Garvey; Secretary, Department of Social Services and (Social services second review)
[2024] AATA 1667
•14 June 2024
Garvey; Secretary, Department of Social Services and (Social services second review) [2024] AATA 1667 (14 June 2024)
Division:GENERAL DIVISION
File Number(s): 2022/2638 & 2022/2640
Re:Secretary, Department of Social Services
APPLICANT
AndThomas Garvey and Elizabeth Garvey
RESPONDENT
DECISION
Tribunal:Brigadier A G Warner, AM LVO (Retd), Member
Date:14 June 2024
Place:Perth
The decision of the Administrative Appeals Tribunal Social Security & Child Support Division
dated 21 February 2021 is set aside and the matter remitted to the CEO Centrelink with directions.
.........................[Sgd]........................................
Brigadier A G Warner, AM LVO (Retd), Member
CACTHWORDS
SOCIAL SECURITY – Aged Pension – Secretary, Department of Social Services seeks review of a decision of the Tribunal at first review – whether the Respondents were overpaid Age Pension – whether Centrelink decision to cancel Age Pension was correct - if so whether overpayment a debt to the Commonwealth – if so whether all or part of the debt should be recovered – whether discretion to write off or waive debt enlivened - decision under review set aside and remitted to Centrelink with directions
LEGISLATION
Social Security Act 1991 (Cth) – ss 1122, 1207N, 1207N(1)(a), 1207P, 1207P(1), 1207Q, 1207Q(1)(a), 1207Q(2)(a), 1207V,1207V(1)(a),1207(2)(a), 1207X, 1207X(1)(a), 1207(2)(c), 1207X(5), 1208J, 1209E, 1223(1), 1237A, 1237AAD, 1237AAD(c)
Social Security (Administration) Act 1999 (Cth) – ss 66A(2), 68(2), 80(1)
CASES
Bonercrantz v Secretary, Department of Social Security [2017] FCA1010
Davy and Secretary, Department of Employment and Workplace Relations [2007] AATA 1114
Re Callaghan and Secretary, Department of Social Security (1996) 45 ALD 435
Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634
Re Fill and Repatriation Commission [2021] 3326
Re Lumsden and Secretary, Department of Social Security (1986) 10 ALN N225
Re Secretary, Department of Families, Housing, Community Services and Indigenous Affairs and Egberts [2007] AATA2102
Re Stubbs and Secretary, Department of Families and Community Services (2003) AATA 729
Secretary, Department of Families, Housing, Community Services and Indigenous Affairs v Jones [2012] FCA 639
Secretary, Department of Social Security v Hales (1998) 51 ALD 695
Sekhon v Secretary, Department of Family and Community Services [2003] FCAFC 190
Stafford and Secretary, Department of Social Services [2018] AATA 2746
SECONDARY MATERIALS
Social Security Guide
The Attribution Principles
REASONS FOR DECISION
Brigadier A G Warner, AM LVO (Retd), Member
14 June 2024
INTRODUCTION
The Secretary seeks review of a decision of the Administrative Appeals Tribunal Social Services & Child Support Division (AAT1) dated 21 February 2022 (T4). The AAT1 decision, reviewed the decisions of the Authorised Review Officer (ARO) dated 8 and 9 November 2021 (T28, T29). The AAT1 decision:
(a)Affirmed the part of the ARO decision which related to cancellation of the Respondents’ Age Pension from 1 January 2017; and
(b)Set aside the part of the ARO decision which decided to recover a debt, instead finding that although the debt existed and was correctly calculated, it should be waived in its entirety due to the special circumstances of the case.
The ARO decisions found that Mr and Mrs Garvey (the Respondents) had each been overpaid Age Pension of $47,992.65 in the period 10 November 2016 to 9 December 2019 (the debt period), that the overpayment constituted a debt to the Commonwealth and that the debt should not be written off or waived.
The hearing was conducted on 4 September 2023. Mr Ashley Burgess of Sparke Helmore Lawyers represented the Secretary. Mr Thomas Garvey attended and appeared on his own behalf and on behalf of his wife, Mrs Elizabeth Garvey. The hearing was adjourned with the expectation that written closing submissions would be filed (Transcript/70-71).
During the hearing, the Tribunal paid particular attention to ensuring that procedural fairness was afforded Mrs Garvey. The Tribunal proceeded, noting “that Mrs Garvey is neither personally present nor represented and that she has been given an opportunity to attend and has elected not to do so…” (Transcript/4). Mr Garvey told the Tribunal that Mrs Garvey gave him the responsibility to act on her behalf (Transcript/22).
Sometime after the hearing, the Tribunal member who conducted the hearing left the Tribunal without concluding the matter. Mr Burgess also left Sparke Helmore Lawyers.
A telephone directions hearing was conducted on 18 March 2024, attended by Mr Garvey, and Ms Daphne Jones-Bolla of Sparke Helmore Lawyers representing the Secretary. The parties confirmed that there were no outstanding submissions and agreed that the Tribunal, as reconstituted, should proceed to determine the application on the papers, including the transcript of the 4 September 2023 hearing.
BACKGROUND
This matter is somewhat protracted and involves complex financial aspects. It is therefore appropriate to provide a detailed background.
Mr Thomas Garvey was born on 5 September 1946 and Mrs Elizabeth Garvey on 9 January 1951.
At all relevant times during the debt period, the Respondents were directors and equal sole shareholders of Gwelup, a company (T49/499). They were also the trustees and sole beneficiaries of the Family Trust.
The available evidence suggests that Mr Garvey was previously a director of the Swiss Unit Trust (Swiss), which according to the Respondent’s accountant, went into liquidation prior to the debt period (T49/499). Prior to Swiss going into liquidation, the Family Trust had loaned a substantial sum of money to Swiss which remained unpaid during the debt period. The debts remained on the balance sheet of the Family Trust at all times during the debt period. The evidence shows the Family Trust did not release Swiss from its unpaid present entitlement (referred to as UPE on the Profit and Loss Statement of the Family Trust at (T24/356) of $1,185,322 until the year ending 31 March 2021, after the debt period (T24/356).
Gwelup had previously loaned money to the Family Trust prior to December 2009. The value of that loan continued to be reflected as a non-current receivable UPE on the Gwelup Balance Sheets throughout the debt period and reduced in value between 2016 (T18/286) and 2020 (T24/342) from $592,208 to $532,208. The Gwelup Balance Sheet dated 31 March 2021 reveals that the UPE debt was forgiven in that year (T24/342).
The Respondents also made loans to Gwelup which were accounted for as non-current liabilities (that is, not owing within 12 months) in Gwelup’s Balance Sheets during the debt period. The value of those loans fluctuated from year to year, with the total loan amount increasing from $67,535 in 2015 (T18/286) to $282,063 by 2020 (T24/342). The Gwelup Balance Sheet dated 31 March 2021 reveals that the loans from the Respondents to Gwelup were either repaid or forgiven in that year, after the debt period (T24/342), with only a $130 loan remaining at that time.
The Respondents also personally made loans to the Family Trust, which were accounted for as non-current liabilities (that is, not owing within 12 months) in the Family Trust’s Balance Sheets during the debt period. Those records show that the value of those loans fluctuated from year to year, with the total loan amount increasing from $600,118 in 2016 (Exhibit A1, Annex D) to $668,951 by 2020 (T24/357). The Family Trust Balance Sheet dated 31 March 2021 reveals that the loans from the Respondents to the Family Trust were either repaid or forgiven in full in that year, after the debt period (T24/357).
On 7 August 2016, the Respondents lodged a claim for Age Pension and an Income and Asset form (T6, T7). The purpose of the Income and Asset form was to ascertain the Respondents’ entitlements to Age Pension. Both Respondents signed the Income and Assets form, acknowledging that the information provided in the form was complete and correct and that they understood that giving false or misleading information was a serious offence (T17/156).
In completing the Income and Assets form, the Respondents answered ‘no’ to question 26 which asked:
Are you or have you (and/or your partner) been involved in a private trust? You (and/or your partner) may be, or have been
-a trustee
-an appointor - a beneficiary OR have:
-made a loan to a private trust
A private trust includes a non-complying Self Managed Superannuation Fund or noncomplying Small APRA Fund.
At the time of answering the question, the Respondents were both trustees and beneficiaries of the Family Trust and had made substantial loans to that trust. It follows that the declaration made in response to question 26 was false.
The Respondents also answered ‘no’ to question 30 which asked:
At the time of answering the question, the Respondents were both the directors and the sole shareholders of Gwelup. The Respondents, as shareholders in Gwelup were paid regular dividends, for example $60,000 in 2015 (T18/285) and $60,000 in the year ending 30 June 2017 (T18/290, T15/199), the year within which the Age Pension claim was lodged on 7 August 2016. It follows that the declaration made in response to question 30 was also objectively false.
Based on the information provided by the Respondents, on 7 February 2017 the Respondents were granted Age Pension from 10 November 2016 (T8, T9). The grant letters confirmed that the information used for calculating the payment was:
- Total Combined Assets - $436,010
- Combined Annual Income - $11,971.32
The grant letters also advised the Respondents of their duty to notify Centrelink of changes to income (including the payment of dividends) or assets. In relation to assets, the notice specifically stated (T8/158, T9/161):
Assets: If the value of your and/or your partner’s combined assessable assets change by $1,000 or more. Changes include buying, receiving, selling or giving away assets. Assets include, but are not limited to, the value of goods, cars, boats, furniture, money, investments, real estate (including real estate in other countries), personal property, any interest in any property, trust or company, home equity conversion loans, money/loans owed and any other right or interest in any other asset (including assets in other countries).
There is no evidence that during the debt period the Respondents advised Centrelink that an incorrect asset amount had been used to calculate their entitlement to Age Pension, nor did they advise Centrelink of the changes in the value of their interests and loans in Gwelup or the Family Trust over time.
On 3 October 2019, Centrelink wrote to the Respondents noting that it had received Match Data and initiated a review of the Respondents’ entitlement. Centrelink requested the Respondents contact Centrelink to discuss whether they were receiving the correct rate of payment ((T11/174) and received financial statements and income tax returns for both the Family Trust and Company. On 10 October 2019, Mr Garvey contacted Centrelink and disclosed the existence of Gwelup and his role as a director (T54/656). On the same day, Centrelink requested extensive detailed information from the Respondents to be provided by 24 October 2019 (T12/176-177).
On 14 October 2019, Centrelink wrote to the Respondents advising them of their current entitlements to Age Pension and that the information on which their entitlements were based was (T13/179, T14/181):
Those letters included a notice pursuant to s 68(2) of the Social Security (Administration) Act 1999 (Cth) (Administration Act), requiring the Respondents to advise of any change of circumstances affecting their income and assets. Despite continuing to loan money to the Family Trust and Gwelup and receiving distributions in the form of dividends, the Respondents did not comply with the notices. Despite the Respondents’ assets and income exceeding the above amounts, the Respondents did not alert Centrelink to the errors upon which their payments had been based.
On 13 December 2019, Centrelink cancelled the Respondents’ Age Pension because the value of their combined assets exceeded the allowable limit which applied on 1 January 2017.
On 16 April 2021, Centrelink made the decision to raise and recover Age Pension debts of $47,992.65 against both Respondents for the debt period (T21, T22). The debts were raised because the Respondents’ correct amount of assets were not taken into account, namely their interests in Gwelup. The delegate found that Gwelup was 100% attributed to the Respondents, given they were both the sole directors and shareholders. The delegate calculated the assets of Gwelup over time as follows (T54/689):
-30 June 2016 - $525,185
-30 June 2017 – $464,860
-30 June 2018 – $374,606
-30 June 2019 – $284,343
At the time of Centrelink’s decision, the Respondents were yet to disclose their involvement in the Family Trust. The delegate did not assess the value of the Family Trust because the value of the Respondents’ personal assets, interest in Gwelup, and self-managed superannuation funds meant that their assets already exceeded the Age Pension asset test limit (T54/690).
In an email dated 16 June 2021 the Respondents requested an internal review of the debt decisions (T24/338), and stated:
With regards to Gwelup Resources & the Garvey Family Trust, both of these entities are in the process of being Deregistered and wound up. Whilst the Balance Sheet of Gwelup Resources shows a negligible nett asset position of a few hundred dollars, this historically is NOT reflective of anything that is of a real asset. In the course of winding up these entities, there has been no direct benefit received from these assets at all. This information is demonstrated in the enclosed Financial Report. The Balance Sheet in the enclosed Financial Report shows a Nil balance for both Liz & myself, and neither party have NOT received any financial benefit.
The evidence is that Gwelup paid a distribution of $125,037.17 to each Respondent on 1 July 2020 (T24/349-350, 353). A financial report for the Family Trust for the year ending 31 March 2021 disclosed that the trust had forgiven $1,201,159 in debts in that year (T24/356) and that as at 31 March 2021 the Family Trust owed (T24/357):
-$532,208 to Gwelup;
-$289,826 to Mr Garvey; and
-$379,125 to Mrs Garvey.
Gwelup was deregistered on 25 August 2021 (T30/404).
On 8 November 2021 and 9 November 2021, the ARO affirmed both decisions. The ARO took into account the value of the assets of Gwelup as well as the value of the loans personally made by the Respondents to Gwelup as at the debt period and concluded the Respondents had been overpaid Age Pension from 10 November 2016, and had not been entitled to any Age Pension from 1 January 2017 (when the Age Pension asset limit dropped from $1,178,500 to $816,000). The ARO therefore affirmed the debt and the cancellation of the Respondents’ Age Pensions. The ARO did not consider the value of the Family Trust (T28/389, T29/395).
On 7 December 2021 and 14 January 2022, the Respondents applied to the AAT1 for review of the ARO’s decisions (T34/415, T43/455).
The Family Trust was vested and terminated on 20 January 2022 (T49/527).
The AAT1 conducted hearings on 4 and 21 February 2022, where both Respondents gave oral evidence and provided further documentation (T4/14). On 21 February 2022, the AAT1 set aside the ARO’s decisions and in substitution decided (T4/14).
(a)the debts totalling $95,985.30 exist but are waived under section 1237AAD of the Social Security Act 1991 (the Act); and
(b)The decision to cancel both Mr and Mrs Garvey’s Age Pensions is affirmed.
On 25 March 2022 the Secretary sought review of the AAT1 decision in the General Division of the Administrative Appeals Tribunal (the Tribunal) (T3). The Secretary claims that the AAT1 erred in setting aside the decision to raise and recover Age Pension debts from Mr and Mrs Garvey totalling $47,992.65 each, and erred in applying s 1237AAD of the Act to find that there were sufficient special circumstances to waive the debts in full (T3/7).
On 11 July 2022, solicitors for the Secretary wrote to the Respondents by email alerting them to the misrepresentations contained in the Respondents’ Income and Assets Form and requesting them to address the reasons for supplying incorrect information to Centrelink. The email also requested the Respondents provide an updated Income and Assets form to allow the Tribunal to assess the Respondents’ current financial position (Exhibit A2, Annex B).
On 20 July 2022 the Respondents signed a statement in response to the request from the Secretary and provided an updated Income and Assets form (Exhibit A2, Annex C). In explaining why neither the relationships with Gwelup and the Family Trust, nor the loans to Gwelup had been disclosed, the Respondents stated:
I did not mention in February 7th 2017 anything about Gwelup Resources or the Garvey Family Trust in that document, as they both were non trading entities and did not attached any monies, and I or my wife were not involved in any type of business.
The updated Income and Asset form disclosed $448,392.32 in assets made up of $2,380.32 in Bankwest bank accounts; $160,000 in household contents and personal effects; $34,000 in motor vehicles; $251,942 in a Hub24 superannuation fund; and $70 in an Aussie Super superannuation fund (Exhibit A2, Annex C).
As at 29 September 2022, the Respondents’ outstanding debt balances were $47,992.65 each. Given the decision of the AAT1 to waive the debt, there is presently no recovery action being taken by the Secretary (Exhibit A2, para 4.38).
ISSUES
The Tribunal will need to consider:
(a)Whether the Respondents’ Age Pensions were correctly cancelled; and
(b)Whether the Respondents were paid Age Pension in excess of their entitlement during the debt period.
This requires consideration of the following issues for the debt period:
(a)Whether any loans made personally by the Respondents to Gwelup Resources Pty Ltd (Gwelup) which remained outstanding during the debt period, should be considered financial assets, such that they should be included in calculations of the Respondents’ assets;
(b)Whether during the debt period, the Respondents were attributable stakeholders of Gwelup, and/or The Garvey Family Trust (the Family Trust), within the meaning of Part 3.18 of the Social Security Act 1991 (the Act) and the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2017 (the Attribution Principles);
(c)If so, what attribution percentage should apply to the Respondents for the Gwelup and the Family Trust, having regard to the Attribution Principles;
(d)If the Respondents’ attribution percentages are greater than 0%:
i.whether loans made by Gwelup which remained outstanding during the debt period should be considered financial assets of Gwelup;
ii.whether loans made by the Family Trust which remained outstanding during the debt period should be considered financial assets of the Family Trust;
(e)Whether having regard to the above findings, the Respondents’ assets were above the asset limit for members of a couple who are homeowners claiming Age Pension during the debt period? and
(f)If the Respondents were overpaid Age Pension, whether the overpayments are debts to the Commonwealth, and whether all or part of the debts should be recovered?
LEGISLATION AND POLICY
The relevant law is contained in:
(a)The Act;
(b)Social Security (Administration) Act 1999 (Administration Act); and
(c)The Attribution Principles.
Policy advice contained in the Guide to the Social Security Law (the Guide) is also relevant. The Tribunal has found that although policy is not binding it will ordinarily be followed unless there is a cogent reason not to do so (see Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634).
EVIDENCE
The Tribunal had before it the following evidence:
· The T-Documents (T1-T63, pages 1-828) (Exhibit A1);
· Secretary’s Statement of Facts, Issues and Contentions dated 29 September 2022, including Annexures A - D (Exhibit A2);
· Financial Statement of Garvey Family Trust from 2015 to 2018; and the internal correspondence and financial documents of Garvey Family Trust and Gwelup Resources filed on 20 September 2022 (Exhibit R1);
· Respondents’ email dated 15 September 2022 attaching financial details of Garvey Family Trust for 2015-2019 filed on 15 September 2022 (Exhibit R2);
· Respondents’ cover email dated 17 August 2022 attaching correspondence and financial documents of Garvey Family Trust and Gwelup Resources filed on 17 August 2022 (Exhibit R3) (Sub documents are listed as R3.1 to R3.6 below);
· Email correspondence regarding Gwelup Resources (Exhibit R3.1);
· Email correspondence regarding Garvey Family Trust (Exhibit R3.2);
· Business Account Statement from 29 May 2021 (Exhibit R3.3);
· Business Account Statement from 27 February 2021 to 28 May 2021 (Exhibit R3.4);
· Letter from Garvey Family Trust Chartered Accountant dated 12 November 2021 (Exhibit R3.5);
· Letter from Garvey Family Trust and Gwelup Resources Accountant dated 20 January 2022 (Exhibit R3.6); and
· ABN Cancellation Notice dated 1 February 2022 (Exhibit R3.7).
· Respondents’ letter dated 22 July 2022 attaching Income and Assets (SA369) form and correspondence and financial documents of Garvey Family Trust and Gwelup Resources (Exhibit R4); and
· The Transcript of the hearing 4 September 2023.
CONSIDERATION
Both the ARO and the AAT1 determined that the Respondents had each been overpaid $47,992.65 in the debt period and that Centrelink’s decision to cancel the Age Pension from 1 January 2017 was correct. The ARO found that the overpayment was a debt to the Commonwealth and should not be written off or waived, while on review the AAT1 determined that the debt should be waived in its entirety due to the special circumstances of the case.
Mr Garvey told the Tribunal that the debt was an alleged debt and assumed he and his wife had been paid correctly by the Commonwealth. Mr Garvey did not believe that he had received money by false pretences and did not believe that he owed the Commonwealth one cent (Transcript/64-65).
This review is of course de novo. As is evident from the material before the Tribunal and the Transcript, the financial considerations in this case are complex. In these circumstances the Tribunal considers it convenient, appropriate and indeed helpful to follow roughly the analysis laid out in Exhibit A2.
The Tribunal must first determine whether the value of the Respondents’ assets exceeded the Age Pension asset test limit at the date of claim and during the debt period. This involves considering the value of the Respondents’ personal assets and attributed assets.
The assessment of the Respondents’ personal assets, other than the loans is not in dispute. As noted by the ARO, as at the date of claim, the Respondents held $436,010 in assets, comprised of (T28/389, T29/395):
(a)Personal effects - $6,000
(b)Motor vehicles - $24,000
(c)Garvey Super Fund (Mr Garvey) - $175,281
(d)Garvey Super Fund (Mrs Garvey) - $175,281
(e)Cash at bank - $55,448 was correct.
However, in addition to those assets the Respondents had made loans to Gwelup and the Family Trust which were reflected in the Gwelup and Family Trust Balance Sheets.
The Gwelup Balance Sheets reveal the value of loans made by the Respondents during the relevant financial years as follows (T28/391, T29/397):
(a)2015/16 – $67,534
(b)2016/17 – $67,534
(c)2017/18 – $157,783
(d)2018/19 – $247,783
(e)2019/20 – $282,063
The Family Trust Balance Sheets (Exhibit A2, Annex D) reveal the value of loans made by the Respondents during the relevant financial years as follows:
(a)2015/16 – $600,118
(b)2016/17 – $653,115
(c)2017/18 – $662,075
(d)2018/19 – $667,311
(e)2019/20 – $668,951
How should the Tribunal treat the personal loans from the Respondents to Gwelup and the Family Trust?
Section 1122 of the Act, titled “loans” provides:
If a person lends an amount after 27 October 1986, the value of the assets of the person for the purposes of this Act includes so much of that amount as remains unpaid but does not include any amount payable by way of interest under the loan.
It follows that the full face value of loans made by the Respondents, as recorded in the Balance Sheets must be taken into account (and not some lesser or reduced amount reflecting recoverability or unrealisability), for the purpose of calculating the Respondents’ assets. The Secretary notes that this position is supported by the recent decision of Re Fill and Repatriation Commission [2021] AATA 3326 at [19], in which Deputy President Hanger AM QC (in applying similar provisions under the Veterans’ Entitlements Act 1988) noted:
A number of decisions establish that the fact that loans are unrecoverable does not mean that they should not be included in the valuation of assets for the purpose of determining eligibility for the pension (Woolley v Repatriation Commission [2007] AATA 2059). In Woolley, the applicant had loaned money to his family company and the loans had become unrecoverable but the Tribunal held that the loans should be assessed at face value saying: “There is nothing in the legislation which requires or enables the respondent to take account of the fact that the loans are unrecoverable”. There are numerous decisions over a lengthy period to the same effect which are referred to in Woolley. If they were incorrect, the legislature and appeal courts could have intervened.
There is no evidence before the Tribunal that these loans were forgiven at any time during the debt period. Rather, the Gwelup Balance Sheet for the year ending 30 March 2021 makes clear that the loans were not forgiven until that year. The Family Trust, whilst not referring to the loans being forgiven, listed the value of loans from the Respondents as nil in the year ending 31 March 2021. The application of s 1122 of the Act in this case requires that the value of the loans to Gwelup and the Family Trust be included in the Respondents’ assets during the debt period.
Having regard to the value of the Respondents’ assets (inclusive of the loans) as at the date of claim, and even before considering attributable assets, the Respondents’ total assets value exceeded the Age Pension asset limits outlined in Exhibit A2, Annex A.
Were the Respondents attributable stakeholders of Gwelup and the Family Trust?
The Respondents do not deny that they were attributable stakeholders of Gwelup and the Family Trust. Rather, their arguments with respect to the treatment of Gwelup and the Family Trust relate to what assets were held by those entities during the debt period.
Part 3.18 of the Act deals with the attribution to individuals, such as the Respondents, of income and assets which form part of a company or trust. Relevantly, the Secretary cites Bornecrantz v Secretary, Department of Social Services [2017] FCA 1010, in which Perry J observed at [38], that “Part 3.18 was inserted…so as to ensure that social security customers who held their assets in private companies or private trusts received comparable treatment under the means test to those customers who held their assets directly”.
Pursuant to Part 3.18 of the Act, assets or income of a trust will be attributed to an individual if:
(a)The trust in question is a ‘designated private trust’ (s 1207P);
(b)The trust in question is a ‘controlled private trust’ (s 1207V); and
(c)The individual in question is an ‘attributable stakeholder’ of the trust (s 1207X).
Similarly, assets or income of a company will be attributed to an individual if:
(a)The company in question is a ‘designated private company’ (s 1207N);
(b)The trust in question is a ‘controlled private company’ (s 1207Q); and
(c)The individual in question is an ‘attributable stakeholder’ of the trust (s 1207X).
The Respondents appear to accept that the Family Trust is a “designated private trust” and a “controlled private trust”. This is clearly so, because for the purposes of Part 3.18:
(a)A trust is a “designated private trust” unless one of the exclusions in sub-s 1207P(1) applies. None of those exclusions is applicable.
(b)A trust is a “controlled private trust” if the relevant “individual passes the control test” (s 1207V(1)(a) of the Act). The Respondents each pass the control test, because they are the trustees of the Trust (s 1207V(2)(a) of the Act).
Similarly, the Respondents appear to accept that Gwelup is a “designated private company” and a “controlled private company”. This is so, because for the purposes of Part 3.18:
(a)The company satisfies each of the criteria in s 1207N(1)(a) of the Act.
(b)A company is a “controlled private company” if the relevant “individual passes the control test” (s 1207Q(1)(a) of the Act) The Respondents each pass the control test, because they both hold a 50% or more direct voting interest in the company (s 1207Q(2)(a) of the Act).
The Respondents are also “attributable stakeholders” in relation to Gwelup and the Family Trust and their asset attribution percentages are (jointly) 100% in relation to both Gwelup and the Family Trust. Section 1207X of the Act relevantly states:
(1) For the purposes of this Part, if a company is a controlled private company in relation to an individual:
(a)the individual is an attributable stakeholder of the company unless the Secretary otherwise determines; and
(b)if the individual is an attributable stakeholder of the company--the individual's asset attribution percentage in relation to the company is:
i. 100%; or
ii. if the Secretary determines a lower percentage in relation to the individual and the company-that lower percentage
(2) For the purposes of this Part, if: a trust is a controlled private trust in relation to an individual; and
(a)the trust is not a concessional primary production trust in relation to the individual (see section 1208U); then:
(b)the individual is an attributable stakeholder of the trust unless the Secretary otherwise determines; and
(c)if the individual is an attributable stakeholder of the trust--the individual's asset attribution percentage in relation to the trust is:
i. 100%; or
ii. if the Secretary determines a lower percentage in relation to the individual and the trust--that lower percentage
The Act does not set out express criteria for when a person who is an “attributable stakeholder” should be determined to be otherwise, or when a person's “asset attribution percentage” should be lower than 100%. However, the Tribunal “must comply with any relevant decision-making principles” (subsection 1207X(5)), noting that pursuant to s 1209E of the Act, the Attribution Principles have been made as a legislative instrument.
At Exhibit A2, paragraphs 5.21 to 5.48, the Secretary comprehensively addresses the questions:
Is there any basis to determine that the Respondents should not be “attributable stakeholders” of Gwelup and the Family Trust under ss1207X(1)(a) and 1207X(2)(c)?
and
What are the correct attribution percentages of the Respondents in relation to Gwelup and the Family Trust?
The Secretary contends the Respondents derived substantial benefit from Gwelup and the Family Trust, including the payment of dividends and a corporate vehicle for tax minimisation, and that his consideration weighs heavily in favour of a finding that the Respondents are attributable stakeholders (Exhibit A2, para 5.35). Having regard to the evidence and the application of the Attribution Principles, the Tribunal agrees. Further, the Secretary contends that consideration of the totality of the Respondents’ circumstances do not justify a determination that the Respondents are not “attributable stakeholders” of Gwelup and the Family Trust (Exhibit A2, para 5.38). Again, the Tribunal agrees.
Turning to the attribution of assets, pursuant to Part 3 of the Act in totality, the Secretary cites Re Secretary, Department of Families, Housing, Community Services and Indigenous Affairs and Egberts [2007] AATA 2102 at [46] in contending that ‘the legislation in question starts from the prima facie position that the attribution percentage is 100 percent, to be reduced where there are specific disabling factors’. The Secretary contends there are no factors which weigh in favour of the Tribunal otherwise determining that the asset attribution percentage is less than 100% (in total) in relation to the Respondents and Gwelup and the Family Trust (Exhibit A2, para 5.45). Having regard to the evidence and the Attribution Principles, the Tribunal agrees.
What was the value of the assets held by Gwelup and the Family Trust during the debt period?
The Tribunal accepts that the value of the assets held by Gwelup and the Family Trust are accurately displayed in the relevant Balance Sheets. To the extent that Gwelup or the Family Trust held cash during the debt period, that cash was clearly an asset held by the entities. However, the largest assets held by Gwelup and the Family Trust, were debts which were owed as a result of unpaid loans, and although the value of the debts fluctuated during the debt period, the debts were not forgiven or extinguished until after the debt period.
Having regard to the combined operation of ss1208J and 1122 of the Act, loans made by Gwelup and the Family Trust must be treated in the same manner as the loans made by the Respondents personally. Those loans as set out in the relevant balance sheets remained assets of Gwelup and the Family Trust during the debt period and are attributable in full to the Respondents.
In these circumstances, the Secretary contends that the size of the loans (and particularly the $1.2m loan from the Family Trust to Swiss prior to the start of the debt period), means that the Respondents assets were well over the Age Pension asset limit for the entirety of the debt period (Exhibit A2, para 5.53). The Tribunal agrees.
Should the Respondents’ Age Pensions have been cancelled?
Consideration of the personal assets, personal loans and attribution assets of both Gwelup and the Family Trust, shows that the Respondents’ assets were above the Age Pension asset limits (see Exhibit A2, Annex A) throughout the debt period. It follows that the Respondents were not eligible for Age Pension for the entirety of the debt period, that is from 10 November 2016 until 9 December 2019.
Subsection 80(1) of the Administration Act provides:
If the Secretary is satisfied that a social security payment is being, or has been, paid to a person:
(a)who is not, or was not, qualified for the payment; or
(b)to whom the payment is not, or was not, payable (other than because of the operation of Division 3AA);
the Secretary is to determine that the payment is to be cancelled or suspended.
As the Tribunal has found that the Respondents’ assets were above the Age Pension asset limit from the date of claim, they were not qualified for Age Pension. The Tribunal therefore finds that the decision to cancel the Respondents’ Age Pension was correct.
Do the Respondents have a debt to the Commonwealth that should be repaid?
The Tribunal now turns to perhaps the most contentious issue before it. The Secretary seeks review of the AAT1 decision on the basis that the AAT1 erred in its application of s1237AAD of the Act to waive the debts in full. The Secretary contends that in the debt period the Respondents were each overpaid $47,992.65 by way of Age Pension to which they weren’t entitled. The Secretary further contends these overpayments are debts which are owed to the Commonwealth, pursuant to s 1223(1) of the Act.
Subsection 1223(1) states:
Subject to this section, if:
(a)a social security payment is made; and
(b)a person who obtains the benefit of the payment was not entitled for any reason to obtain that benefit;
the amount of the payment is a debt due to the Commonwealth by the person and the debt is taken to arise when the person obtains the benefit of the payment.
Write off or waiver of the debts
In the Federal Court decision of Secretary, Department of Social Security v Hales (1998) 51 ALD 695, French J commented:
The taxpayer is entitled to expect that in the ordinary course money paid to people which they are not entitled to receive will be recovered, albeit in a way appropriate to the circumstances which led to the overpayment and the circumstances of the persons concerned. However, the confining of a recovery regime by rigid rules, particularly in this area of the law, is likely to be productive of unfair or harsh outcomes in some of the great variety of fact situations that can arise. There are provisions in the Act which recognise that reality. They relate to the writing off and the waiver off debts otherwise due to the Commonwealth.
The Administration Act allows for debts to the Commonwealth to be written off or waived in certain circumstances.
Should the debt be written off?
Section 1236 of the Act confers a discretion on the Secretary to write off a debt for a period and states at the time of the application, in part:
Subject to subsection (1A), the Secretary may, on behalf of the Commonwealth, decide to write off a debt, for a stated period or otherwise.
(1A) The Secretary may decide to write off a debt under subsection (1) if, and only if:
(a)the debt is irrecoverable at law; or
(b)the debtor has no capacity to repay the debt; or
(c)the debtor’s whereabouts are unknown after all reasonable efforts have been made to locate the debtor; or
(d)it is not cost effective for the Commonwealth to take action to recover the debt.
(1B) For the purposes of paragraph (1A)(a), a debt is taken to be irrecoverable at law if, and only if:
(a)the debt cannot be recovered by means of deductions, or legal proceedings, or garnishee notice, because the relevant 6 year period mentioned in section 1231, 1232 or 1233 has elapsed; or
(aa) the debt cannot be recovered by means of deductions or setting off because the relevant 6 year period mentioned in section 86 of the A New Tax System (Family Assistance) (Administration) Act 1999 has elapsed; or
(b)there is no proof of the debt capable of sustaining legal proceedings for its recovery; or
(c)the debtor is discharged from bankruptcy and the debt was incurred before the debtor became bankrupt and was not incurred by fraud; or
(d)the debtor has died leaving no estate or insufficient funds in the debtor’s estate to repay the debt.
(1C) For the purposes of paragraph (1A)(b), if a debt is recoverable by means of:
(a)deductions from the debtor’s social security payment; or
(b)deductions under section 84 of the A New Tax System (Family Assistance) (Administration) Act 1999; or
(c)setting off under section 84A of that Act;
(d)the debtor is taken to have a capacity to repay the debt unless recovery by those means would result in the debtor being in severe financial hardship.
The term “severe financial hardship” is not defined in the Act, however, the Administrative Appeals Tribunal in:
(a)Re Lumsden and Secretary Department of Social Security (1986) 10 ALN N225 required that for this term to be satisfied a person’s entire financial position would need to be materially less than the current rate of pension; and
(b)Re Stubbs and Secretary Department of Families and Community Services (2003) AATA 03/0729 stated that:
...Severe financial hardship, while not implying destitution, goes beyond straitened financial circumstances and imports a need for the particular case of a person to include financial suffering of a severe or extreme nature...
The Tribunal is satisfied on the evidence before it that the discretion which would enable the Tribunal to write off the debt for a period of time is not enlivened.
The debt is not irrecoverable at law. The Respondents have the capacity to repay the debt. The most recent Income and Assets form completed by the Respondents (Exhibit A2, Annex C) demonstrates that they own assets in the form of superannuation savings which would be sufficient to repay the debt in full, without resulting in them being in severe financial hardship. In total, the Respondents declared assets of $448,392.32. The Respondents would also have the capacity to repay the debt by way of deductions from the Age Pension payments which they currently receive, having been granted Age Pension from 16 November 2021 consequent to the lodgement of a new claim (Exhibit A2, para 5.69). Payment of the debt by deduction would not result in the Respondents being left in severe financial hardship.
The Secretary submits (Exhibit A2, para 5.71) “that recovery of the debt by fortnightly deductions, or even in full, would not leave the Respondents’ entire financial position less than the current rate of pension. Such a recovery would not run contrary to the beneficial nature of the legislation, given the Respondents have previously had the benefit of money to which they were not entitled”.
The Tribunal has no evidence or submissions indicating other grounds which would justify the debts being written off.
Should the debt be waived?
Section 1237A of the Act relevantly states as follows:
(1) Subject to subsection (1A), the Secretary must waive the right to recover the proportion of a debt that is attributable solely to an administrative error made by the Commonwealth if the debtor received in good faith the payment or payments that gave rise to that proportion of the debt.
Note: Subsection (1) does not allow waiver of a part of a debt that was caused partly by administrative error and partly by one or more other factors (such as error by the debtor).
(1A) Subsection (1) only applies if:
(a)the debt is not raised within a period of 6 weeks from the first payment that caused the debt; or
(b)if the debt arose because a person has complied with a notification obligation, the debt is not raised within a period of 6 weeks from the end of the notification period; whichever is the later.
Selway J in the Full Federal Court decision of Sekhon v Secretary, Department of Family and Community Services [2003] FCAFC 190 said at [35]:
The ordinary or usual interpretation of the phrase “attributable solely to” is that it refers to the single or sole cause of the relevant act or event. The word “attributable” means “capable of being attributed”. It involves an objective assessment of causation. The words “a debt attributable solely to an administrative error” can be paraphrased as meaning that the only cause that objectively can be ascribed to the relevant debt is an administrative error.
Section 1237A of the Act allows for a debt to be waived if it was solely attributable to an administrative error by the Commonwealth, the person received the payment in good faith, and the debt was raised more than six weeks from the end of the notification period.
The Secretary contends there is no part of the Respondents’ debts attributable to an administrative error on the part of the Commonwealth. The Tribunal agrees, as the evidence shows that the debts arose due to the Respondent’s failures to notify Centrelink of material facts, being the existence of Gwelup and the Family Trust.
Subsection 66A(2) of the Administration Act provides that a person who receives a social security payment and an event or change in circumstances occurs that might affect the payment of that benefit, the recipient must, within 14 days, inform the Department of that event or change.
Subsection 68(2) of the Administration Act provides that the Secretary may issue a notice to a person in receipt of a social security payment requiring that person to inform the department of a specified change in circumstances occurs. In the Respondents’ case, they were issued with notices under s 68 of the Administration Act (T13/179, T14/181) requiring them to inform the Department of any change of circumstances with respect to their income and assets. There is no evidence that the Respondents complied with those notices. The Secretary contends that “even if there was an administrative error (which the Secretary does not concede), the Respondent’s failure to comply with his reporting obligation meant that he contributed to any administrative error” (Exhibit A2, para 5.83).
The case of Stafford and Secretary, Department of Social Services (Social services second review) [2018] AATA 2746, is an example of where the application of s 1237A has been curtailed by an Applicant’s failure to inform Centrelink of a change of circumstances. In that matter the Tribunal noted at [78] and [79]:
...It is at least arguable that, had the Applicant fully complied with the reporting requirements imposed on him, the debt for which he now finds himself liable might not have accrued. Without further evidence it is ultimately impossible to determine if this would have been the case. However, it is certainly not the case that, given his failure to comply with the reporting requirements made clear in the notices sent to them, the debt in question can be blamed solely on an administrative error on the part of the Commonwealth.
In the circumstances, section 1237A of the Act has no application to the facts of this case and the debt in question cannot be waived under section 1237A of the Act.
The evidence is that the Respondents were at all times during the debt period aware of their interests in Gwelup and the Family Trust. They continued to lodge tax returns and financial statements for the entities and declare distributions from the entities on their personal income tax returns. Once Centrelink became aware of the existence of Gwelup following a data match and review of Gwelup records, it acted promptly to cancel the Respondents’ Age Pensions.
The Tribunal is satisfied that the Respondents’ debt arose wholly or partly from their failure to advise Centrelink about their involvement in Gwelup and the Family Trust. Accordingly, the prerequisite conditions to waive the debt under s1237A do not exist on the facts and waiver is therefore not available under this section.
Is the discretion to waive all or part of the debt because of special circumstances enlivened?
Section 1237AAD of the Act provides the Secretary with the discretion to waive all or part of a debt where it was not caused by an Applicant knowingly making a false statement or failing to comply with the Act, and if there are “special circumstances (other than financial hardship alone) that make it desirable to waive”. In addition, pursuant to s 1237AAD(c) of the Act, the Tribunal needs to be satisfied that it is more appropriate to waive than to write off all or part of the debt.
The term “knowingly” is not defined in the Act.
In seeking to understand the term, the Secretary relevantly cites Deputy President Forgie in Re Callaghan and Secretary, Department of Social Security (1996) 45 ALD 435, where she commented as follows at [48] (Exhibit A2, para 5.92):
There is nothing in s.1237AAD which suggests that the word ‘knowingly’ should be given any meaning other than that a person has actual knowledge, rather than constructive knowledge, that he or she is making a false statement or representation or that he or she is failing or omitting to comply with a provision of the SS Act. The actual knowledge is to be ascertained by reference to the statements of the person as to his or her actual state of knowledge at the time and to events surrounding the false statement or the act or omission.
The Secretary also cites Deputy President Forgie in Davy and Secretary, Department of Employment and Workplace Relations [2007] AATA 1114, where at [74] she referred to her decision in Re Secretary, Department of Family and Community Services and Jonauskas [2001] AATA 72:
I concluded that ‘knowingly’ means actually knowing as opposed to the other two of the three degrees of knowledge. The first of the other two sorts is the sort of knowledge that comes from deliberately refraining to make enquiries because the enquiries will lead to answers that are not desired by the enquirer. The second is constructive knowledge in the sense that the person ought to have known the specific information or had the means of knowledge.
A preliminary consideration regarding the discretion to waive provided in s1237AAD is whether the Respondents knowingly made false statements and false representations to Centrelink with respect to their assets, which wholly or partly resulted in the debt. The Secretary submits that “The AAT1 did not address this issue but rather considered whether there were “any deliberate actions” on the part of the Respondent to obtain a social security advantage” and contends that is an incorrect application of s1237AAD of AAT1 the Act (Exhibit A2 para 5.96). The Tribunal notes the comment made by the Tribunal during the hearing that “I am not here to slice and dice the AAT1 decision” (Transcript/7) and again makes clear that this review is de novo.
The practical effect of s 1237AAD is that a debt can only be waived if the debt did not arise from the person knowingly making a false statement or representation. In this matter, the Respondents answered ‘no’ to questions such as whether they had been involved in a private trust, whether they were involved in a private company, and whether they had made any loans. At the time of answering the questions, the Respondents were both the directors and the sole shareholders of Gwelup (Transcript/51-52). The Respondents would have also been aware that they had previously provided and were continuing to provide substantial loans to Gwelup. As shareholders in Gwelup the Respondents had also received regular dividends, for example $60,000 in 2015 (T18/285) and $60,000 in the year ending 30 June 2017 (T18/290, T15/199), the year within which the Age Pension claim was lodged. Having regard to the evidence, the Tribunal is satisfied that the declaration made relating to the Respondents’ involvement with a company was objectively false. At the time of answering the questions, the Respondents were both trustees and beneficiaries of the Family Trust and as such the declaration made in respect of the Family Trust was also false (Transcript/51).
The Secretary also contends that “the Respondents also knowingly made false representations by omitting to advise Centrelink of their changes in assets in compliance with the notices received by them on 14 October 2019”. Having regard to Re Callaghan cited above, the Tribunal agrees.
As noted by the Secretary (Exhibit A2, para 5.106), the test in s1237AAD is not whether, in answering the questions, the Respondents intended to mislead Centrelink to obtain a social security advantage, rather the section simply enquires whether the Respondents made a representation to Centrelink that they knew to be false. The Respondents acknowledge that they made a false representation on their income and assets form in stating that they had not been involved in a private company or trust. Their reason for making that false representation is noted to be (see also paragraph [37]):
I did not mention in February 7th 2017 anything about Gwelup Resources or the Garvey Family Trust in that document, as they both were non trading entities and did not attached any monies, and I or my wife were not involved in any type of business.
Having careful regard to the evidence, the Tribunal is satisfied that the Respondents knew they were making a false declaration. The Secretary opines, and the Tribunal agrees, that “the fact that the Respondents may have thought their non-disclosure would have no effect on their eligibility for Age Pension is irrelevant” (Exhibit A2, para 5.108).
The construction of s 1237AAD means that the discretion to waive is only enlivened if there are both special circumstances other than financial hardship alone, and the debt does not wholly or partly arise from the Respondents knowingly making a false statement or representation. As the evidence establishes that the debt arose in full because Centrelink accepted the Respondents’ assertions that they were not, and had not been, involved in a private company or trust and had not made loans to same. Consequently, the discretion to waive the debt pursuant to s1237AAD is not available to the Tribunal.
It is therefore not necessary for the Tribunal to determine whether there are special circumstances that make it desirable to waive the debts. However, the Secretary submits that ‘even if the Tribunal were to find that the Respondents did not knowingly make a false statement or representation (which is not conceded), the Respondents have not advanced any special circumstances which would make it desirable to waive the debt’ (Exhibit A2, para 5.111).
The term “special circumstances” is not defined in the Act. However, it has been extensively considered in case law, and the Respondent relevantly cites a number of authorities in Exhibit A2. Jacobsen J provides a succinct summary of such authorities in Secretary, Department of Families, Community Services and Indigenous Affairs v Jones [2012] FCA 639 at [51]:
The effect of the authorities is that the phrase “special circumstances”, although lacking in precision, is sufficiently understood as including events or things that render the operation of the statute in a particular case as unfair, unintended or unjust. What is required is something that takes the case out of the ordinary, and unfairness or unintended consequences may show that this exists. Moreover, the circumstances of the case are not confined to matters that are external to the operation of the statutory scheme.
Having careful regard to all the material before it, the guidance contained in the relevant authorities and the circumstances of the Respondents, the Tribunal accepts the Secretary’s contention that “the Respondents have not advanced any special circumstances which would make it desirable to waive the debt” (Exhibit A2, para 5.111).
CONCLUSION
As shown in the considerations above, the Tribunal finds that the Respondents were paid Age Pension in excess of their entitlement during the debt period and that the overpayment is a debt due to the Commonwealth, The Tribunal finds that the discretion to write off or waive all or part of the debt is not available and that the debt should therefore be recovered. The Tribunal also finds that the Respondents’ Age Pension was cancelled correctly on 13 December 2019.
DECISION
The Tribunal sets aside the decision of the Administrative Appeals Tribunal Social Services & Child Support Division dated 21 February 2022 and remits the matter to the CEO of Centrelink for recalculation of the debt and with directions that:
(a)The Respondents personal loans to Gwelup and the Family Trust should be assessed as assets at their face value as recorded in the balance sheets of Gwelup and the Family Trust;
(b)The Respondents were attributable stakeholders and attributed with 100% of the assets held by Gwelup and the Family Trust during the debt period;
(c)The loans owed to Gwelup and the Family Trust should be assessed as assets of Gwelup and the Family Trust at their face value as recorded in the relevant balance sheets, and that these assets are attributed to the Respondents;
(d)The Respondents’ assets were above the Age Pension asset limit at all material times during the debt period;
(e)The Respondents’ Age Pensions were cancelled correctly; and
(f)The amount of overpayment calculated on remittal constitutes a debt owed to the Commonwealth and should be recovered in full and not waived or written off in whole or in part.
I certify that the preceding one- hundred and seven (107) paragraphs are a true copy of the reasons for the decision herein of Brigadier A G Warner, Member
..........[Sgd]....................................
Associate
Dated: 14 June 2024
108. Date of hearing:
109. 4 September 2023
110. Representative for the Applicant:
111. Ms D Jones-Bolla, Sparke Helmore Lawyers
112. Respondents:
113. Self-represented
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