Gault and Repatriation Commission (Veterans’ entitlements)
[2016] AATA 622
•19 August 2016
Gault and Repatriation Commission (Veterans’ entitlements) [2016] AATA 622 (19 August 2016)
Division
VETERANS’ APPEALS DIVISION
File Number(s)
2015/5659 & 2015/5664
Re
James Gault and Sally Gault
APPLICANT
And
Repatriation Commission
RESPONDENT
DECISION
Tribunal Mr S. Webb, Member
Date 19 August 2016 Place Canberra The decision under review is varied only in so far as the effective dates of variations to the rates of Mr and Mrs Gault’s service pensions, as set out in the reviewable decision, are to be replaced with dates determined in accordance with these reasons. The applications are remitted to the Commission to recalculate the correct rates of Mr and Mrs Gault’s service pensions from these dates.
The decision in respect to company income amounts and attributable percentages is affirmed, without variation.
..................................[sgd]......................................
Mr S. Webb, Member
Catchwords
VETERANS’ ENTITLEMENTS – service pension – ordinary income – company income – attribution – notice requirement to provide company annual financial statements within 14 days of finalisation – meaning of ‘should’ – failure to comply with notice – company income not taken into account when determining rate of pension – reduction in rate of pension from date of event – overpayment – no jurisdiction in respect of overpayment debt, recovery or waiver – rate reduction decision varied
Legislation
Veterans’ Entitlements Act 1986 (Cth) ss 5H, 52ZZA, 52ZZC, 52ZZF, 52ZZK, 52ZZM, 52ZZN, 54, 54A, 56, 56B, 56D, 57, 57B, 175, Schedule 6
Cases
Collector of Customs (New South Wales) v Brian Lawlor Automotive Pty Ltd [2007] AATA 1069
Nelson and Repatriation Commission [1979] 2 ALD 1
REASONS FOR DECISION
Mr S. Webb, Member
19 August 2016
Sally and James Gault claimed and were paid service pensions. They were shareholders in two private companies. Retained company profits were not attributed as personal income of theirs when calculating the rate of service pension. When this was done in retrospect, the rate of service pension was reduced and the amount overpaid to Mr and Mrs Gault was raised against them as a debt. At their request, this decision was reviewed by the Commission. The Commission decided to change the attribution percentage and the start day of the reduced rate of pension. Mr and Mrs Gault are not happy with this result and they applied for further review.
Facts
Before considering the issues, it is helpful to briefly set out the facts.
On 26 June 2008, Mr and Mrs Gault lodged a claim for service pension.[1]
[1] T3 and T4.
At the time, Mr Gault held shares in two private companies – Virogard Pty Ltd (Virogard) and Galahad Distribution Pty Ltd (Galahad). Virogard had issued 2700 shares, of which Mr Gault held 700.[2] Galahad had issued 10 shares. Mr and Mrs Gault and each of their three adult children held two shares each in Galahad, being all of the shares on issue.[3] Information about these holdings and company financial statements were provided to the Department of Veterans’ Affairs (the Department).
[2] T6 folio 56.
[3] T4 folio 42.
On 29 July 2008, Mr and Mrs Gault were notified by the Department that service pensions were granted from 4 June 2008. The notice sent to Mr Gault is in Exhibit 1. As can be seen, this sets out information about his obligation to notify the Department of certain events or changes in circumstance. Attached to the notice was a booklet – ‘You and Your Pension’. This document was said to be a notice under s 54 of the Veterans’ Entitlements Act 1986 (the Act), setting out additional information that should be given to the Department in respect of certain events and changes in circumstance. Pages 48 and 49 are of present relevance in respect of the notification obligations in relation to companies.[4] Relevantly, the notice obligations include –
“You need to tell us within 14 days… of the event if:
- …
- you start receiving income from a company…;
- …
- you cease receiving income from a company….
…
When you have finalised your financial statements for the year you should forward a copy within 14 days… to DVA. The financial statements include the … company tax returns, balance sheet, profit & loss statement, depreciation schedule and your personal income tax return.”[5]
[4] Exhibit 2.
[5] Ibid, page 49.
Information used to calculate the rate of service pensions for Mr and Mrs Gault is set out in an attachment to the 29 July 2008 notice. This information includes income from Galahad in the amount of $53.84 per fortnight.[6]
[6] Exhibit 1, page 9.
Mr Gault provided the Department with Galahad financial statements for the 2008-2009 tax year on 20 June 2010, following a request. He provided the Galahad financial statements for the 2009-2010 tax year on 7 November 2010, once they had been finalised. Financial statements for Galahad for the 2011-2012 tax year were provided on 18 January 2013, following a request on 8 January 2013.
On 29 May 2013, the Department informed Mr Gault that his service pension rate had been incorrectly calculated in respect of the 2011-2012 tax year, as 100 percent of the Galahad income should have been attributed to him and his wife and the fortnightly amount had been calculated incorrectly.[7] Mr Gault says that this was the first he had heard of Galahad income being attributed to him and his wife.
[7] Exhibit 3.
Galahad financial statements for the 2010-2011, 2012-2013 and 2013-2014 tax years were provided on 9 June 2015.
On 16 July 2015, the Department informed Mr and Mrs Gault that the rate of their service pensions had changed and stated –
“You are required to provide a copy of the Galahad Dist. Pty Ltd Profit & Loss Statement and Balance Sheet, to this Department within 14 days of your accountant collating and you signing the company’s 2014/15 income tax return.”[8]
[8] T11 folio 280.
On 17 July 2015, a Commission delegate decided that Mr and Mrs Gault had been over paid amounts of service pension.[9] This was so, even though they had also been unpaid amounts of service pension for periods when the Galahad annual profit income was applied in respective years.
[9] T12.
On 4 August 2015, Mr and Mrs Gault sought review of this decision by the Commission.[10]
[10] T14.
The 2014-2015 tax year financial statements for Galahad were provided to the Department on 7 August 2015.[11]
[11] T15.
On 14 October 2015, a Service Pension Review Officer set aside the primary decision and decided that the reduction in Mr and Mrs Gault’s service pensions should have effect from 11 December 2009 and that their income and asset attribution percentages should each be reduced to 20 percent.[12] Furthermore, this Officer decided that Mr and Mrs Gault had overpayment debts outstanding to the Department in amounts of $5,654.66 and $6,603.10 respectively and stated that the debts “cannot be waived due to administrative error or administrative delay”.
[12] T2 folio 10.
Mr and Mrs Gault applied for review of this decision.[13]
[13] T1.
Issues
There are two issues for determination. Firstly, it is necessary to determine the correct rate of service pension for Mr and Mrs Gault and the date of any reduction to their pension rates from that first granted.
Secondly, there is a jurisdictional issue to determine in respect of the calculation of any overpayment of Mr and Mrs Gault’s service pension, and the raising, recovery or waiver of any resulting overpayment debts.
Rate of service pension
Counsel for the Commission, Ms Wright, maintains that the decision under review is correct and it should be affirmed. In her submission, notice was properly given in respect of Mr and Mrs Gault’s obligation to provide financial statements for Galahad within 14 days of finalisation. She asserts that this was not done and it was for this reason that the rates of Mr and Mrs Gault’s service pensions were incorrectly calculated. Once the information was provided, the correct service pension rates were calculated and it was this that gave rise to overpayments and resulting debts for which Mr and Mrs Gault are liable.
Mr Gault gave evidence that Galahad generated annual income in varying amounts, but all profits were retained in the company. That being so, he maintains that he and his wife did not derive personal income from Galahad at any time. Furthermore, he asserts that the Department did not inform him or his wife that company income would be taken into account when calculating their service pensions – this came as a surprise to them when it was explained in 2013.
Much of Mr and Mrs Gault’s case hinges on their interpretation of the ‘You and Your Pension’ booklet, issued to them on 29 July 2008 when their service pensions were granted. Mr Gault argues that the obligation to provide Galahad financial statements to the Department is not mandatory – the word ‘should’ is used, not ‘must’. Furthermore, he and his wife did not receive any income from Galahad, as all profits were retained in the company, so he did not consider that the obligation applied to them. This view, so the argument goes, was reinforced by his understanding that the income shown in the letter of 29 July 2008 was some kind of deemed income derived from company assets. Mr Gault told me that he did not cavil with this amount of income as he did not understand how it was calculated and he relied upon the Department to get it right.
The issue is to be determined under the relevant provisions of the Veterans’ Entitlements Act 1986 (the Act). Rates of service pension are to be calculated using the rate calculator set out in Schedule 6.
It is quite clear that Galahad is a controlled private company for the purposes of s 52ZZC. Mr and Mrs Gault have direct voting and direct control interests in the company. Under s 52ZZJ each of them is an attributable stakeholder in Galahad. Their interests in the company are proportionate to their holdings. It is not in dispute, and I think it is correct to determine, that each should have an income attribution percentage of 20 percent under s 52ZZJ(1)(c).
That being so, under s 52ZZK ‘ordinary income’ of Galahad during a ‘derivation period’, being whole or part tax years during which the company is in existence (s 52ZZP), is attributable in the particular percentage to each of Mr and Mrs Gault during applicable attribution periods (s 52ZZQ). When assessing ‘ordinary income’ for this purpose, it is necessary to have regard to definitions set out in s 5H when applying the terms of s 52ZZM and s 52ZZN in respect of ordinary income, and s 52ZZO in respect of business and investment income, of a company.
On the present materials, I am satisfied that the ordinary income of Galahad for each of the tax years from 1 July 2008 to 30 June 2015 is properly accounted in the profit reported in financial statements provided to the Department.
[paragraph deleted]
These amounts of company income are to be attributed to Mr and Mrs Gault by applying the attribution percentage when determining the correct rates of their service pensions.
It is at this point that the notice provisions are important. If Mr and Mrs Gault complied with their obligations as notified under s 54, reductions to the rate of their service pensions will apply from the end of the notification period specified – s 56; whereas, under s 56B, if they were not compliant with their notified obligations, the rate of their pensions will be reduced from the date of the event about which the Department should have been notified.
I am sympathetic to Mr Gault’s submission about the imprecise wording of the notice provision in respect to company financial statements – the wording is loose, imprecise and ambiguous. Nonetheless, I do not accept that the word ‘should’ can be construed to mean ‘may’. It is a word of obligation that is directive in this context. The importance of timely reporting can clearly be understood when the full text of the company income provisions in the ‘You and Your Pension’ booklet are considered. To my mind, the language of the booklet is clear enough for a reader to understand that company income may be attributable to a person and that “assessable income… held in a private company… may be counted in your pension assessment”.[14]
[14] Exhibit 2, page 48.
As I have said, the notification obligation in respect of company financial statements is poorly drafted. This provides an unhelpful degree of latitude in determining when notification is required. The requirement to give the Department company financial statements within 14 days of them being finalised for the particular year depends entirely upon an interpretation of what the word ‘finalised’ means in this context. To my mind, it should be construed to mean the date on which the financial statements for the company have been accepted as accurate and signed by the responsible directors. I accept that Galahad was considered to be a non-reporting entity for the purposes of the Corporations Act 2001, such that it was not required to prepare financial reports and directors’ reports under s 292 of that Act. This notwithstanding, to my mind, the date on which Galahad annual financial statements may be taken to be finalised for the purposes of the obligation imposed by the ‘You and Your Pension’ booklet, being a notice issued under s 54 of the Act, is the date on which the responsible directors of the company accepted and signed off the financial statements for that year.
Mr Gault gave evidence that the Galahad accounts were prepared by an accounting firm each year once all transactional records had been collated and provided by the company. The accounting firm then produced a draft set of financial statements, including a profit and loss statement and a balance sheet. Until recently, these were conveyed to Mr Gault by post for finalisation by the responsible directors. Mr Gault told me that, on receipt of the draft statements, he would check them and sign them off, returning them by post to the accounting firm for lodgement. He estimated that this process of checking, signature and conveyance through the post would take 21 days.
I am prepared to accept his evidence on this point.
This means that the dates on which the financial statements for Galahad can be taken to have been finalised are the dates on which he is taken to have signed them as accurate and correct – 14 days after the date of the draft statements prepared by the accountancy firm. Thus, in respect of the financial statements for the 2008-2009 tax year, the accountancy firm dated the draft statement 4 December 2009. On Mr Gault’s evidence he would not have received these until seven days later – he resides in a country town and carriage by post takes several days. He would have checked through the draft to satisfy himself and signed the documents within 7 days thereafter. This would have taken place by 18 December 2009. It is this day on which the Galahad financial statements for that year are taken to have been finalised. And it is from this date that the 14 day notification period runs. Return of the financial statements to the accountancy firm would then take another seven days, but this is after the accounts had been finalised.
The same method applies in respect of each subsequent tax year to 30 June 2014. Mr Gault provided the Galahad financial statements for the 2014-2015 tax year to the Department on 7 August 2015, less than 14 days after the date of the draft statements. The dates on which the Galahad financial statement may be taken to be finalised for each relevant tax year are as follows -
Tax year Date of draft statements Date of finalised statements
2008-2009 4 December 2009 18 December 2009
2009-2010 13 October 2010 27 October 2010
2010-2011 27 September 2011 11 October 2011
2011-2012 19 September 2012 3 October 2012
2012-2013 26 August 2013 9 September 2013
2013-2014 20 February 2015 6 March 2015
2014-2015 28 July 2015 7 August 2015
The period in which Mr and Mrs Gault were obliged to provide the Department with these financial statements ended 14 days after the dates on which the statements were finalised. As can be seen from the following, Mr and Mrs Gault failed to comply with this obligation in some tax years –
Tax year Date finalised Notification period end Date notified
2008-2009 18 December 2009 1 January 2010 20 June 2010
2009-2010 27 October 2010 10 November 2010 7 November 2010
2010-2011 11 October 2011 25 October 2011 9 June 2015
2011-2012 3 October 2012 17 October 2012 18 January 2013
2012-2013 9 September 2013 23 September 2013 9 June 2015
2013-2014 6 March 2015 20 March 2015 9 June 2015
2014-2015 7 August 2015 21 August 2015 7 August 2015
As can be seen, Mr Gault did not provide the 2008-2009 financial statements for Galahad to the Department until 20 June 2010, well outside the notification period. It follows, by application of s 56B, that the adverse effect of attributable company income derived from the 2008-2009 tax year on the rate of Mr and Mrs Gault’s service pensions has effect from 18 December 2009.
Galahad financial statements for the 2009-2010 tax year were provided within the notification period. It follows that any reduction in the rate of Mr and Mrs Gault’s service pensions under s 56(3) will have effect after the end of the notification period.
Mr and Mrs Gault failed to comply with their notification obligations in respect of the Galahad financial statements for each of the tax years from 1 July 2010 to 30 June 2014. Any reduction in the rate of their service pensions resulting from attributed company income in each of these years, under s 56B, will have effect from the finalisation date, whereas any increase in the rate of their pensions will have effect as determined under s 56G(3).
The matter will be remitted to the Commission to determine changes to Mr and Mrs Gault’s service pensions on this basis.
Jurisdiction
Mr Gault asserts that the Tribunal should have jurisdiction to review the raising of overpayment debts against him and his wife, and to consider waiving these debts in the particular circumstances.
In Mr Gault’s submission, it is entirely unfair and unreasonable to expect a person, such as himself or his wife, to comprehend the income attribution rules applying to private companies without clear explanation and then, years later, to raise and recover debts from them on the basis of these rules. He asserts that, on review, the Tribunal is to proceed by reference to the standard of good government discussed by Smithers J in Collector of Customs (New South Wales) v Brian Lawlor Automotive Pty Ltd.[15] And on the issue of ‘good government’, he drew heart from the sage comments of Chief Justice Allsop, addressing values that should inform the exercise of public law, particularly with regard to unfairness, unreasonableness and arbitrariness, in a paper entitled ‘Values in Public Law’ (27 October 2015).
[15] [1979] 2 ALD 1 at [23] - [24].
It is unfortunate for Mr and Mrs Gault that I do not, and cannot, accept these submissions.
The Tribunal is a creature of statute. It does not exercise power at large. Indubitably fairness, reasonableness and the exercise of reason inform its considerations when reviewing administrative decisions when it is necessary to do so. But this does not mean that such considerations may be sufficient to establish jurisdiction where no jurisdiction is conferred. The Tribunal is established by legislation and the powers it exercises on review are in respect of jurisdiction that is conferred upon it by other enactments.
Presently, under the Act, jurisdiction is conferred by s 175. Certainly, there is jurisdiction to review a decision of the Commission made under s 57 and s 57B. Decisions of this kind include variations to the rate of a service pension. But they do not include the assessment of an overpayment, the raising of an overpayment debt or the waiver of the right to recover such a debt.
I agree with the conclusions of the Tribunal in Re Nelson and Repatriation Commission[16] on this point.
[16] [2007] AATA 1069.
Conclusion
Mr and Mrs Gault’s service pensions are to be calculated on the basis of attributed income from Galahad. They failed to comply with the poorly drafted, but nonetheless directive, notification obligations in respect of the annual financial statements of that company. In the result, the rates of their pensions will be reduced in some years and, potentially at least, increased in other years, when the attributable percentages of company annual income are taken into account.
The dates on which reductions in the rates of their pensions take effect will be the dates on which the company financial statements were finalised. I have found that they were finalised, as a matter of probability, 14 days after the dates recorded on the draft statements prepared by the accountancy firm.
The calculation of the correct rates of Mr and Mrs Gault’s service pensions from these dates is remitted to the Commission.
The Tribunal has no jurisdiction to review the raising, recovery or waiver of any resulting overpayment or debt.
Decision
The decision under review is varied only in so far as the effective dates of reductions to the rates of Mr and Mrs Gault’s service pensions as set out in the reviewable decision are to be replaced with dates determined in accordance with these reasons.
The applications are remitted to the Commission to recalculate the correct rates of Mr and Mrs Gault’s service pensions from these dates. The decision in respect to company income amounts and attributable percentages is affirmed, without variation.
I certify that the preceding 49 (forty-nine) paragraphs are a true copy of the reasons for the decision herein of Mr S. Webb, Member ..................................[sgd]......................................
Associate
Dated 19 August 2016
Date of hearing 19 July 2016 Applicant In person Counsel for the Respondent Ms Sarah Wright Solicitors for the Respondent Australian Government Solicitor
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