Geidans and Secretary, Department of Family and Community Service S
[2003] AATA 773
•8 August 2003
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2003] AATA 773
ADMINISTRATIVE APPEALS TRIBUNAL )
) No W2002/374
GENERAL ADMINISTRATIVE DIVISION ) Re MR LEO GEIDANS Applicant
And
Re SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES
Respondent
DECISION
Tribunal Ms L Savage Davis, Member Date8 August 2003
PlacePerth
Decision The decisions under review are affirmed.
..........(sgd L Savage Davis)...................
Member
CATCHWORDS
Social Security - Age Pension - designated private company – controlled private company - whether an attributable stake holder – whether asset attribution less than 100 percent.
Social Security Act 1991 (Cth)
Social Security and Veterans’ Entitlement Legislation (Private Trusts & Companies – Integrity in Means testing) Act 2000
REASONS FOR DECISION
1. This is an application by Mr Leo Geidans (the applicant) for a review of decisions made by the Social Security Appeals Tribunal on 23 August 2002 to:
· Vary a decision made by Centrelink on 1 January 2002 affirming the decision to attribute 100% control of Geologics Pty Ltd (“the company”) to the applicant from 1 January 2002, but sending the matter back to the Chief Executive Officer of Centrelink for reconsideration in accordance with the direction that the applicant’s age pension be restored from 1 January 2002 and that Centrelink use the second asset valuation of the company dated 17 January 2002 by the Australian Valuation Office, as well as the value of the applicant’s personal assets to calculate his rate of age pension.
· Affirm a decision made by Centrelink on 18 January 2002 to maintain 100% attribution of the company to Mr Geidans and pay of age pension to the applicant from 18 January 2002 at less than the maximum rate.
2. At the hearing the applicant was represented by Mr Murray Posa (Hoffmans, Barristers & Solicitors). Ms Kerry Hackney, an advocate from the Advocacy and Administrative Law Team of Centrelink appeared for the respondent.
3. At the hearing the Tribunal had before it the documents (the T-documents) lodged pursuant to s.37 of the Administrative Appeals TribunalAct1975.. The applicant gave oral evidence to the Tribunal.
The Legislation
4. The Social Security & Veterans’ Entitlements Legislation Amendment (Private Trust & Companies – Integrity of Means Testing) Act 2000 came into effect from 1 January 2002 significantly amending Part 3.18 of the Social Security Act 1991 (“the Act”). Part 3.18 – MEANS TEST TREATMENT OF PRIVATE COMPANIES AND TRUSTS commences with a simplified outline of the changes.
“1207 The following is a simplified outline of this Part:
·
This Part sets up a system for the attribution to individuals of the assets and income of private companies and private trusts (sections 1207Y and 1208E).
* Attribution starts on 1 January 2002.
* For an asset or income to be attributed to an individual:
(a) the company must be a designated private company or the trust must be a designated private trust (sections 1207N and 1207P); and
(b) the company must be a controlled private company in relation to the individual or the trust must be a controlled private trust in relation to the individual (sections 1207Q and 1207V); and
(c) the individual must be an attributable stakeholder of the company or trust (section 1207X).
A company or trust will be a controlled private trust or a controlled private company if the individual passes a control test or a source test.
· An individual will not be an attributable stakeholder of a trust if the trust is a concessional primary production trust in relation to the individual.
· The asset deprivation rules and the income deprivation rules are modified if attribution happens.
5. A “designated private company” has the meaning given by section 1207N(1)
1207N Designated private companies 1207N(1) For the purposes of this Part, a company is a designated private company at a particular time if:
(a) the company satisfies at least 2 of the following conditions in relation to the last financial year that ended before that time:
(i) the consolidated gross operating revenue for the financial year of the company and its subsidiaries is less than $10 million;
(ii) the value of the consolidated gross assets at the end of the financial year of the company and its subsidiaries is less than $5 million;
(iii) the company and its subsidiaries have fewer than 50 employees at the end of the financial year; or
(b) the company came into existence after the end of the last financial year that ended before that time; or
(c) the company is a declared private company (see subsection (2));
and the company is not an excluded company (see subsection (5)).
6. Additionally for the purposes of Part 3.18 a company is “controlled private company” if:
1207Q Controlled private companies 1207Q(1) For the purposes of this Part, a company is a controlled private company in relation to an individual if the company is a designated private company and:
(a) the individual passes the control test set out in subsection (2); or
(b) the individual passes the source test set out in subsection (3).
Control test
1207Q(2) For the purposes of this section, an individual passes the control test in relation to a company if:
(a) the aggregate of:
(i) the direct voting interests in the company that the individual holds; and
(ii) the direct voting interests in the company held by associates of the individual;
is 50% or more; or
(b) the aggregate of:
(i) the direct control interests in the company that the individual holds; and
(ii) the direct control interests in the company held by associates of the individual;
is 15% or more; or
(c) the company is sufficiently influenced by:
(i) the individual; or
(ii) an associate of the individual; or
(iii) 2 or more entities covered by the preceding subparagraphs; or
(d) the individual (either alone or together with associates) is in a position to exercise control over the company.
Source test
1207Q(3) For the purposes of this section, an individual passes the source test in relation to a company if:
(a) the individual has transferred property or services to the company after 7.30 pm, by standard time in the Australian Capital Territory, on 9 May 2000; and
(b) the underlying transfer was made for no consideration or for a consideration less than the arm's length amount in relation to the underlying transfer.
7. Also relevant in this matter are the following sections of the Act;
1207B Relatives 1207B(1) For the purposes of this Part, a relative , in relation to a person (the first person ), means any of the following:
(a) the spouse of the first person;
(b) a parent, grandparent, brother, sister, uncle, aunt, nephew, niece, first cousin, second cousin or lineal descendant of the first person;
(c) the spouse of a person covered by paragraph (b);
(d) a parent, grandparent, brother, sister, uncle, aunt, nephew, niece, first cousin, second cousin or lineal descendant of the spouse of the first person;
(e) the spouse of a person covered by paragraph (d);
(f) a child of a person covered by any of the preceding paragraphs.
1207B(2) For the purposes of this section, in determining who is a parent, grandparent, brother, sister, uncle, aunt, nephew, niece, first cousin, second cousin or lineal descendant of a person, treat each of the following relationships as if they were biological child-parent relationships:
(a) the relationship between an adopted child and his or her adoptive parent;
(b) the relationship between a step-child and his or her step-parent;
(c) the relationship between a foster-child and his or her foster-parent.
1207C Associates 1207C(1) For the purposes of this Part, in determining:
(a) whether a trust is a designated private trust; or
(b) whether a company is a controlled private company in relation to an individual; or
(c) whether a trust is a controlled private trust in relation to an individual; or
(d) whether a trust is a concessional primary production trust in relation to an individual;
the following are associates of an individual:
(e) a relative of the individual;
(f) an entity who, in matters relating to the trust or company:
(i) acts, or is accustomed to act; or
(ii) under a contract or an arrangement or understanding (whether formal or informal), is intended or expected to act;
in accordance with the directions, instructions or wishes of:
(iii)the individual; or
(iv) the individual and another entity who is an associate of the individual because of another paragraph of this subsection;
(g) an entity that is a declared associate of the individual (see subsection (2));
(h) a business partner of the individual or a business partnership in which the individual is a business partner;
(i) if a business partner of the individual is an individual—the spouse or a child of that business partner;
(j) a trustee of a trust, where:
(i) the individual; or
(ii) another entity that is an associate of the individual because of another paragraph of this subsection;
benefits or is capable (whether by the exercise of a power of appointment or otherwise) of benefiting under the trust, either directly or through any interposed companies, business partnerships or trusts;
(k) a company, where the company is sufficiently influenced by:
(i) the individual; or
(ii) another entity that is an associate of the individual because of another paragraph of this subsection; or
(iii)another company that is an associate of the individual because of another application of this paragraph; or
(iv) 2 or more entities covered by the preceding subparagraphs;
(l) a company, where a majority voting interest in the company is held by:
(i) the individual; or
(ii) the entities that are associates of the individual because of any of the preceding paragraphs of this subsection; or
(iii) the individual and the entities that are associates of the individual because of any of the preceding paragraphs of this subsection.
8. In deciding whether Mr Geidans is an attributable stakeholder of Geologics Pty Ltd, section 1207X(1) is relevant. It provides as follows:
1207X Attributable stakeholder, asset attribution percentage and income attribution percentage
Company
1207X(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; and
(c) if the individual is an attributable stakeholder of the company—the individual's income 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.
1208E Attribution of assets 1208E(1) For the purposes of this Act,
(a) an individual is an attributable stakeholder of a company or trust at a if: particular time on or after 1 January 2002; and
(b) at that time, the company or trust owns a particular asset (whether alone or jointly or in common with another entity or entities); and
(c) if, at that time, that asset had been owned by the individual instead of by the company or trust, the value of the asset would not be required to be disregarded by any express provision of this Act; and
(d) at that time, the asset is not an excluded asset (see subsection (2));
there is to be included in the value of the individual's assets an amount equal to the individual's asset attribution percentage of the value of the asset referred to in paragraph (b).
9. Section 1207X(5) states that in making a decision under section 1207X, the Secretary must comply with any relevant decision making principles. Section 1209E provides that the Secretary may, by writing formulate such principles and these principles are to be complied with in making decisions under section 1207X. They are as relevant to this matter as follows;
Purpose
These Principles set out decision-making principles with which the Secretary must comply in making a determination, under section 1207X of the Act, that:
(a)an individual is not an attributable stakeholder of a company or trust; or
(b)a specified percentage, lower than 100%, is the asset attribution percentage, or income attribution percentage, of an attributable stakeholder of a company or trust.
Part 2Determination that individual is not attributable stakeholder
5 Purpose
This Part sets out decision-making principles with which the Secretary must comply in making a determination, under paragraph 1207X (1) (a) or (2) (c) of the Act, that an individual is not an attributable stakeholder of a company or trust.
6 Application
(1)This Part applies if, but for a determination by the Secretary, the individual would be an attributable stakeholder of the company or trust.
(2)The Secretary must consider the relationship between the individual and the company or trust having regard to:
(a)the reason why, but for a determination, the individual would be an attributable stakeholder; and
(b)the circumstances mentioned in this Part.
(3)In particular, the Secretary must consider whether the effect of one or more of the circumstances mentioned in this Part, in relation to the individual and the company or trust, provides a sufficient basis on which to determine that the individual is not an attributable stakeholder of the company or trust.
Pertinent to this appeal are Principles 7 to 13 when considering the relevant circumstances that make it inappropriate for a person to be an attributable stakeholder of a company or trust, and Principles 15 to 22 that contain the decision making principles the secretary must comply with if a determination is to be made that the asset attribution percentage is to be less than 100%.
7 Circumstances affecting relationship with company or trust
(1)The Secretary must consider whether there are relevant circumstances that make it inappropriate for the individual to be an attributable stakeholder of the company or trust.
(2)For subsection (1), relevant circumstances include the extent to which the relationship between the individual and the company or trust is affected by any of the following circumstances:
(a)circumstances arising from the legal structure of the company or trust;
(b)circumstances arising from the administrative arrangements of the company or trust;
(c)whether, having regard to the relationship between the individual and the company or trust, the individual can reasonably be expected to exercise effective control in relation to the company or trust.
8 Contribution to company or trust
If the individual has made a contribution to the company or trust, the Secretary must consider the circumstances in which the contribution was made and, in particular:
(a)the value of the contribution; and
(b)the proportion that the value of the contribution has to the total assets of the company or trust at the time of the contribution; and
(c)the effect of the contribution on the financial position of the company or trust; and
(d)if the individual received consideration for the contribution, the amount of consideration.
9 Past benefit from distributions by company or trust
(1)The Secretary must consider whether the individual has received a benefit from a distribution made by the company or trust.
(2)If an individual has received a benefit, the Secretary must also consider:
(a)the value of the benefit; and
(b)if the individual has received a benefit on more than 1 occasion, the frequency with which the individual has received benefits.
(3)For this section, a distribution includes distributions:
(a)in the case of a distribution by a company — of the capital or income, or both, of the company; and
(b)in the case of a distribution by a trust — of the corpus or income, or both, of the trust.
10 Future benefit from distributions by company or trust
(1)The Secretary must consider whether it is reasonably foreseeable that the individual may receive a benefit from a future distribution by the company or trust.
(2)If subsection (1) applies, the Secretary must also consider the likely value of the benefit.
(3)For this section, the Secretary must have regard to:
(a) the constituent documents of the company; or
(b) documents, if any, establishing the terms of the trust.
(4)For this section, a distribution includes distributions:
(a) in the case of a distribution by a company — of the capital or income, or both, of the company; and
(b) in the case of a distribution by a trust — of the corpus or income, or both, of the trust.
11 Benefit from assets and income of company or trust
(1)The Secretary must consider whether the individual receives or derives any kind of benefit (other than a benefit mentioned in section 9 or 10) from the assets or income, or both, of the company or trust.
(2)For this section, benefit:
(a) is not limited to a benefit to which the individual has a legal or equitable entitlement; and
(b) includes benefits received or derived in the form of property or services.
12 Existing attribution to individual
(1)The Secretary must consider whether the individual is:
(a) under the Act — an attributable stakeholder of any other company or trust; or
(b) under the Veterans’ Entitlements Act 1986 — an attributable stakeholder of the company or trust, or of any other company or trust.
(c) If subsection (1) applies, the Secretary must also consider:
(a) the asset attribution percentage attributed to the individual, if any; and
(b) the income attribution percentage attributed to the individual, if any.
13 Other circumstances
The Secretary must consider any other circumstance that affects the involvement of the individual with the activities or the administration of the company or trust.
Part 3Determination of asset attribution percentage
14 Purpose
This Part sets out decision-making principles with which the Secretary must comply in making a determination, under subparagraph 1207X (1) (b) (ii) or (2) (d) (ii) of the Act, that an attributable stakeholder’s asset attribution percentage, in relation to a company or a trust, is a specified percentage lower than 100%.
15 Application
(1)This Part applies if, but for a determination by the Secretary, the asset attribution percentage of the attributable stakeholder, in relation to the company or trust, would be 100%.
(2)The Secretary must consider the relationship between the individual and the company or trust, having regard to the circumstances mentioned in this Part.
(3)In particular, the Secretary must consider whether the effect of one or more of the circumstances mentioned in this Part, in relation to the individual and the company or trust, provides a sufficient basis on which to determine a percentage lower than 100% as the asset attribution percentage.
16 Circumstances affecting relationship with company or trust
(1)The Secretary must consider whether there are relevant circumstances that make it inappropriate for the individual to have an asset attribution percentage of 100%.
(2)For subsection (1), relevant circumstances include the extent to which the relationship between the individual and the company or trust is affected by any of the following circumstances:
(a)circumstances arising from the legal structure of the company or trust;
(b)circumstances arising from the administrative arrangements of the company or trust;
(c)whether, having regard to the relationship between the individual and the company or trust, the individual can reasonably be expected to exercise effective control in relation to the company or trust and, if so, the extent of that control.
17 Contribution to company or trust
If the individual has made a contribution to the company or trust, the Secretary must consider the circumstances in which the contribution was made and, in particular:
(a)the value of the contribution; and
(b)the proportion that the value of the contribution has to the total assets of the company or trust at the time of the contribution; and
(c)the effect of the contribution on the financial position of the company or trust; and
(d)if the individual received consideration for the contribution, the amount of consideration.
18 Past benefit from distributions by company or trust
(1)The Secretary must consider whether the individual has received a benefit from a distribution made by the company or trust.
(2)If an individual has received a benefit, the Secretary must also consider:
(a)the value of the benefit; and
(b)if the individual has received a benefit on more than 1 occasion, the frequency with which the individual has received benefits.
(3)For this section, a distribution includes distributions:
(a)in the case of a distribution by a company — of the capital or income, or both, of the company; and
(b)in the case of a distribution by a trust — of the corpus or income, or both, of the trust.
19 Future benefit from distributions by company or trust
(1)The Secretary must consider whether it is reasonably foreseeable that the individual may receive a benefit from a future distribution by the company or trust.
(2)If subsection (1) applies, the Secretary must also consider the likely value of the benefit.
(3)For this section, the Secretary must have regard to:
(a)the constituent documents of the company; or
(b)documents, if any, establishing the terms of the trust.
(4)For this section, a distribution includes distributions:
(a)in the case of a distribution by a company — of the capital or income, or both, of the company; and
(b)in the case of a distribution by a trust — of the corpus or income, or both, of the trust.
20 Benefit from assets and income of company or trust
(1)The Secretary must consider whether the individual receives or derives any kind of benefit (other than a benefit mentioned in section 18 or 19) from the assets or income, or both, of the company or trust.
(2)For this section, benefit:
(a) is not limited to a benefit to which the individual has a legal or equitable entitlement; and
(b) includes benefits received or derived in the form of property or services.
21 Existing attribution to individual
(1)The Secretary must consider whether the individual is:
(a) under the Act — an attributable stakeholder of any other company or trust; or
(b) under the Veterans’ Entitlements Act 1986 — an attributable stakeholder of the company or trust, or of any other company or trust.
(2)If subsection (1) applies, the Secretary must also consider:
(a) the asset attribution percentage attributed to the individual, if any; and
(b) the income attribution percentage attributed to the individual, if any.
22 Other circumstances
The Secretary must consider any other circumstance that affects the involvement of the individual with the activities or the administration of the company or trust.
Mr Leo Geidans
10. Mr Geidans told the Tribunal that he purchased the Gloucester Road, Pemberton property because as a child he had spent his summer holidays on his father’s farm in Latvia. He deeply appreciated the natural surroundings of the bush as compared to urban areas. Following qualification as a geologist he worked for Alcoa and spent a considerable amount of time in the Darling Ranges between Bindoon and Manjimup. Subsequently he took his own children camping and early in 1970 purchased the Pemberton property (“the property”). In addition it was during the cold war period and he believed it would be a safe place to escape the city.
11. Mr Geidans said the property was an abandoned farm and the house on it was very run-down. All his children helped him with work on the property in particular his son Edgar, who spent his school holidays assisting with cleaning up after a bulldozer had cleared a large number of trees and also in renovating the run-down residence. He and Edgar were in effect builders’ labourers for work such as the building of the ablution block. Edgar always had a particular interest in the bush and spent time with him and the family at the property when Mr Geidans was not away working. In the late 1980’s, or early 1990’s Mr Geidans sold his Perth home in Mt Claremont, demolished the house on the property and built a rammed earth residence which he moved to permanently.
12. Mr Geidans said he had been receiving age pension since 1989. He had had some minor accidents which now required him to use a stick and had a number of conditions as outlined in the letter from his doctor, Dr Trappett. A number were related to increasing age, including arthritis. His current state of health was significantly different from 10 or 12 years ago. He had suffered some anxiety and depression in the last year and a half. The sight in his left eye had also been affected by a cataract surgery that led subsequently to a retinal detachment. He could no longer lift heavy objects nor could he walk fast or to do any farming work.
13. Mr Geidans described the property as a working property in that areas were leased, free of charge to a neighbour who grew potatoes and grass. A small herd of cattle were built up over some years but due to a degenerative disease were sold in the summer of 2002. Currently there were no farming activities taking place.
14. Mr Geidans said that Geologics Pty Ltd (“the company”) was set up in 1971 for what he believed were taxation purposes. At that time he held an “A” class Governing Director’s share (“A” class share) and 98 ordinary shares. He subsequently acquired a “B” class share in 1987. His wife and four children also had a share each, as well as his two sisters. He gave a share to each of his sisters because some of the work he did placed him at personal risk and he was concerned to ensure that there would always be someone there to advise his children if anything happened to him. Subsequently, when he wanted to make sure the property would pass smoothly to his children he decided to transfer 500 shares to Edgar. He had already passed 98 shares to his son Edgar and more recently he transferred his “A” class share to Edgar. Mr Geidans said that he had spoken to his accountant Mrs Christine Trappatt in late 2000 and told her it was more and more difficult for him to run the farm as he was starting to forget things and it was too much for him. He asked his son Edgar and his daughters if he could bow out and he said that Edgar was prepared to take over and his daughter Indra was prepared to become a co-director. He recalled this as being mid May 2001. Initial attempts to locate the original “A” class share document failed but it was found subsequently in late October 2001 when the transfer occurred. Mr Geidans said he kept the “B” class share for sentimental reasons because it had come from his wife, but then disposed of it in early 2002. His ability to sign cheques related to the company ceased in May 2002, not August 2002 as recorded in the Social Security Appeals Tribunal decision of 23 August 2002. He concluded by saying that he no longer had any motivation to be involved in the running of the company.
15. When cross-examined Mr Geidans confirmed that he had purchased the property with his own funds in 1971. His son Edgar was born in 1965 and he estimated that Edgar helped him on the property from around mid 1970 onwards when Edgar was approximately 10. His Claremont property was sold in 1993, but he had moved earlier, perhaps 2 years before, to live on the shack at the property and moved into the new home on the property in 1995. Following the sale of the Claremont property the proceeds were put, on advice, into the company’s account. He agreed that technically it was a loan.
16. The respondent referred Mr Geidans to the Centrelink document at T5/56 that was signed by him and dated as received by Centrelink on 11 June 2001. Mr Geidans agreed that at question 12 he was listed as having an “A” class share and that his sisters were each shareholders. When asked why he had ticked “no” to question 23, when he had built a house on the Pemberton property owned by the company, Mr Geidans said that his accountant had completed the document and all he had done was sign it. Mr Geidans said he had only glanced at it before signing it.
17. Mr Geidans said he signed the share transfer on 30 October 2001 but then it was necessary to send the papers to Edgar who was in Europe. The respondent noted that Centrelink had made a provisional assessment and subsequently became aware that moves were being made to transfer the share. With respect to the respondent’s contention that the ASIC form noted the transfer as 2 November 2001 and to Indra his daughter and not Edgar, Mr Geidans maintained that the minute for the transfer was done on 15 May 2001, the transfer on 30 October 2001 and it was his A class share that passed to Edgar at that time.
18. Mr Geidans was referred to paragraph 20 of the Social Security Appeals Tribunal decision of 23 August 2002 (T2–T7) that read in part, “the land is practically yours and you have the total and final say, all I asked is that you please consult me before you do anything drastic”. Mr Geidans said that although he doesn’t have the copy of the letter he believed that the substance of the statement was correct. Mr Geidans was asked to examine the e-mail dated 4 January 2002 from Edgar (T53) The respondent put to Mr Geidans that this confirmed that he retained control over Edgar. Mr Geidans denied this. He and Edgar had never got together in Perth to resolve any matters as referred to in the e-mail. The issue was never discussed again. Mr Geidans said by way of explanation that he had given his children an education and shelter, now they have their own problems and he doesn’t want to burden them with his. He denied that Edgar’s comment, “if by keeping the company you’d be jeopardising your pension and that if the company was liquidated you’d receive your pension then the answer is clear! It must be dissolved. You should inform us if this is the case”, indicated that Edgar would do whatever Mr Geidans wanted.
19. In re-examination, Mr Geidans stated that the reference ‘to consulting him before doing anything drastic’ meant just if Edgar made a decision, for example, to sell the property or perhaps have a nudist colony, then he would wish to be consulted. Mr Geidans reiterated that the e-mail referred to also said, ‘the land is practically yours’ and this meant that Edgar could do what he liked with it.
20. The Tribunal asked Mr Geidans where Edgar currently was living. Mr Geidans said he last spoke to him by phone some 3 weeks ago although he was here briefly at Christmas time. Edgar had told him he was in the USA and that he was going to Europe. Mr Geidans did not know where in Europe, but thought that maybe it was to Slovenia. Apart from that he had no idea how long he would be there or of his future plans. Edgar works for an American communications company and Mr Geidans speculated that a new partner in his life might mean he was too busy to make regular contact. Mr Geidans said that although he had many visitors he had lived on his own on the property since 1991. Edgar visited quite often, perhaps 2 to 3 weeks in a year. Indra, his daughter who lives in Perth acts for Edgar. Mr Geidans said he no longer has any role in the running of the property and prior to the sale of the cattle in 2002, they essentially looked after themselves. Mr Geidans said he would feel it would be his responsibility to let Edgar or Indra know if anything serious happened on the property. Some mail for Geologics Pty Ltd still goes to the property but he re-addresses it and sends it to Indra.
FINAL SUBMISSIONS
Mr Posa for the Applicant
21. In considering the submissions, the Tribunal noted that it was accepted that Geologics Pty Ltd was a ‘designated private company’.. It was submitted by Mr Posa that Mr Geidans no longer has any legal interest in the company having devolved himself of his “A” class share, his “B”class share and his ordinary shares. In addition he no longer wanted any control and his health and age prevented him from farming on the property or taking the full use and enjoyment of the property.
22. In reference to the Principles, it was submitted that the property is no longer functioning as a farming property and any decisions about it will be made by the directors. Mr Geidans has made it clear that he does not want any involvement and it is now their responsibility due to his health and age. This was supported by the statement that “the land is practically yours”, and qualified only by Mr Geidans wish to be informed if anything drastic was to occur. This it was submitted was consistent with his relinquishing of control, but consistent with the fact that he was still living in his home on the property.
23. It was submitted in regard to the e-mail of 4 January 2002 that this showed that Edgar was looking to the future and has taken responsibility in relation to costs incurred by the company. Additionally, it showed that Edgar wished to maintain the corporate structure. It was not the case that the reference to dissolving the company in relation to Mr Geidans’ age pension indicated that the control of the property lay with Mr Geidans.
24. It was further submitted that Edgar’s early involvement in the property and evidence that he intended to pay accounting fees, although it was conceded there was no evidence that he had as yet done so, indicated that he was involved in the company. In regard to future distributions, this is no longer an issue as it is not a working property. Mr Geidans himself cannot expect any benefits and the fact that the applicant was allowed to stay on the property was recognition that he had been the founder and director of the property not, Mr Posa submitted that he received any benefits.
25. In regard to “other circumstances” outlined in the Principles it was submitted that Mr Geidans’ age, health and lack of motivation to be involved in the company was all evidence that he did not have the ability to sufficiently influence the company.
26. It was submitted that there appeared to be only two extreme positions that would be entertained by the respondent. Either that Mr Geidans had 100% ability to control the company or the other extreme that he had no ability to influence or control the directors. A fair outcome it was submitted would be somewhere in between, if Mr Geidans was found to have sufficient control by virtue of association. The asset attribution percentage should be less than 100%, namely 50%. This was because even if Mr Geidans could be said to have security of tenure, and it appeared that at this time the directors did not intend to move him off the property, his own deteriorating health would intervene and force him eventually to move. In addition Mr Geidans can no longer enjoy and use the assets because of his health and age.
Ms Hackney for the Respondent
27. Ms Hackney made the following submissions on behalf of the respondent;
· On 21 December 1970, Geologics Pty Ltd (“the company”) was incorporated as an investment and primary production company (T5/55). As from 29 January 1971 the applicant held one A Class Governing Director’s share (“A” class share) and 98 ordinary shares. As the holder of the “A” class share the applicant had formal control of the company. The company purchased the Gloucester Road, Pemberton property, a farming property. (T5/62)
· On 18 December 1987 one “B” class share was transferred to the applicant.
· On 23 February 1989 the applicant was granted age pension. At that time he held one “A” class share, one “B” class share and 98 ordinary shares.
· On 24 December 1993 the applicant sold his residence at 1 Lisle Street, Mt Claremont. The applicant loaned $150,000 from that sum to the company on the basis it would be used to build a new home on the property. (T7/87)
· On 20 April 1994 the applicant transferred his 98 ordinary shares to his son Edgar.
· In or about April 1995, the applicant withdrew the money from the loan he had made to the company and built a new home on the property in which he has resided since that time.
· In early 2001 the applicant was sent a data collection package from Centrelink ('the form') which the applicant returned, signed by himself and date stamped 11 June 2001 by Centrelink. In response to questions 24 and 25 on the form the applicant indicated that he might wind up the company or resign from it and hand over the interest in the company. (T5/61). In response to question 23 “Did any director or shareholder receive, or were they entitled to receive, any BENEFIT from the company in the last financial year?” the applicant answered “no” although notes to the question stated that a benefit could include having access to, or use of, a company asset. The form at question 18 also recorded that $22,253 was owed by the company to the applicant (T5/59).
· In a letter dated 12 October 2001, Centrelink notified the applicant that he was likely to be attributed with 100% control of the company under the new rules which would come into effect from 1 January 2002 concerning the way private trusts and companies are treated under the income and assets test rules (T11) This advice was based on the company owning the property but excluding the home the applicant had built on it. (T5/62, T7/83-84 ,T14/109, T17/132, T18/133, T24/144, T33/164)
· On or about 11 December 2001 the Secretary decided that the applicant controlled 100% of the company. (T10/104-105) On the basis that the applicant’s assets totalled $335,874, and the asset limit was at that time $280,000, the applicant’s age pension was cancelled from 1 January 2002. (T12/107)
· On or about 12 December 2001 the applicant’s accountant advised the Secretary that the applicant had transferred his “A” class share in a transfer signed 30 October 2001 and advised there would be some delay in completing the paperwork as the applicant’s son Edgar was overseas. (T14/110-112) At that time the Secretary advised that notwithstanding the transfer it was unlikely the attribution of control would be different. (T13/108). The applicant’s accountant also requested the revaluing of the property as per the Centrelink FIS Phone Contact memo. (T14/ 109) (See also T14/109, T24/194)
· On 13 December 2001 the applicant’s accountant spoke to Ms Pannell, a Centrelink Officer in regard to the transfer of the “A” class share to Edgar. Ms Pannell advised she would need to examine the transfer documents. Ms Pannell advised that even if evidence of the transfer was accepted there could still be 100% attribution.(T13)
· On or about 2 January 2002 the applicant challenged the decision to attribute 100% control of the company to him and cancel his age pension. The applicant also advised that as of 15 May 2001 he had resigned as a director and given up his “A” class share to Edgar. (T16/127) The applicant forwarded a transfer form dated 30 October 2001 to the Secretary. (T16/129)
· Following advice from the Australian Valuers Office (“AVO”) dated 11 January 2002 advising the total property value as $350,000, with the land being $200,000 and the house and curtilage at $150,000, the Secretary decided that the applicant could now reclaim his age pension as his assets were under the asset limit. (T18/133)
· On 31 January 2002 the applicant lodged a pension reclaim form. (T20) On 14 March 2002 the applicant’s claim was granted and he commenced receiving a part pension backdated to 18 January 2002. (T28/149) Attached to the pension reclaim form was a letter entitled “Sequence of Events” from the applicant. In this document it states that the applicant’s A class share was transferred to Edgar on 15 May 2001. The respondent submitted that the ASIC database indicates the transfer of the A class share to his daughter Indra occurred on 31 October 2001.
· On 4 February 2002 the applicant’s accountant sought advice from the Secretary as to whether her client could take advantage of concessional arrangements for farmers.(T21/139)
· On or about 19 March 2003 the applicant’s request that the decision that he controlled 100% of the company and the consequent attribution of the company’s assets to him was referred to an Authorised Review Officer (“ARO”). On 5 April 2002 the ARO affirmed the decision. (T33/158-167)
· In a letter dated 27 May 2002 the applicant advised the Secretary that he had disposed of his “B” class share for $500. (T42) The applicant was advised that this did not alter the ARO decision. (T44). On 21 July 2002, the applicant appealed to the Social Security Appeals Tribunal (“SSAT”). In regard to the decision to cancel the applicant’s age pension from 1 January 2002 due to attributing to him 100% control of the company, the SSAT affirmed the decision to attribute 100% control of the company to the applicant, but varied the decision by directing that his age pension be restored from 1 January 2002 and that the valuation date stamped 17 January 2002 by Centrelink, Bunbury be used. The SSAT affirmed the second decision to attribute 100% control of the company, but grant part payment of age pension to the applicant from 18 January 2002 due to reduction in valuation of total assets. The respondent submitted that it was the decisions as varied by the SSAT that they sought to have affirmed.
· The applicant meets the age requirement for the age pension and satisfies the income test.
· The relevant legislation is found in Part 3.18 of the Social Security Act 1991 (“the Act”). Section 1207 is described as a system for the attribution to individuals of assets and income of relevant companies and trusts effective from 1 January 2002.
· For the purposes of the Act the company is a designated company.
· The applicant passes the control test as per section 1207Q(1) in that 50% or more of the direct voting interests are held by himself or his associates. (section 1207Q(2). An associate (section 1207B(1)) includes a relative and is broadly defined as immediate family members. In this case Edgar, his son who the applicant contends now holds the A class share.
· The control test includes both formal and informal control. Whilst the applicant has no formal control having resigned as company director and transferring his shares, he still controls the company via his associates with an aggregate of direct voting interests of 50% or greater. This includes a child, (section 1207C(1) in this case Edgar who holds the A class share. (section 1207Q2(A)(2).
· This is enough to establish control but it is submitted the applicant also passes the control test in relation to the company because it is sufficiently influenced by him within the meaning of section 1207Q(2)(c).It is not unreasonable to expect that Edgar and the company would be reasonably expected to act in accordance with the applicant’s wishes. The applicant built up the property through his money and personal endeavours. He remained in control as the director for 30 years. He used his own funds to build a home on property and this action shows he believes he has security of tenure. There has been no evidence to show the applicant needed to be concerned after the share transfer that he would lose that security.
· In regard to e-mail from Edgar to applicant of 4 January 2002 (T53/246), it supports view that what was being discussed was how best to secure the applicant’s age pension and this was the priority. Paragraph 20 of the SSAT decision, the substance of which has been accepted by the applicant as substantially correct, suggests he retains informal control and so satisfies the control test.
· In regard to the final condition it is submitted that as an attributable shareholder of the company and in accordance with section 1207X(1) (b), his assets attribution percentage in relation to the company should be 100%. In reaching this determination the Secretary has had regard to Attribution Principles as provided for in section 1209E(1) of the Act.
· An attribution percentage of 100% is supported by the relationship the applicant has with the company via the associates so the applicant can still be reasonably expected to control the company. It is submitted that the applicant’s solicitor has conceded that the applicant can influence, but says the percentage should be 50%. This is not supported by Principles and there is no precedent for establishing such a figure. In regard to contributions made to the company the applicant has made the most both financially and personally. The evidence supports the conclusion that Edgar is only on the property at most 4 weeks per year. It is the applicant who derives the benefit by living on the property and having security of tenure. The applicant’s home on the company property it was submitted would give rise to some type of equitable interest if he was forced to move.
· The applicant has personal assets of $51,573 (T75/286). The company’s assets are valued at $201,049 so the applicant qualifies for part pension in accordance with Section 1064 of the Act.
28. In reply Mr Posa reiterated that the 100% attribution percentage does not allow for any position between 0 and 100%. Mr Geidans’ son Edgar does, it was submitted contribute, and this is supported by the e-mail referring to him incurring expenses. It was submitted that there should be some middle ground. In summary Mr Posa said there should be no attribution, but if there is to be an attribution this is a case where it would be reasonable to find a lesser % and it was submitted that 50 % would be appropriate.
REASONS FOR DECISION
29. The amendments to the Social Security Act 1991 made by the Social Security and Veterans’ Entitlement Legislation Amendment (Private Trusts and Companies - Integrity of Means Testing) Act 2000, marked a significant change in the treatment of an individual’s relationships to private companies and trusts for the purpose of calculating entitlement under the social security law. The government’s stated purpose was to base income support entitlements “…upon a person’s level of resources, not on the way he or she holds those resources.” This happens “…when a private trust or company is recognised as a designated private trust or company, the assets and income of these private trusts and companies may be attributed to a person who controls or who has contributed to these structures.” (Second Reading Speech Hansard/ Senate 3 October 2000, page 17711).
30. The first requirement is that the company is a ‘designated private company’ as defined under section 1207N of the Act. This is not in dispute and is supported by the evidence before the Tribunal. The income and assets from a ‘designated private company’ may be attributed to an individual, as an attributable stakeholder, if either the control or source tests set out in sections 1207Q(2) and (3) respectively of the Act are satisfied. If either or both of these tests are satisfied the company would be a controlled private company in relation to an individual, in this case the applicant.
31. There was some confusion as to whether the A class share had been transferred to Mr Geidans son Edgar, or his daughter Indra. This does not affect the outcome in regard to the control test. Mr Geidans satisfies the control test under section 1207Q of the Act as the aggregate of direct voting interests held by associates of Mr Geidans are 50% or more. It is not in dispute that the A class share is held by an immediate family member who is an ‘associate’ of Mr Geidans for the purposes of the Act. An ‘associate’ is defined as ‘a relative of the individual’, that is of Mr Geidans and includes children as in this case. (Sections 1207B(1) and 1207C(1)(e) of the Act).
32. Having found that the company is a ‘designated private company’ and that Mr Geidans passes the control test, it is also a ‘controlled private company’, and it follows that Mr Geidans is an ‘attributable stakeholder” with respects to the assets and income of the company (section 1207X(1)of the Act), unless the Secretary deems otherwise (section 1207X(1)(a) of the Act). In determining whether Mr Geidans is not an attributable stakeholder, or if he is an attributable stakeholder, whether his asset attribution is 100% or a lower percentage, the Secretary must comply with the Attribution Principles made pursuant to section 1209E of the Act. The Tribunal will ordinarily apply such policy in reviewing decisions, “…unless the policy is unlawful or unless its application tends to produce an unjust decision in the circumstances of the particular case.” ( Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634 at 645). No argument against the policy or its application in this case was put and there is in the Tribunal’s opinion no reason why the Attribution Principles should not be applied.
33. Part 2 of the Attribution Principles sets out the decision-making principles (”the principles”) that must be complied with when making a determination that an individual is not an attributable stakeholder of a company as in this case. (Principles 7 to 13). Principle 6 provides in particular that it must be considered whether the effect of one or more of the circumstances mentioned in relation to the individual and the company provides a sufficient basis on which to determine that the individual is not an attributable stakeholder of the company. It is not necessary for all the principles to be satisfied.
34. Principle 7 involves consideration of relevant circumstances that make it inappropriate for the individual to be an attributable stakeholder. Principle 7(2)(a) and (b) are not relevant as Mr Geidans no longer has any legal interest in the company, nor has there been any evidence put before the Tribunal as to administrative arrangements in relation to the company. Principle 7(2)(c) is relevant. It requires consideration of whether Mr Geidans can “…reasonably be expected to exercise effective control in relation to the company or trust.” Control is defined in section 1207A of the Act;
“Control includes control as a result of, or by any means of, trusts, agreements, arrangements, understandings and practice, whether or not having legal or equitable force and whether or not based on legal or equitable rights”.
35. The word ‘effective’ is not defined in the Act. The Macquarie Dictionary defines it as, “ serving to effect the purpose; producing the intended or expected result”.
36. The company has as its primary asset the property. This is no longer a working property. No one lives on the property apart from Mr Geidans. Mr Geidans has built his home on the property with his own funds. Any attempt to deal with the property, such as selling it or allowing any significant activity to be conducted on it would impact on Mr Geidans. An attempt to sell it without his agreement would most likely give rise to an equitable claim in terms of a constructive trust against the company. There is however no evidence that the directors would attempt to remove him, in fact the evidence supports the view that Mr Geidans is so confident of his security in his home and on the property that he has handed over all his shares in the company for minimal consideration. This supports in my view the conclusion that Mr Geidans retains effective control of the company as he lives, and for the foreseeable future can and will continue to live on the property. Any attempt to sell or otherwise deal with the property would effect him and most likely he could commence action that would effect those dealings. This in my opinion does equate with effective control of the property and so by extension the company. This effective control is furthered evidenced by the limited communication between Mr Geidans and his son, Edgar. The e-mail of 12 January 2002 includes the paragraphs;
“We enjoy certain privileges due to the age of the company, if I recall correctly. In the future we or I may wish to use the company in a more active manner and it would save establishing a company from the ground up. However……...if by keeping the company you will be jeopardising your pension and that if the company was liquidated you would receive your pension then the answer is clear! It must be dissolved. You should inform us if this is the case.”
37. The e-mail later refers to discussing this, amongst other things when Edgar is in Perth. This discussion never took place. This e-mail cannot in my opinion be interpreted in any other way than supporting the conclusion that Mr Geidans was then and in the absence of any communication with or evidence from Edgar since that time, is now in effective control. I do not accept that this is contradicted by or qualified by the letter that Mr Geidans was referred to in cross-examination and which he accepted was in substance correct. This was an excerpt from a letter Mr Geidans read at the Social Security Appeals Tribunal (T2/7 para 2). The letter was not made available to that Tribunal on the grounds it contained other personal information, nor was it tendered in evidence to this Tribunal. In the light of my comments about the e-mail dated 12 January 2002, I do not accept as has been submitted, that it can be given much weight and support a finding that Mr Geidans had relinquished control. Moreover given that Mr Geidans has no idea of his son’s location it is difficult to draw a conclusion that any one other than he could be in effective control of the property or responsible for it. Whilst the respondent has submitted that in fact it is Mr Geidans’ daughter Indra who now holds the A class share, Mr Geidans has consistently given evidence that he has relinquished control to Edgar and he deals with him and not Indra, although she is a co-director. This position is reflected in the e-mail of 12 January 2002 from Edgar that states, “I have copied this to Indra as Director of the company”.
38. In considering Principle 8 the Tribunal finds no evidence that anyone apart from Mr Geidans has made any financial contributions to the company. Edgar has made some contribution as a child, along with other family members including, Mr Geidans working on the property. It was submitted that the e-mail of 4 January 2002 from Edgar to Mr Geidans supported the view that Edgar contributes financially to the company. It reads;
“Regarding the “costs” associated with keeping the company active they are minimal and are for tax purposes treated as an “expense” to the company. I can, in the short term, cover the fees for accounting and company fees.”
39. Edgar as yet has not paid any of these costs and the e-mail indicates if he was to, it would be in the short term. There is no evidence that any one other than Mr Geidans has taken responsibility for costs associated with the company and the property it owns. Mr Geidans purchased the major asset of the company, the property and has received minimal consideration for it on divesting himself of his shares to Edgar.
40. No submissions were received as to past distributions by the company and as Mr Geidans is no longer a shareholder no future distributions can be expected. The T-documents contain a copy of the Financial Statements of the company for the year ended 30 June 2000 and record an outstanding loan in favour of Mr Geidans that he would appear to remain entitled to. (Principle 9 and 10).
41. Principle 11 concerns whether the individual receives or derives any kind of benefit other than those mentioned in Principle 9 and 10 form the assets and/ or income of the company. Benefit for the purpose of this principle is not limited to that related to a legal or equitable entitlement. As I have previously noted Mr Geidans lives on the property and it currently has unrestricted access to the property as no other activities are being carried on. There is no evidence that he pays any rent or makes any formal monetary contribution to the company for the use of the land on which his home is built or for use, or access to the property generally. I accept that his ability to enjoy the property has diminished with age but on the other hand he remains able to live in a rural setting which he has indicated is his preferred choice. There is nothing to suggest he will be forced to move other then due to his own deteriorating health or at a time of his choosing.
42. Principle 12 does not apply. There is no evidence that Mr Geidans is an attributable stakeholder under any other company or trust or under the Veterans’ Entitlements Act 1986.
43. Final consideration must be given to any other circumstances that affects the involvement of the individual with the activities or administration of the company. It has been submitted that Mr Geidans wishes and has divested himself of control of the company due to his age and health. At this time there is no evidence that his increasing age and declining health has changed his relationship to the company apart from him legally divesting himself of his shares as will be discussed more fully in paragraph 45.
44. Having considered the evidence in terms of the principles I am satisfied that there is not a sufficient basis to determine that Mr Geidans is not an attributable stakeholder of the company. The issue to be considered now is whether there is a sufficient basis to determine a percentage lower than 100% as the asset attribution percentage. Principles 16 to 22 are to be applied and are essentially identical to principles 7 to 13. The comments I have made there are also relevant here. Neither Mr Posa or Ms Hackney were aware of any determinations that had been made of an asset attribution of less than 100%. The only hypothetical example that was suggested was the possibility of a attribution of 50% each to a husband and wife.
45. Clearly it is envisaged under Part 3.18 of the Act that an asset attribution of less than 100% is possible. The intention of the legislation would however be easily defeated if, as in this case the divesting of the legal interest over a limited period with no other significant change in the individual’s relationship to the company occurring, or in the circumstances generally, was sufficient in itself. Mr Posa has submitted that Mr Geidans has done more than that. In addition to divesting himself of his shares, Mr Geidans due to his age, health and lack of interest is no longer able to run the company and in particular its asset the property, or even enjoy the benefit of the property. The Tribunal accepts that Mr Geidans has taken progressive steps to divest himself of legal control of the company. Notwithstanding this fact there is no evidence to show that the running of the company has been effectively transferred to anyone else, even if that is Mr Geidans’ desire. The Tribunal accepts that as outlined in the letter from his GP Mr Geidans has a number of health conditions which would render him unable to do physical work on the property. However the property is no longer a working farm and there is no evidence that Edgar himself undertakes any regular work on the property. Mr Geidans lives on the property and he alone has the ongoing benefit of it to the extent he can. In the absence of Edgar being contactable or his whereabouts even being known, it is difficult at this time to envisage decisions being made about the property by Edgar alone or even in conjunction with his father. The Tribunal has heard that Indra, Mr Geidans’ daughter is a co-director but there was no evidence that she played any role other than having mail for the company forwarded to her. For these reasons I can find no basis at this time to justify the asset attribution percentage at less than 100%.
46. In all the circumstances I am satisfied that the decisions under review should be affirmed.
I certify that the 46 preceding paragraphs are a true copy of the reasons for the decision herein of Ms L Savage Davis, Member
Signed: .............(sgd V Wong)....................................
AssociateDate/s of Hearing 2 July 2003
Date of Decision 8 August 2003
Counsel for the Applicant Mr M Posa
Solicitor for the Applicant Hoffmans Barristers & Solicitors
Counsel for the Respondent Ms K Hackney
Solicitor for the Respondent Service Recovery Team, Centrelink
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