and Mrs Aitken are debts due to the Commonwealth but the debts are waived in full pursuant to section 1237A of the Social Security Act 1991.

2.      At the commencement of the hearing the parties agreed that the only issue remaining alive was whether the Applicants were subject to a disposal preclusion period in the period between 1 July 2001 and 30 June 2006 (Transcript, p7).

3. Centrelink had assessed the Applicants as having an entitlement to pension bonus (PB) for the period 1 July 2005 to 30 June 2010 in the sums of $6160.90 and $6349.90 respectively. It was later decided that those amounts should not have been paid. Despite them being overpayments and debts due to the Commonwealth, Centrelink decided they had been paid by sole administrative error and collection was waived pursuant to s 1237A of the Social Security Act 1991 (the Act).

4.      Ms Heffernan, who appeared on behalf of the Respondent, was instructed that the amounts paid were the maximum amounts payable, assuming there had been an entitlement.

5.      Having obtained that assurance, the Applicants did not pursue review of the decision with respect to the decision concerning the preclusion period between 1 July 2005 and 30 June 2010.  They acknowledged that there was no purpose in arguing that they had any greater entitlement than the amounts that had been paid to them.  Whilst they did not concede that the amounts were paid to them in error, they of course did not oppose the decision that Centrelink had made to waive the debts.  Centrelink did not withdraw its decision to waiver.

6.      Accordingly, this review is confined only to whether the Applicants were subject to a disposal preclusion period between 1 July 2001 and 30 June 2006.

7.      The circumstances giving rise to this review may be briefly summarised as follows.

8.      The Applicants were registered as accruing members of the pension bonus scheme (PBS) from 7 October 2000 (T6).  The SSAT in its reasons and the Respondent in its Statement of Facts and Contentions recorded registration of the Applicants with effect from 22 October 2000.  Whilst registration of both Applicants with the PBS is significant in the context of this application, for reasons which will follow, little turns on whether the Applicants were registered on either 7 or 22 October 2000.

9.      Prior to 1 July 2001, the Applicants were in partnership with their sons, Rohan and Philip, in the Gowandale Pastoral Company (the Partnership) which held farming interests in Northern Victoria.  In or about 1988, the Applicants were the registered proprietors of the real estate over which farming operations were conducted.  In that year they transferred the real estate to their sons.  The Partnership continued to operate the farming interests over the same real estate.

10.     On 30 June 2001 the balance sheet of the Partnership (T4) records the funds held by Mr Aitken at $113,026 and the funds held by Mrs Aitken at $99,299, a total of $212,325.

11.     At or about 1 July 2001, the Partnership was dissolved and the farming business was transferred to the Aitken Family Trust (the Trust).  About that time the Partnership funds of $212,325 were transferred to Phillip and Rohan.

12.     Mr Elliott, the Applicants' accountant who appeared on their behalf at the hearing, said that the $212,325 was the equity held by the Applicants in the Partnership.  He said that the funds were inadvertently transferred to the sons and was a mistake by staff at his accountancy practice (Transcript, p9).

13.     It is that transfer of funds to the Applicants’ sons which has been regarded by Centrelink as a disposal of assets and which has given rise to the preclusion period.

14. Section 92C of the Act sets out the qualification requirements for PB. The requirements relevant to these proceedings are set out in s 92C(c) and s 92C(d) which provide that a person must be registered as a member of the PBS and has accrued at least one full-year bonus period while registered. Section 92N of the Act provides that membership will be accruing (unless it is non-accruing) and s 92P(1) provides that if a person is subject to a disposal preclusion period, the person’s membership is non-accruing. Section 93U of the Act provides that if there has been a disposal of an asset greater than $10,000 in a designated year, a disposal preclusion period will commence for five years from the date of the disposition. Disposing of assets includes the destruction, disposition or diminishment of assets with no or inadequate consideration, or for the dominant purpose of gaining a social security advantage (s 1123(1)).

15.     Accordingly, the Respondent asserts the Applicants, although registered with the PBS from October 2000 (s 92C(c)), i) had transferred $212,325 in July 2001, ii) had not accrued at least one full‑year bonus period whilst registered (s 92C(d)) and iii) having disposed of an asset greater than $10,000 in a designated year (s 93(1)(d)), they are subject to a disposal preclusion period throughout the period of five years commencing on the date of the disposition (s 93(1)).

16.     The Applicants do not deny that there was a transfer in 2001 of their equity in the Partnership. 

17.     Mr Elliott submitted the mistake was not detected by the accountants until the 2005 income year when Rohan and Phillip exited from the Trust and their equity was then transferred to the Applicants.  It was submitted the equity transferred from the sons to the Applicants included the amount that was inadvertently put into their names from the start (Transcript, p9).  It followed, by that explanation, that the equity the Applicants transferred in 2001 was re-credited to them in 2005.  In those circumstances the suggestion made was there was in fact no disposition because the equity, represented in monetary terms, was re-credited.

18.     In 2002, the Applicants’ current account balance in the Trust was recorded as $12,318.  Mr Elliott said there should have been two more lines there, one for Jim, one for Pauline (Transcript, p11).  Later he said Jim and Pauline should have had a balance of their own of that $212,000 … (Transcript, p12) and such an entry would demonstrate a transfer rather than a disposition or disposal of an asset.

19.     It was submitted on behalf of the Applicants (without any documented Minutes of the Trustee Company), that the transfer of the Applicants’ interests from the Partnership was inadvertent and the balance sheet of the Trust as at 30 June 2002 is incorrect because it does not accurately record the Applicants’ interest in the Trust.

20.     Mr Elliott referred the Tribunal to the Trust balance sheet as at 30 June 2005 (T33).  He said the equity transferred in 2001 was re‑credited to the Applicants in the 2005 year when the sons exited the Trust.  It was said that Phillip and Rohan then transferred $71,016 and $396,731, respectively, to the Applicants which are recorded in the Trust balance sheet as a credit of $467,747 in the name of the Applicants.  The amount of $467,747 is the total of the two amounts transferred by Phillip and Rohan.  In those circumstances, I should not find that there was a disposition of the equities in 2001 (T33, p236‑237 and Transcript, pp14‑15).

21.     Ms Heffernan, on behalf of the Respondent, examined Mr Aitken in evidence and took him to a Memorandum completed by a Centrelink officer (T46, p332).  It purports to record a telephone discussion between the officer and Mr Aitken on 30 January 2002.  During that conversation Mr Aitken made enquiries of his eligibility for age pension and specifically, the assets that would be assessed if he made a claim.

22.     The Memorandum in part records:

Customer stated that he has no interest in any of the trusts and is only shareholder of trustee company.

Customer gifted farm to sons in 1988. – No deprivation there.

Customer and partner had partnership accounts of $212000 combined in the Gowandale pastoral company which is no longer operating farm activities as now with both of sons trusts.

Deprivation has occurred as he gifted partnership funds owing to him and partner…

23.     Mr Aitken said in evidence that he recalled the conversation but could not recall specific references to his enquiry concerning eligibility for age pension or any discussion about assets.  He said he did not understand what they were really meaning or what they were trying to get at.  He thought there may have been some misunderstanding.  He said that the conversation occurred more than eight years previously and he could not recall details (Transcript, p17-18).

24.     Mr Aitken said that he did recall receiving a letter in about February 2002 advising him and his wife that they had been registered as non-accruing members of the PBS (Transcript, p 18-19).  He was shown the letters (T9, p67 and T10, p69) and asked to consider the reason recorded for his and his wife's registration as non‑accruing members, namely, because of gifts you have made.  Your non-accrual period commenced on 1 July 2001.  He said he could not recall what the gifts referred to by the letter were.  He also acknowledged that neither he nor his wife challenged the contents of the letter despite advice contained within the body of it notifying of his rights to seek review.

25.     Mr Aitken was then taken to a statement that he made on 3 December 2008 (T20, p140) where in part he recorded:

…when the partnership, Gowandale Pastoral Company, was wound up in 2001, there was no gifting involved.  The assets of the partnership were divided among the partners in proportion to each partners [sic] share of the net assets…

There has [sic] been no gifts made by myself or my wife in excess of $10,000pa or $30,000 in a rolling five year period since I became age pension [sic] on 22 October 2000.

26.     Mr Aitken said that so far as he could recall:

… there was no effort on our behalf to hide anything or anything else like that.  We believe that it was just a straight out statement that was in order at the time. (Transcript, p21).

27.     Four months later, on 18 March 2009, Mr Aitken made another statement to Centrelink (T25, p146).  Whilst it refers to the sum of $212,325 held by him and his wife in the Partnership account at 30 June 2001, Mr Aitken said that sum was paid as a squaring up from the Trust at 30 June 2005 (Transcript, p22).  He said his sons transferred $467,745 to him and his wife which incorporated the sum of $212,325.

28.     It is difficult to follow this explanation – it is equally difficult to comprehend the statement.  I doubt its relevance to this review because it concludes that there had not been any gift or distribution of assets from the Trust.  This review concerns a disposition of the asset of $212,325 held in the Partnership account.

CONCLUSION

29.     The Applicants transferred $212,235, being the aggregate value of their funds in the Partnership to their sons on or about 1 July 2001.

30.     It was said the transfer occurred by error on the part of their accountants.  It was also said that the sum was repaid by their sons when they exited the Trust in 2005. 

31.     On the material read and the submissions and evidence heard, I am satisfied:

i)the Applicants each disposed of assets greater than $10,000 which aggregated to $212,325, on or about 1 July 2001;

ii)the disposition was without any or any adequate consideration;

iii)the effect of the disposition was to diminish their combined assets;

iv)the Memorandum of the Centrelink officer of 30 January 2002 demonstrates an awareness on the part of Mr Aitken that monies had been gifted.  Such a transaction was not inadvertent but even if it was, a disposal or disposition of an asset did occur without any or any adequate consideration;

v)the payment made to them by their sons in 2005 of $467,745 was without satisfactory or plausible explanation.  There is nothing which satisfies me that that sum incorporated the sum of $212,235;

vi)even if I could be satisfied that the monies transferred from the Partnership to the Trust was in error, it did, as a fact, occur.  There was a disposition without consideration.  The alleged return or refund of it in 2005 (four years later) does not change its character or defeat the transfer in 2001 (four years earlier);

vii)the transfers of monies in 2001 from the Partnership and in 2005 from the Applicants’ sons (discussed above) were without any supporting or contemporaneous memorandum or minute.  The absence of such documentation does not inspire confidence that the explanations or interpretations of the balance sheets by Mr Elliott are sound or are a probable and accurate interpretation of the transactions;

viii)there was no evidence of any amended income tax returns with amended balance sheets and profit and loss statements in support of the errors alleged, either since 2001 or since the Centrelink ARO made his decision in July 2009.  Documents of that type might have given some veracity to the Applicants’ case;

ix)the Applicants became non-accruing members of the PBS because they disposed of $212,235 on or about 1 July 2001, being within 12 months of registration.  They did not accrue a full‑year bonus period. Therefore, they are subject to a disposal preclusion period which disentitles payments of PB.

32.          The decisions under review are affirmed.

I certify that the thirty-two [32] preceding paragraphs are a true copy of the reasons for the decision herein of  

Mr John Handley, Senior Member

Signed:          Olympia Sarrinikolaou

Legal Assistant

Date of Hearing  13 May 2010
Date of Decision  9 August 2010
Advocate for the Applicant          Mr P. Elliott, Elliott Accounting

Advocate for the Respondent       Ms P. Heffernan, Australian Government Solicitor