Hoefl and Secretary, Department of Social Services (Social services second review)
[2022] AATA 2130
•30 June 2022
Hoefl and Secretary, Department of Social Services (Social services second review) [2022] AATA 2130 (30 June 2022)
Division:GENERAL DIVISION
File Number: 2021/7060
Re:Johann Hoefl
APPLICANT
AndSecretary, Department of Social Services
RESPONDENT
DECISION
Tribunal:Deputy President J Sosso
Date:30 June 2022
Place:Brisbane
The decision under review is affirmed.
..............[SGD]..........................................................
Deputy President J Sosso
CATCHWORDS
SOCIAL SECURITY — age pension — personal assets — trust — family companies — assets test — asset threshold — designated private companies — designated private trust — attribution of assets — source and control tests — what attribution percentage applies — whether Applicant is entitled to age pension based on assets and income — decision under review affirmed
LEGISLATION
Administrative Appeals Tribunal Act 1975 (Cth)
Corporations Act 2001 (Cth)
Social Security Act 1991 (Cth)
Social Security and Veterans’ Entitlements Legislation Amendment (Private Trust & Private Companies — Integrity of Means Testing) Act 2000 (Cth)
CASES
Drake v Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60
Hoefl and Secretary, Department of Social Services [2019] AATA 3758
Hoefl and Secretary, Department of Social Services [2020] AATA 4647
Rana v Military Rehabilitation and Compensation Commission [2011] FCAFC 80
Secretary, Department of Family and Community Services and Cocks (2002) 72 ALD 306
Taylor v Federal Commissioner for Taxation (1970) 119 CLR 444
SECONDARY MATERIALS
Department of Social Services, Social Security Guide
Social Security and Veterans' Entitlements Legislation Amendment (Private Trusts and Private Companies Integrity of Means Testing) Bill 2000 (Cth)
Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2017 (Cth)
Social Security (Attribution of Assets) Principles 2017
REASONS FOR DECISION
Deputy President J Sosso
30 June 2022
INTRODUCTION
This is the third occasion that this Tribunal has made a determination on whether Mr Johann Hoefl (the Applicant) is entitled to receive the Age Pension. The previous Tier 2 Tribunal determinations being Hoefl and Secretary, Department of Social Services [2019] AATA 3758 and Hoefl and Secretary, Department of Social Services [2020] AATA 4647. The Tribunal will make reference to various undisputed facts as set out in these decisions in the body of this Determination.
It is desirable to note at the outset that a person’s eligibility to be paid the Age Pension, and the rate of the pension, is determined by the income and assets attributed to a person, and, in this matter, the Applicant’s interest in private companies and a private trust. The rate of the Age Pension is calculated by the application of prescribed income and assets tests which are discussed below.
It is also important to note that the Tribunal is required to assess the Applicant’s eligibility to be paid the Age Pension as at the date of his application for the Age Pension which, in this matter, was 13 November 2019 – Exhibit 1 T5 pp. 113 – 123. Mr Summers, on behalf of the Secretary, Department of Social Services (the Respondent) submitted at the Hearing on 15 March 2022 that, when making its decision, the Tribunal is required to consider the factual matrix that existed at the time of the application for the Age Pension – Transcript (Tr.) 15.3.2022 pp. 20 – 21.
Clearly, the Tribunal can take into account material that is generated after that time, including testimony given at the Hearing, as well as other material that shines a light on factual matrix existing as at, in this matter, 13 November 2019. If, subsequent to 13 November 2019, events have occurred which, for example, impact on the principles underpinning the asset and income attribution principles, then the correct course for the Applicant to take is to the lodge a fresh application so that those supervening events can be properly taken into account.
The Applicant seeks review of a decision of the Social Services and Child Support Division of the Administrative Appeals Tribunal (AAT1) made on 15 September 2021, affirming a decision of Services Australia (the Agency) made on 14 October 2020, rejecting the Applicant’s claim for the Age Pension lodged on 13 November 2019 – Exhibit 1 T2 pp. 3 – 6.
The Applicant was born in Germany in July 1938 and is currently 83 years of age. His partner passed away in July 1990 and he is a widower, as well as being a homeowner. The Applicant commenced residing in Australia in November 1971 and has held Australian citizenship since December 1978 – Exhibit 1 T5 pp. 113 – 115.
The Applicant left Germany and commencing residing in Canada in May 1957 and, thereafter, resided in the United States from September 1962 until he migrated to Australia. As a result of those periods of residence, the Applicant receives an Age Pension from both Canada and the United States, albeit of relatively small amounts of money – Exhibit 1 T5 pp. 116, 120.
On 19 October 1977, the Chilcotin Trust (the Trust) commenced, and its trustee is Chilcotin Pty Ltd (Chilcotin) – [2019] AATA 3758 at [5].
On 12 July 1988, an irrevocable declaration was made by the Directors of Chilcotin in their capacity as Trustee of the Trust converting it from a discretionary to a fixed trust. It was provided that the capital, net income entitlement and distribution will be distributed within 6 months after the end of each financial year in equal shares among all living beneficiaries and all descendants of those persons – Exhibit 7 H6. The beneficiaries were stated to be the Applicant, Yueing L Hoefl and Andrea N B Hoefl. Yueing Hoefl was the Applicant’s wife and Andrea Hoefl is his daughter. Andrea Hoefl subsequently married, and her married name is Andrea Hoefl von Loehneysen. Andrea’s husband is Konrad von Loehneysen and she has four children: Isabella, Tao, Hugo and Oscar – [2019] AATA 3758 at [8].
Attention must also be directed to Gemeden Pty Ltd (Gemeden). Gemeden is a share trading and investment company, and its assets are owned by the Trust. Gemeden’s Directors as at 23 November 2016 were the Applicant, Andrea and Isabella. The Applicant was also the Secretary of Gemeden – Exhibit 10 ST9 p. 59.
Following the sale of a property in Bronte, New South Wales, in 2008, a capital gain of approximately $2.828 million was realised. This resulted in the Trust having net funds available for distribution as at 30 June 2008 of $2.1 million. Pursuant to the Trust Deed, each of the six beneficiaries had an equal claim to these funds, and a distribution in like terms was effected on 30 June 2008. The funds were deposited in six separate accounts with Gemeden – Exhibit 1 T2 pp. 9 – 10.
In 2002, following the sale of her property at Bondi Junction, Andrea transferred funds to Gemeden – [2020] AATA 4647 at [10].
The Applicant sold his 50% shareholding in Chilcotin (comprising one share) on 30 October 2019 for $25, which share was purchased by his son-in-law Konrad – Exhibit 10 ST9 pp. 146 – 149.
The Applicant was in receipt of the Age Pension from January 2003 until March 2008, when it was cancelled due to the value of his assets – Exhibit 1 T7 p. 127 para 5.
On 25 November 2016, the Applicant re-applied for the Age Pension. At that time, the allowable upper asset limit for a single homeowner was $209,000 for a full pension and $793,750 for a part pension – [2019] AATA 3758 at [28].
The Applicant’s claim was initially rejected by Centrelink due to the deemed value of his assets, which decision was affirmed firstly by an Authorised Review Officer (ARO) on 7 June 2018 and on review by AAT1 on 16 January 2019 – [2019] AATA 3758 at [4].
The Applicant sought a review by the Tribunal of this decision, and Member Ranson handed down his decision on 24 September 2019 which, as previously noted, is reported as [2019] AATA 3758.
Member Ranson set the reviewable decision aside and remitted it on the basis that the Applicant was to be attributed with 50% of the net assets of Gemeden and that, as at 25 November 2016, his assessable assets amounted to $738,095 – [2019] AATA 3758 at [75], Appendix A. Member Ranson made the following findings:
“72.The Applicant is convinced that he is entitled to an age pension from 25 November 2016. In his mind, the assets of Gemeden are unavailable to him, despite evidence to the contrary. In any event, the Social Security laws in Australia are clear. If an applicant for benefits has a connection to an entity, which has assets that could be used for their benefit, the Social Security laws can attribute those assets, or some part of them, to the applicant.
73.Gemeden has substantial assets acquired by means of loans from the Applicant and his family. Gemeden is owned and controlled by Chilcotin Pty Ltd as trustee for Chilcotin Trust, which in turn is owned and controlled by the Applicant and his daughter, with the Applicant as the primary controlling mind of the combined group. There is no legal impediment to the Applicant accessing at least some part the income and assets of the group even though it may not make economic sense to the beneficiaries of Chilcotin Trust to do so.
74.If the combined value of the personal and attributed assets of the Applicant exceeds the relevant upper threshold then an application for an age pension will not succeed.
75.The Tribunal finds the net assets of the Applicant as at 25 November 2016 including those of Gemeden attributed to him, to be $738,095 as set out in Appendix A. This calculation excludes the loans from Oscar and Hugo and notionally adjusts the balance of the ANZ Bank account to allow for the transfer of $75,000 from Gemeden on 29 November 2016 i.e. shortly after the Application was lodged.
76. The upper limit of the assets test as 25 November 2016 was $793,750. At the time of the Application, the Applicant's total assets attributed to him was less than this amount, noting the asset threshold then changed again on 1 January 2017.”
In accordance with the Tribunal’s Determination, Centrelink granted the Applicant an Age Pension from 25 November 2016, but cancelled it, with effect from 1 January 2017, as the value of his assets then exceeded the new lower assets limit threshold for a single homeowner of $542,500, which commenced from 1 January 2017 – Exhibit 10 ST3 p. 31.
As previously noted, on 30 October 2019, the Applicant sold his 50% shareholding in Gemeden to his son-in-law, Konrad.
Two weeks later, on 13 November 2019, the Applicant made a further claim for the Age Pension – [2020] AATA 4647 at [1]. At that time, the assets limit for a single homeowner was $263,250 for the full pension and $574,500 for a part pension – Exhibit 10 ST10 p. 187.
On 30 January 2020, Centrelink rejected the Applicant’s claim for the Age Pension on the basis that his total assets were $816,048.61 – Exhibit 10 ST5 p. 39. The Applicant sought review of this decision and, on 20 February 2020, an ARO delivered a detailed review decision which affirmed the initial Centrelink determination – Exhibit 10 ST6 pp. 41 – 47. The ARO made the following factual findings – Exhibit 10 ST6 pp. 43 – 44:
(a)Gemeden is 100% attributable to Chilcotin;
(b)Chilcotin is the trustee for the Trust;
(c)Chilcotin has two shares, held by Andrea and Konrad;
(d)the Trust owns and operates an investment business that trades as the Trust;
(e)the Trust is 50% attributed to the Applicant;
(f)the Applicant is a director of Chilcotin, Gemeden and the Trust;
(g)the Applicant is a beneficiary of the Trust;
(h)Gemeden had assessable assets at 13 November 2019 of $1,247,495;
(i)Gemeden had assessable income at 13 November 2019 of $88,149;
(j)the Applicant’s total assessable assets at 13 November 2019 were $816,048;
(k)the Applicant’s total assessable income at 13 November 2019 was $66,588.24;
(l)the allowable asset test limit for a single homeowner at 13 November 2019 was $785,000; and
(m)the allowable income test limit for a single pensioner at 13 November 2019 was $53,060.80 per annum.
A key feature of the ARO’s decision was to attribute 50% of Gemeden’s assets of $1,247,485 to the Applicant, namely, $623,742.50.
The ARO acknowledged that the Applicant had relinquished his shareholding in Chilcotin and had stated that he would not exert any control over, or benefit in any way from, Chilcotin, Gemeden and the Trust. However, the ARO then stated – Exhibit 1 T31 p. 44 – 45:
“…you have not resigned as a director for either Chilcotin Pty Ltd or Gemeden Pty Ltd. You also continue to be a beneficiary of Chilcotin Trust.
Where a person or their partner continues to exert control over, or receive a benefit from, a private trust or private company it will not be accepted that control has been relinquished. As you have not relinquished your directorship from Chilcotin Pty Ltd or Gemeden Pty Ltd or all beneficial interest from Chilcotin Trust the original decision to attribute 50% of these 2 companies and the trust to you remains in place.
…
I acknowledge that you have since sold your 1 share in Chilcotin Pty Ltd. Although you have sold your 1 share in Chilcotin Pty Ltd, on the weight of the evidence I still find you are the controller of Chilcotin Trust, Chilcotin Pty Ltd and Gemeden Pty Ltd. This decision is based on there being no genuine resignation from these 3 entities…
Therefore, 50% of the attributable assets and income for Chilcotin Pty Ltd, Chilcotin Trust or Gemeden Pty Ltd are still attributed to you.”
The Applicant sought review of this decision by AAT1. On 1 May 2020, Member Foster set aside the ARO decision on the basis that the Applicant’s eligibility for the Age Pension be reassessed on the basis that he was to be attributed with 33.33% of the income and assets of Gemeden, Chilcotin and the Trust – Exhibit 1 T7 pp. 126 – 136.
Member Foster made the following findings – Exhibit 1 T7 pp. 129 – 135:
(a)Chilcotin and Gemeden are designated private companies under s 1207N of the Social Security Act 1991 (Cth) (the Act) and the Trust is a designated private trust under s 1207P of the Act;
(b)Chilcotin and Gemeden are controlled private companies under s 1207Q of the Act and the Trust is a controlled private trust under s 1207V of the Act;
(c)the Applicant is an attributable stakeholder of Gemeden, Chilcotin and the Trust under s 1207X of the Act; and
(d)the Applicant has an income attribution percentage and asset attribution percentage of 33.33% in relation to Gemeden, Chilcotin and the Trust as at 13 November 2019.
In determining to attribute the Applicant with 33.33% of the income and assets of Gemeden, Chilcotin and the Trust, Member Foster provided the following reasons – Exhibit 1 T7 p. 136 para 38:
“Having considered the Principles, the tribunal is satisfied that Mr Hoefl possesses and exercises significant control over Gemeden, Chilcotin and the Trust and that it is appropriate under section 1207X of the Act to attribute him with the income and assets of those entities at a percentage equivalent to his level of overall control. As Mr Hoefl is one of the three directors of Gemeden and Chilcotin (with the latter entity also being the trustee of the Trust) the tribunal considers that Mr Hoefl should be taken to have one-third of the overall control of those entities. As such, in accordance with the discretion in section 1207X, the tribunal determines that Mr Hoefl has an income attribution percentage and asset attribution percentage of 33.33% in relation to Gemeden, Chilcotin and the Trust.”
The Agency reassessed the Applicant’s eligibility for the Age Pension in accordance with the determination of Member Foster and, on 14 October 2020, rejected the Applicant’s claim on the basis that his total assets of $608,391.19 exceeded the allowed assets limit threshold, which, at that time, was $574,500 – Exhibit 10 ST8 pp. 55 – 56.
In the meantime, the Applicant sought review of Member Foster’s decision – Exhibit 10 ST7 pp. 53 – 54.
On 19 November 2020, Deputy President Molloy affirmed the reviewable decision – [2020] AATA 4647. Deputy President Molloy made the following finding in respect of the percentage attribution:
“54. The question then is the attribution percentages that should be assigned to Mr Hoefl under section 1207X of the Act. In the previous decision it was determined that Mr Hoefl should be attributed with 33.33% of the income and assets of Gemeden, Chilcotin and the Trust as at 13 November 2019, the date he claimed aged pension. I have taken into account Mr Hoefl's submissions and that he should be attributed in respect of each entity an attribution percentage of zero or, at most in respect of the Trust 16.67%, bearing in mind he is one of six equally ranking beneficiaries.
55.I have considered the Principles, and I am satisfied that Mr Hoefl possesses and exercises significant control over Gemeden, Chilcotin and the Trust. It was previously decided that he should be attributed with the income and assets of those entities at a percentage equivalent of what was perceived to be his level of overall control. Taking the Principles into account, and without ignoring Mr Hoefl's submissions, I have come to the same decision as the previous Tribunal, that is, that Mr Hoefl has an income attribution percentage and asset attribution percentage of 33.33% in relation to Gemeden, Chilcotin and the Trust.”
On 8 January 2021, the Agency wrote to the Applicant reconfirming its 14 October 2020 rejection decision – Exhibit 1 T15 p. 271.
As previously noted, the Applicant sought a review of this decision. On 2 June 2021, the ARO wrote to the Applicant informing him that she had affirmed the decision of 8 January 2021 – Exhibit 1 T10 pp. 157 – 164. The ARO provided the following reasons for her decision – Exhibit 1 T10 pp. 159 – 160:
“Based on the information you provided, your grandchildren Oscar and Hugo were both born in February 2003. You advised that the Chilcotin Trust sold its assets in 2008 and paid distributions to 6 beneficiaries, which included Oscar and Hugo. Each of the beneficiaries received approximately $350,000 each. You told me that the distributed amounts to Oscar and Hugo were loaned to Gemedin Pty Ltd as authorised by their mother. You told me that because the mother of Oscar and Hugo authorised to loan her sons distributions from the trust to Gemedin Pty Ltd, then their mother is in effect the one that loaned the money to Gemedin Pty Ltd and can sign the loan acknowledgement form so the loans can be recognised in determining the assets of Gemedin Pty Ltd. You also told me that the distributions paid to Oscar and Hugo in 2008 were intended for their exclusive benefit.
…
Both Oscar and Hugo are beneficiaries of the Chilcotin Trust and they have absolute entitlements to distributions. This means that both Oscar and Hugo had absolute entitlements to the distributions paid to them in 2008. Thus, the loans made to Gemedin Pty Ltd were loans made by Oscar and Hugo and not by their mother, who is the signatory for them as they were minors.
The Social Security Guide states that loans from minors (under 18 years of age) are not accepted as liabilities of a company. This means that the loans from Oscar and Hugo totalling $630,264 were not allowed to reduce the assets of Gemedin Pty Ltd.
…
The value of the net assets of Gemedin Pty Ltd was $1,266,489 based on the total assets of $1,681,492 and recognised liabilities of $415,003.
The attributed assets to you from Chilcotin Pty Ltd, Gemedin Pty Ltd and Chilcotin Trust based on the 33.33% attribution were valued at $415,790.
Services Australia assessed your total assets of $608,391 from 13 November 2019, when you submitted your claim…
As your assets totalling $608,391 are above the qualifying pension assets test limit of $574,500 for a single person who is a homeowner, I have found the decision to reject your claim for Age Pension was correct.
For your information, as Oscar and Hugo have turned 18 years old, they can sign loan acknowledgment forms to confirm the loan existence for their loans to Gemedin Pty Ltd to be recognised. However, you are required to submit a new claim for Age Pension to test your eligibility and provide their loan acknowledgement forms.”
[the ARO spelt “Gemeden” as “Gemedin” in the above quote]
The Applicant sought review of this decision, and on 15 September 2021, Member Bakas affirmed the reviewable decision – Exhibit 1 T2 pp. 3 – 6. In reaching this conclusion, Member Bakas found that the loans from Hugo and Oscar to Gemeden could not be recognised in determining the assets of the company because Hugo and Oscar were under 18 years of age at the time of the loans – Exhibit 1 T2 p. 6 para 19.
APPLICANT’S CONTENTIONS
The Applicant, in his Statement of Issues, Facts and Contentions (Exhibit 3) dated 20 January 2021, makes the following contentions:
“1.The Applicant contends that he cannot ‘reasonably be expected to exercise effective control’ in the entities when Andrea and Konrad have ultimate control and clearly intent on exercising it…
2.The Applicant contends that attribution to the directors of the entities or to the owners of the Trustee company would be ‘inappropriate’ because distribution to them is impossible…
3.The applicant contends that $630,264 of the $1,247,495 assessed by Centrelink can never be distributed by Gemeden in a dividend payment to Chilcotin or in any other way, being a debt owing to Andrea and Konrad. The $630,264 thus cannot be attributed to Chilcotin…
4.The Applicant contends that ‘the reality is that there will be no trust distribution for years… not even 10 cents’…
5.The Applicant contends that the AAT1 (Member N Foster) deliberately ignored material facts and issues, in breach of the AAT Act 1975… AAT1 Member J Bakas and ARO Myla deliberately ignore the 2019 Loan Agreement… Instead they create the fiction of the 2008 ‘loans’ and property transfers… and ignore the Grounds for Appeal… AAT2 Deputy President I R Molloy ignores not only Fact 3. He also ignores the highly relevant evidence in T8 page 147 paragraph 46.”
THE HEARING
A Hearing was convened in Brisbane on 15 March 2022.
The Applicant appeared in person and was self-represented. The Respondent was represented by Mr Andrew Summers who participated remotely.
Neither the Applicant nor Mr Summers called any witnesses.
Leave was given to the parties to provide to the Tribunal written closing submissions. Both parties availed themselves of this opportunity, with the Respondent providing written closing submissions on 22 March 2022, and the Applicant providing written closing submissions on 27 March 2022.
THE LAW
Introduction
Commencing on 1 January 2002, Part 3.18 of the Act provides for a system for the attribution to individuals of the assets and incomes of private companies and private trusts – ss 1207Y and 1208E.
In Secretary, Department of Family and Community Services and Cocks (2002) 72 ALD 306, the Tribunal provided the following background to the new social security attribution regime:
“63. The Social Security and Veterans’ Entitlements Legislation Amendment (Private Trust & Private Companies — Integrity of Means Testing) Act 2000 (Cth) (the Amending Act) represents a significant policy change by the Federal Government regarding the assets and income of welfare recipients. By attributing assets and income to persons who benefit from trusts and companies, it is the stated intention of government that ‘income support entitlements are based on a persons level of resources not on the way in which he/she holds those resources’: refer Second Reading Speech, Hansard, House of Representatives, 17 August 2000, p 19,226.
64. Additionally ‘the fundamental change being proposed under this measure is that when a private trust or private company is recognised as a designated private trust or company the assets and income of these private trusts and private companies may be attributed to a person who controls or has contributed to these structures’: refer Second Reading Speech, Hansard, Senate, 3 October 2000, p 17,711.”
For an asset or income to be attributed to a person:
(a)the company or trust must be a designated private company or designated private trust – ss 1207N and 1207P;
(b)the company or trust must be a controlled private company or controlled private trust in relation to the individual – ss 1207Q and 1207V; and
(c)the person must be an attributable stakeholder of the company or trust – s 1207X.
Designated private company or designated private trust
The first issues to be addressed are as follows:
(a)are Gemeden and Chilcotin designated private companies; and
(b)is the Trust a designated private trust?
Designated private companies and designated private trusts are, by the terms of Part 3.18, small to medium sized entities. The prescribed revenue and assets of these entities, which is set out below, exclude those companies and trusts with very large revenue and assets.
Turning first to the question of designated private companies, reference must be given to s 1207N(1) of the Act which provides that an entity is a designated private company 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 revenue for the financial year of the company and its subsidiaries is less than $25 million, or any other amount prescribed by regulations made for the purposes of paragraph 45A(2)(a) of the Corporations Act 2001;
(ii)the value of the consolidated gross assets at the end of the financial year of the company and its subsidiaries is less than $12.5 million, or any other amount prescribed by regulations made for the purposes of paragraph 45A(2)(b) of the Corporations Act 2001;
(iii)the company and its subsidiaries have fewer than 50, or any other number prescribed by regulations made for the purposes of paragraph 45A(2)(c) of the Corporations Act 2001 , 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)).”
The undisputed evidence before the Tribunal is that neither Gemeden nor Chilcotin has consolidated revenue in excess of $25 million, assets greater than $12.5 million, or greater than 50 employees, and are, therefore, designated private companies. This finding is also consistent with the two earlier Tribunal decisions – [2019] AATA 3758 at [45] – [46], [2020] AATA 4647 at [21].
Turning next to the requirements of s 1207P, with respect to a designated private trust, the following statutory requirements are relevant:
“(1) For the purposes of this Part, a trust is a designated private trust unless:
(a) all of the following conditions are satisfied:
(i) the trust is a fixed trust;
(ii) the units in the trust are held by 50 or more persons;
(iii) the trust was not created, continued in existence or operated under a scheme that was entered into or carried out for the sole or dominant purpose of enabling any individual or individuals to avoid the application of this Part and/or Division 11A of Part IIIB of the Veterans' Entitlements Act; or
(b) the trust is a complying superannuation fund (see subsection (3)); or
(c) the trust is an excluded trust (see subsection (4)).
(2)For the purposes of subparagraph (1)(a)(ii), an individual and his or her associates are taken to be one person.”
It is clear in this matter that the Trust was not held by more than 50 or more persons and, as such, the Trust is a designated private trust.
Controlled private company or controlled private trust
The next issue is whether the companies or Trust are controlled companies or a controlled private trust.
First, attention must be directed towards s 1207Q which deals with controlled private companies. The relevant provisions are set out below:
“(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.”
The term “control” is defined in s 1207A of the Act to include:
“control as a result of, or by means of, trusts, agreements, arrangements, understandings and practices, whether or not having legal or equitable force and whether or not based on legal or equitable rights.”
Section 1207C gives an expanded definition of who constitutes an “associate” for the purpose of the control test. In particular, s 1207C(1)(e) provides that an associate of an individual is a relative. In turn, pursuant to s 1207B, “relative” includes a lineal descendant and a spouse of a lineal descendent.
Further, s 1207C(l) provides that an associate includes:
“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.”
Subparagraph 1207C(l), therefore, deems that a company whose majority voting interest is held by an associate or associates of a person is an associate of that person.
At the time of the application, the Applicant was both a Director and Secretary of Gemeden, as well as being a Director of Chilcotin. His daughter, Andrea, and son-in-law, Konrad, were the other Directors of Gemeden and Chilcotin.
Accordingly, all the shares of Chilcotin are held by associates of the Applicant as per the expanded definition of that term in s 1207C(1)(e) and (l).
It will be recalled that Chilcotin is the sole shareholder, and thus, owner, of Gemeden. It will also be recalled that the Applicant sold his 50% shareholding in Chilcotin to his son-in-law Konrad and, since October 2019, Andrea and Konrad each hold 50% of Chilcotin’s shares.
It follows, then, in relation to the Applicant, Gemeden is a controlled private company.
Likewise, as Andrea and Konrad hold 100% of the shares of Chilcotin and are also Directors of the company, it follows that Chilcotin is a controlled private company.
Attention must now be directed to the Trust, and the operation of s 1207V of the Act. Subsection 1207V(1) provides that a trust is a controlled private trust in relation to an individual, if it is a designated private trust and passes either the control test or the source test. The control test is prescribed by s 1207V(2) and the relevant paragraph is set out below:
“(2) For the purposes of this section, the individual passes the control test in relation to a trust if:
(a) the individual, or an associate of the individual (other than an associate covered by paragraph 1207C(1)(j)), is the trustee, or any of the trustees, of the trust…”
The Trust, for all intents and purposes, is controlled by its trustee, Chilcotin.
To sum up, Chilcotin is the trustee of the Trust, and Chilcotin is an associate (as defined) of the Applicant. Accordingly, the Applicant passes the control test in relation to the Trust pursuant to s 1207V(2).
Attributable stakeholder
The next issue is whether the Applicant is an attributable stakeholder of the companies and/or the Trust of a controlled private company or controlled private trust.
In addressing this question, attention must be directed to s 1207X.
First, with respect to the question of being an attributable stakeholder of a controlled private company, subsection 1207X(1) provides, so far as is relevant, as follows:
“(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…”
Subsection 1207X(1) goes on to provide in subparagraphs (b) and (c) that an attributable stakeholder’s individual asset and income attribution percentage in relation to the company is 100%, unless the Secretary determines a lower percentage.
Second, pursuant to s 1207X(2), if a trust is a controlled private trust in relation to an individual and is not a concessional primary production trust, then the individual is an attributable stakeholder of the trust unless the Secretary otherwise determines and, further, the asset and income attribution percentage in relation to the trust is 100% unless the Secretary determines a lower percentage.
When making a determination under s 1207X, a decision-maker is required to comply with any relevant decision-making principles – s 1270X(5). Of relevance, in this regard, are the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2017 (Cth) (the Principles).
Section 4 of the Principles set out its purpose as follows:
“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 2 of the Principles contains provisions that assist in determining if an individual is not an attributable stakeholder.
Part 3 of the Principles contains provisions to assist in determining an asset attribution percentage and Part 4 for income attribution percentage.
Attention will only be given at this time to the first issue, namely, whether the Applicant is not an attributable stakeholder of the companies and Trust. It will be seen from the clear wording of s 1207X that, prima facie, the Applicant is an attributable stakeholder.
It will be noted that although Parts 2, 3 and 4 relate to different issues, each is drafted in the same manner. In short, the circumstances that a decision-maker is required to take into account is, for all intents and purposes, the same for each separate question.
Set out below are the circumstances that are required to be taken into account in determining if an individual is not an attributable stakeholder:
“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.
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.
(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.
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.”
The starting point is to note that s 1207X provides that if a private company or trust is a controlled entity in relation to an individual, then that individual is an attributable stakeholder of the company or trust, unless otherwise determined. In short, s 1207X proceeds on the assumption that unless there is some reason to otherwise determine, an individual in the above circumstances is an attributable stakeholder.
Further, s 6(3) of the Principles provides that a decision maker must consider whether the effect of one or more of the circumstances mentioned provides a sufficient basis on which to determine that an individual is not an attributable stakeholder for the relevant entities.
Having carefully considered the above provisions of the Principles, the Tribunal cannot ascertain any reason for determining that the Applicant is not an attributable stakeholder of Gemeden, Chilcotin and the Trust. The undisputed evidence is that the Applicant is a Director and Secretary of Gemeden, a Director of Chilcotin, and a beneficiary of the Trust. Further, the Applicant is the only office holder who resides in Australia, with his daughter, son-in-law, and grandchildren living in Europe. As a consequence of this, it is the Applicant who attends to the practical day-to-day affairs of all three entities. The fact that the Applicant has personally been involved in six separate Tribunal hearings over a three year period is testament to his active involvement in the affairs of these entities.
Previously, the Applicant received remuneration from Gemeden and received distributions from the Trust.
In previous Tribunal proceedings, the Applicant acknowledged that he had “a strong influence on board decisions” and, in relation to Gemeden, “might be even called the ‘primary controlling mind’ of the structure’” – [2020] AATA 4647 at [51].
The Tribunal notes that the Applicant sold his 50% shareholding in Chilcotin to Konrad prior to the current application for the Age Pension.
The Applicant contended in his Closing Submissions, which were emailed on 27 March 2022:
“3.Deputy President Molloy does not take into account what AAT2 Member Ranson says: Ultimate control of the boards lies with the Owners of Chilcotin who are Andrea and Konrad. Since 1 November 2019 they also hold 2 of 3 board seats.
4.In these circumstances Deputy President Molloy was bound to conclude that I could not and cannot force a dividend payment out of Gemeden to the Trust, that there cannot be a distribution by the Trust, that could benefit me. This makes me a non-attributable Stakeholder per Part 2, section 6(3) and 10.”
The Tribunal accepts that, on paper, the Applicant could not force a dividend payment by Gemeden to the Trust. However, when determining if a person is an attributable stakeholder, the Principles require a decision-maker to go behind the corporate and trust structures that are in place, and look at the actuality of the operations, and control, of the entities.
In previous decisions of the Tribunal, the Members have closely analysed the interaction between the Applicant and the entities. In this regard, reference can be made to the detailed and closely reasoned decision of Member Foster of 1 May 2020 – Exhibit 1 T7 pp. 126 – 136.
Member Foster, when considering whether the Applicant was an attributable stakeholder of the entities, outlined the relevant sections of the Principles and made findings based on the evidence before the Tribunal at that time. Subject to what is detailed below, basically the same factual matrix is before this Tribunal.
I adopt, for the purposes of this Determination, the findings of Member Foster set out in paras 20 – 33 of his Determination – Exhibit 1 T7 pp. 131 – 135.
Suffice it to say, Member Foster’s findings undercut the submissions of the Applicant, as Member Foster points out that, in reality, the Applicant makes investment decisions for Gemeden with the assistance of the company’s stockbrokers, Morgans. Further, the Applicant discusses the decisions with his daughter and son-in-law who reside in Germany. In short, even though on paper the Applicant may not have a controlling interest in Gemeden, by reason of location, intellect and force of character, the Applicant is able to exert control in a manner which is not reflected in the paper constructs of the entities in general, and Gemeden, in particular.
I do not consider that the effect of one or more of the circumstances mentioned in Part 2 of the Principles in relation to the Applicant and the three entities, provides any reasonable basis for determining that he is not an attributable stakeholder in relation to each of the entities.
Having regard to the extensive evidence of the Applicant’s involvement with, and influence over, each of the entities over an extended period of time, the Tribunal finds that the Applicant is an attributable stakeholder of Gemeden, Chilcotin and the Trust.
Having made the above findings, it is now necessary to proceed to the final question, namely, whether to exercise the discretion to fix an asset and income attribution percentage of less than 100%, and, if so, what lower percentage.
CONSIDERATION
At the outset, the Respondent contends that the Tribunal should exercise its discretion under s 33(1)(a) of the Administrative Appeals Tribunal Act 1975 (Cth) and refuse to allow the Applicant to relitigate matters previously decided by the Tribunal – Exhibit 2 p. 1 para 2.
The Respondent points out that the Tribunal has already exercised its decision-making jurisdiction in relation to the attribution percentages to be assigned to the Applicant in respect of his 13 November 2019 claim for the Age Pension. It is contended that the Tribunal ought to exercise its discretion and find that the attribution percentages, as at 13 November 2019, have been finally decided by the Tribunal, and it has exhausted its decision-making jurisdiction in relation to those matters, and that those matters should not be the subject of further submissions or evidence in these proceedings – Exhibit 2 p. 5 paras 33, 36.
The Respondent referred the Tribunal to a number of Federal Court judgements and Tribunal determinations, including the following observations of the Full Federal Court in Rana v Military Rehabilitation and Compensation Commission [2011] FCAFC 80 at [27]:
“In discharging those tasks, in an appropriate case, the Tribunal may have regard to findings of fact made between the same parties in earlier proceedings before the same or a differently constituted Tribunal. Although a Tribunal may not be bound to make the same findings of fact, findings previously made – especially after a contested hearing – may appropriately be adopted in subsequent proceedings. Its freedom to do so may well depend upon the facts and circumstances of each individual case. There must be a limit to the ability of a disappointed party repeatedly to revisit findings once made.”
There is considerable force in the submissions of the Respondent. The Applicant has sought to relitigate the same matters on a regular basis. He also has sought to impugn the integrity and competence of those Tribunal Members who have not accepted his submissions. At the Hearing, he tried to impugn the honesty and integrity of at least two of my colleagues. His attempts to vilify those who do not accept his version of the facts and law not only does not advance his cause, but also calls into question his motives in engaging in what amounts to a campaign of repetition and attrition.
In the interests of fairness, and to ensure that there is no suggestion that this Tribunal has failed to consider all of the material presented, and to give it due weight, the Tribunal will not exercise its discretion pursuant to s 33(1)(a) of the Administrative Appeals Tribunal Act 1975 (Cth). However, if the Tribunal is of the same opinion as either Member Ranson or Deputy President Molloy, it will, where appropriate, accept and adopt their reasonings and findings.
Having considered all of the material before the Tribunal, and, in particular, those matters ventilated at the Hearing, there is, prima facie, no good reason for disturbing the following findings of Deputy President Molloy – [2020] AATA 4647:
“54. The question then is the attribution percentages that should be assigned to Mr Hoefl under section 1207X of the Act. In the previous decision it was determined that Mr Hoefl should be attributed with 33.33% of the income and assets of Gemeden, Chilcotin and the Trust as at 13 November 2019, the date he claimed aged pension. I have taken into account Mr Hoefl's submissions and that he should be attributed in respect of each entity an attribution percentage of zero or, at most in respect of the Trust 16.67%, bearing in mind he is one of six equally ranking beneficiaries.
55.I have considered the Principles, and I am satisfied that Mr Hoefl possesses and exercises significant control over Gemeden, Chilcotin and the Trust. It was previously decided that he should be attributed with the income and assets of those entities at a percentage equivalent of what was perceived to be his level of overall control. Taking the Principles into account, and without ignoring Mr Hoefl's submissions, I have come to the same decision as the previous Tribunal, that is, that Mr Hoefl has an income attribution percentage and asset attribution percentage of 33.33% in relation to Gemeden, Chilcotin and the Trust.”
However, it was the case at AAT1 that the focus of the Applicant’s submissions was the manner in which Centrelink treated a loan from Oscar and Hugo to Gemeden who, it will be recalled, are both beneficiaries of the Trust – Exhibit 1 T2 p. 5 para 11.
In addition, the Applicant also pressed the point at the Hearing that neither Member Ranson nor Deputy President Molloy gave consideration to the 1988 Trust Declaration which requires equal distributions to the beneficiaries of the Trust – Exhibit 10 ST1 p. 1.
These oral submissions are, by their nature, supplementary to the contentions raised by the Applicant at AAT1.
Finally, the Applicant also raised the significance of a signed statement of Andrea and Konrad of 10 January 2022 which is set out below – Exhibit 7 H1:
“1. We are the ultimate controllers of Chilcotin Pty Ltd, which is the Trustee of Chilcotin Trust.
2 We have no intention of dissolving the Chilcotin Trust before the year 2057.
3We shall allow no dividend payment by Gemeden Pty Ltd (the Trust’s 100% owned subsidiary) or return capital to its owner, as it is undercapitalized, which restricts growth and long term viability.
4We shall not allow anyone to influence us to act against the interests of Gemeden Pty Ltd, the Trust or the beneficiaries of the Trust.
5Payment of dividends and distribution by the entities would be financially detrimental to 5 of the 6 Trust beneficiaries.
6We shall not allow the entities to lend money to anyone not meeting certain qualifying criteria. Due to his advanced age, Johann Hoefl is not qualified to borrow from either Gemeden Pty Ltd nor Chilcotin Trust.
7We shall ensure that the entities act strictly in accord with the Trust Deed as amended.”
Before turning to these issues, it is appropriate to set out some principles of law and policy which underpin the exercise of a decision-maker’s discretion when determining attribution percentages.
The task of the Tribunal is much restricted by the deeming operation of Part 3.18 of the Act. It is tolerably clear that the Parliament took a robust and practical approach when it enacted Part 3.18. It was designed to minimise the potential operation of legal fictions that often underpin trust and company law and shine a bright light on the reality of what underlies the corporate and trust governance before a decision-maker. In short, when determining if an individual(s) who has (have) had the great advantage of being a beneficiary of complicated company and trust structures, which most persons do not, the task of a decision-maker is to go beyond the legal forms, and to make a determination on what appears, from the evidence, to be the reality of the operation and control of the relevant entities.
When the legislation enacting Part 3.18 was introduced, the following explanation was given – Social Security and Veterans' Entitlements Legislation Amendment (Private Trusts and Private Companies Integrity of Means Testing) Bill 2000 (Cth):
“This measure employs specially designed tests to ‘look through’ interposed structures to identify who controls a particular structure and who is the source of the structure’s assets. These complementary tests – the ‘source’ and ‘control’ tests – will enable ownership of the assets and/or income of a private trust or private company to be attributed to appropriate individuals for the purposes of the means test.”
Attention can also be given to the guidance provided in the Social Security Guide (the Guide), which outlines government policy. Whilst the provisions in the Guide do not bind the Tribunal, they provide some helpful guidance. Paragraph 4.12.2.10 provides the following guidance on attribution percentages to be given when there are multiple stakeholders of a company and/or trust:
“When determining the attribution percentage to an individual/s of a controlled private trust or controlled private company the assessor should also have regard to the following:
If the individual/s is/are….
Then….
a sole attributable stakeholder of a controlled private company or controlled private trust (other than a concessional primary production trust),
attribute 100% of the assets AND income of the structure to the sole attributable stakeholder.
members of a couple who are the ONLY attributable stakeholders of a controlled private company or a controlled private trust (other than a concessional primary production trust),
attribute 100% of the assets AND income of the structure to the couple (in the percentage determined by the level of control exhibited by each member of the couple).
multiple stakeholders of a controlled private company or a controlled private trust (other than a concessional primary production trust),
attribute the assets AND income of the structure to the stakeholders in the percentage determined by the level of control exhibited by the individuals.
Example: 2 persons with control powers = 50% each
3 persons with control powers = 33.33% each. (Although unusual the percentage need not be an equal amount, e.g. 60/40%).
First, as previously explained, Deputy President Molloy, after considering the evidence before him, attributed to the Applicant, an income and asset attribution percentage of 33.33%. In his Closing Submissions, the Applicant made the following contention:
“5.The AAT2 and AAT1 decisions do not take into account the Declaration dated 12 July 1988, which limits all Trust distributions to the beneficiaries in equal shares meaning that distribution (and attribution) to me as a beneficiary cannot exceed 16.66% and must be 0% to any non-beneficiaries, such as the 3 directors.”
The Applicant made the same submission at the Hearing – Tr. 15.3.2022 pp. 7 – 9. Mr Summers drew the Tribunal’s attention to various extracts from the decisions of Member Ranson and Deputy President Molloy which demonstrated that those Members did, in fact, take into account the 1988 Trust Declaration – Tr. 15.3.2022 pp. 15 – 17. Further, in the Respondent’s Closing Submissions, the Tribunal’s attention was, again, drawn to [2020] AATA 4647 at [46] – [47] and [55] which demonstrate that, in fact, Deputy President Molloy did take the 1988 Trust Declaration into account. Further, the Tribunal’s attention was drawn to the following paragraphs of Member Ranson’s decision – [2019] AATA 3758 at [48], [54]. Again, a reading of those paragraphs discloses that Member Ranson properly took into account the 1988 Trust Declaration. In short, there is no cogent basis for impugning the reasoning of either Member Ranson or Deputy President Molloy based on a suggestion that they omitted to take into account the 1988 Trust Declaration.
Second, consideration needs to be given to the 10 January 2022 document set out above. During the Hearing, the following exchange occurred between the Tribunal and the Applicant – Tr. 15.3.2022 pp. 26 – 28:
“DEPUTY PRESIDENT: Well, let me just ask you a couple of questions, Mr Hoefl. Since the – (indistinct) make sure I get the correct date here. Since 13 November 2019, has there been any change in the directorship or secretary status, firstly, of Chilcotin Pty Ltd?
MR HOEFL: No.
DEPUTY PRESIDENT: Okay. Do you remain a company secretary or director of Chilcotin Pty Ltd?
MR HOEFL: I am.
DEPUTY PRESIDENT: Has there been any change to the directorship and/or secretarial status of Gemeden Pty Ltd since 13 November 2019?
MR HOEFL: No.
DEPUTY PRESIDENT: Do you remain a director of that company?
MR HOEFL: Yes.
DEPUTY PRESIDENT: Are you still a secretary of that company?
MR HOEFL: Yes.
DEPUTY PRESIDENT: Okay. Has there been any change to the shareholding of Chilcotin since 13 November 2019?
MR HOEFL: No.
DEPUTY PRESIDENT: Has there been any change to the shareholding of Gemeden since 13 November 2019?
MR HOEFL: No.
DEPUTY PRESIDENT: Has there been any change to the Chilcotin Trust since 13 November 2019?
MR HOEFL: There has been another declaration, which is – you’ll find in H8.
DEPUTY PRESIDENT: Sorry, what page?
MR HOEFL: H8.
DEPUTY PRESIDENT: H8.
MR HOEFL: Basically extending the trust from 2030 to 2057.
DEPUTY PRESIDENT: Yes. I think I – – –
MR HOEFL: Well, hang on. That was on 10 August 2019.
DEPUTY PRESIDENT: Yes.
MR HOEFL: So that – no. The answer is no, there hasn’t been any change.
DEPUTY PRESIDENT: Any change to the trust. Okay. So can you assist me then with the document dated 10 January 2022? What do you understand – signed by your daughter and son-in-law. What do you understand that – the effect of that document to be?
MR HOEFL: Their intentions on how they intend to run the company.
DEPUTY PRESIDENT: And does the way they intend the company, is it any different than how it’s currently run?
MR HOEFL: No, this is how currently – – –
DEPUTY PRESIDENT: Okay. So this document doesn’t change anything. It simply clarifies how it’s being run.
MR HOEFL: Yes.
DEPUTY PRESIDENT: Is that a fair statement?
MR HOEFL: Yes.
DEPUTY PRESIDENT: Okay.
MR HOEFL: It would have been signed two years earlier.
DEPUTY PRESIDENT: Of course. So what you’re telling me is that in the two years and four/five months since 13 November 2019, from a factual point of view, nothing has changed so far as the trust and the two companies are concerned?
MR HOEFL: I don’t know. You tell me. As far as I can see, I – you know?
DEPUTY PRESIDENT: Because I think your case, Mr Hoefl, is that – for whatever reason, when the matter was heard by Mr Foster at first, and then Molloy DP on review, that, for whatever reason, they either didn’t take into account matters they should have, or they took them into account and made an incorrect decision.
MR HOEFL: That’s correct.
DEPUTY PRESIDENT: But, apart from that, nothing has changed since either Mr Foster or Molloy DP had made their decisions. You are of the view that incorrect decisions were made for various reasons, either not taking into account relevant considerations or misinterpreting the facts or the law, and that’s why you’ve sought a further review. Is that a fair summary, or have I got it wrong?
MR HOEFL: That is correct. Yes, I think that those two gentlemen basically did not do their job properly. I think it was improper for them to totally disregard these two documents, namely, H3, H4, and H5. It was outrageous, and when I got their response to it, I must say, I got very sick from it. I spent a week not sleeping over this stuff. These people are crooks, and they are employees of the Commonwealth Government. They are not Judges.”
Two observations can be made about the 10 January 2022 document.
It was created more than two years after the Applicant made his claim for the Age Pension, and thus, has to viewed in that context.
However, of more significance, is the fact that it is simply a statement of how Andrea and Konrad intend to operate in their capacity as Directors of Chilcotin and Gemeden and “owners” of Chilcotin. As the Applicant testified, the statement of intent simply clarified how the entities were being operated in the past and did not change anything. It simply clarified past practices.
There is nothing in the statement of 10 January 2022 which would cause the Tribunal to form a different view on the major issues discussed above.
Third, consideration needs to be given to the issue raised at AAT1 before Member Bakas.
Member Bakas explained that the only issue in dispute was the manner in which Centrelink treated a loan made to Gemeden by Oscar and Hugo, who are both beneficiaries of the Trust – Exhibit 1 T2 p. 5 para 11.
It was pointed out that the Trust sold its assets in 2008 and paid distributions to its beneficiaries (including Oscar and Hugo) of approximately $350,000 each. The distributions to Oscar and Hugo were subsequently loaned to Gemeden, as authorised by Andrea – Exhibit 1 T2 p. 5 para 13.
Centrelink contended that, as both Oscar and Hugo were under 18 when the Applicant applied for the Age Pension, the liabilities to Oscar and Hugo could not be recognised – Exhibit 1 T2 p. 5 para 14.
In a letter dated 8 June 2021, the Applicant made the following submissions – Exhibit 1 T2 p. 7:
“The loan of $630,264 to Gemeden in June 2019 was a genuine loan of the money i.e. the personal property of Oscar and Hugo by their Parents. It was not a transaction by the children but between their Parents and Gemeden. It was not a property transfer, gift or bequest and did not increase the net assets of Gemeden to $1,266,489. It was not a ‘loan made by Oscar and Hugo’, as wrongly claimed by ARO Myla and ARO Jason C.
The net assets of Gemeden on 30 June 2019 were $636,225…
Likewise, the deposits totalling $630,264 made in 2008 were loans made by the mother and not by the then 5 year olds. The money was, and remains to this day, the property of the twins.
It did NOT become the property of Gemeden in 2008 or in 2019.”
Member Bakas explained the Applicant’s position as follows – Exhibit 1 T2 p. 5 para 15:
“Mr Hoefl’s position is that the facts of the matter are that this should be considered a loan rather than as a capital contribution which is how Centrelink is treating it. Mr Hoefl’s evidence at the hearing included that Oscar and Hugo did not bequest the money to Gemedin Pty Ltd. It was a loan or a debt. Lending money to a company does not change the net assets of a company. Mr Hoefl was disputing that the age of his grandchildren should have no impact as to how the loan is treated by Centrelink. He is of the view that to treat his grandchildren’s money as though it is owned by Gemedin Pty Ltd is misleading, false and deceptive and criminal. Further, he stated it is contradictory for Centrelink to recognise a loan if it is deposited by an adult but not by a minor.”
Member Bakas then referred to s 1208H of the Act which provides that where a company or trust is a borrower under an unsecured loan, the Secretary may make a written determination as to the reduction in value of an asset or assets because of the amount of the loan. In this matter, the relevant Determination is the Social Security (Attribution of Assets) Principles 2017 (Cth) (the Asset Attribution Principles).
Section 13 of the Asset Attribution Principles, as well as the other relevant provisions, are set out below:
“11 Purpose of Part 4
This Part sets out decision-making principles with which the Secretary must comply in making a determination under subsection 1208H (1) of the Act.
12 Effect of unsecured loan on value of assets
In relation to an unsecured loan, the Secretary must take into account:
(a) whether a transaction that gave rise to the loan was an arm’s length transaction, having regard to the criteria described in section 13; and
(b) the matters referred to in section 14.
13 Criteria for arm’s length transaction
(1) For paragraph 12 (a), a transaction is an arm’s length transaction if:
(a) the transaction is for the purposes of the business activities of the company or trust; and
(b) the transaction is made under a written agreement that is signed by each party to the agreement, and witnessed by an individual who is not a party to the transaction; and
(c) each party to the transaction is:
(i) at least 18 years old; or
(ii) at least 16 years old and engaged in a full-time occupation; or
(iii) at least 16 years old and receiving a social security entitlement; and
(d) the transaction is made for an arm’s length amount.
(2) For subparagraph (1) (c) (ii), a full-time occupation:
(a) includes any employment, trade, business, profession, vocation or calling; and
(b) does not include a course of education at a school, college, university or similar institution.
14 Other matters
For paragraph 12 (b), the Secretary must also take into account, in relation to the transaction that gave rise to the charge or encumbrance:
(a)whether the individual is the sole attributable stakeholder, or a member of a couple both members of which are the only 2 attributable stakeholders of the company or trust; and
(b)whether the loan is secured by a charge or encumbrance over an asset other than an asset described in paragraph 1208H (1) (b) of the Act; and
(c)the commercial, social and familial relationships (if any) between the parties to the transaction; and
(d)the nature and circumstances of the transaction.”
As will be seen, s 13 provides that loans from persons under 18 years of age are deemed not to be an arm’s length transaction, which is a requirement for making a Determination under s 1208H(1) of the Act.
Next, Member Bakas referred to Departmental policy, as set out in para 4.12.5.10 of the Guide, namely:
“Circumstances where a loan… to or debts owed by an entity will NOT be recognised as a liability of that entity are:
•where NO WRITTEN agreement exists which is signed by all parties to the agreement and witnessed by a third party (associates are not considered to be third parties), AND
•loans from, or debts owed to, a person who is under 18 years of age.
A loan that is not recognised as a liability of an entity will still be considered to be a personal financial asset of the person making the loan and is subject to deeming…
It is open to the assessor to determine that a loan DOES NOT exist and that it was instead a transfer or gift of assets… to the entity.”
Quite properly, Member Bakas pointed out that the Tribunal is not bound by the Guide, or Departmental policy generally, and reference was made to Drake v Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60. Nonetheless, Member Bakas regarded the policy as contained in para 4.12.5.10 of the Guide as a useful guide in applying the Act and considered it consistent with the objects of the Act – Exhibit 1 T2 p. 5 para 18.
Finally, Member Bakas found that Centrelink’s treatment of the loan in assessing the Applicant’s assets at the time of the Age Pension application was correct and that the loans from Hugo and Oscar to Gemeden could not be recognised in determining the net assets of Gemeden because they were under 18 years of age at the time of the loans, and at the time of the Applicant’s Age Pension application.
The Respondent also seeks the Tribunal to make findings about the Applicant’s total asset value and related issues. Insofar as the Respondent invites the Tribunal to engage in a broad inquiry about the Applicant’s attributable income and assets which is not required to dispose of this matter, it is not accepted. Nonetheless, as the reviewable decisions turns solely on the manner of treatment of the loan made by Hugo and Oscar, it is necessary to deal squarely with this issue.
It is not disputed that, on 30 June 2008, there were non-discretionary trust distributions to six separate accounts held by Gemeden. Further, it is not disputed that none of Andrea’s children had bank accounts in Australia. A distribution of $300,054.97 was deposited into accounts held by Gemeden under the names of Hugo and Oscar with a further payment of $50,000 made on 9 June 2009. After payment of tax, the credit of both of these accounts was $315,132.13 – Exhibit 1 T2 pp. 12 – 13.
On 6 June 2019, the balance of both accounts was transferred to another Gemeden account with Andrea and Konrad as joint and several guardians for Hugo and Oscar. The balance of this account as at 30 June 2021 was $630,264.28 – Exhibit 1 T2 p. 16.
This transaction was the subject of a minute dated 8 June 2019 signed by the Applicant, Andrea and Konrad. The minute was prepared by the Applicant in his capacity as Director and Secretary of Gemeden, and provided as follows – Exhibit 1 T2 p. 17:
“As my fellow directors you have recently confirmed via telephone that:
1. Gemeden can accept loans from its directors and the beneficiaries of Chilcotin Trust.
2. Loan funds must not be the proceeds of illegitimate activity.
3. Loan funds must be kept in a separate deposit or access account.
4. Loan funds must be deposited by legally competent person(s).
5. All or part of the funds can be withdrawn on 10 days’ notice.
6.It is noted the funds are not a capital contribution to Gemeden or the Trust.
7. Gemeden will pay no interest on any loans.
8. Gemeden may repay all or part of its debts on 10 days’ notice.
9. All loans are unsecured.
By your payment of $630,264.28 into account… on 6 June 2019, as guardians of your sons Oscar and Hugo… you have become unsecured creditors of Gemeden P/L. You are the lenders, your sons are not.”
This minute has been carefully crafted and aimed at achieving a particular result. It is not, however, determinative, and has to be evaluated in the context of both the law regarding trusts (and companies) and, in particular, the deeming operation of the provisions contained in Part 3.18 of the Act. Throughout all of the protracted proceedings involving the Applicant and his quest to obtain the Age Pension, he has raised many novel and cogent submissions in support of his cause. Looked at in a vacuum, and without recourse to the deeming provisions in the Act, those contentions are persuasive. It is a testament to the Applicant’s intellect, that even in his advanced years, he has been able to effectively manage the entities in question and produce copious documentation. This is, again, indicative of his control over the entities and his capacity to determine their destiny.
Turning first to the wording of the 1988 Trust Declaration, it is abundantly clear that it was intended to transform the Trust from a discretionary to a non-discretionary trust. Further, the beneficiaries are limited to the Applicant, his late wife Yueing, Andrea “and all decendants [sic] of any of the above persons”.
Income of the Trust is to be distributed “in equal shares among all living beneficiaries and each beneficiary shall be entitled absolutely to its share.” [emphasis mine]
The plain wording of the 1988 Trust Declaration is clear: Oscar and Hugo had an absolute entitlement to the income distributed by the Trust into Gemeden accounts.
The Tribunal is required to look beyond the form to the substance of the transactions. As the Respondent correctly contends, the legal effect of the above 1988 Trust Declaration is that the Trust distributions were the property of Oscar and Hugo and any further dealing with those funds were dealings whereby the legal ownership vested in Oscar and Hugo. In short, despite the fact that loans were recorded in the name of their parents, and the 8 June 2019 minute states that the lenders were Andrea and Konrad, this does not alter the inescapable fact that the lenders are Hugo and Oscar who an absolute, indefeasible and vested interest in the money distributed to them by the Trust from the moment it was credited their accounts (and any subsequent accounts, either in their names, or in the name of their parents and guardians).
Although not directly on point, there has long been income tax jurisprudence dealing with trusts where there are beneficiaries who are presently entitled to trust funds but, nonetheless, are under a legal disability, namely that they are minors. The High Court has recognised that, in such cases, a minor beneficiary has a present entitlement to obtain payment if such a minor where not under a disability – see Taylor v Federal Commissioner for Taxation (1970) 119 CLR 444.
The Tribunal agrees with the Respondent’s contention that the loan amount of $630,264.28 does not meet the arm’s length criteria prescribed by s 13 of the Asset Attribution Principles because, inter alia, each party to the transaction was not at least 18 years of age – Exhibit 2 p. 12 para 56(h). This finding is also consistent with para 4.12.5.10 of the Guide as set out above.
It further follows, then, that as at 30 June 2019, Gemeden’s total recognised liability was $409,951.33, and its net asset value as at 30 June 2019 for the purposes of the Act was $1,299,877.67. The Tribunal agrees with the submissions of the Respondent as set out in Exhibit 2 p. 12 paras 57 – 61.
The Tribunal finds, consistent with the findings of Deputy President Molloy, that the asset and income attribution percentages to be assigned to the Applicant in respect of his 13 November 2019 claim for age pension is 33.33%.
It is not necessary for the disposition of this matter to determine if the total assets of the Applicant as at 13 November 2019 were $608,391, as determined by the Agency (Exhibit 1 T10 p. 160), or $627,905.83 as contended by the Respondent – Exhibit 2 p. 13 para 60. In either event, the asset value exceeds the Age Pension assets limit threshold of $574,500 for a single homeowner as at 13 November 2019.
It only remains to revisit an observation made by the ARO in this matter. She informed the Applicant that, as Oscar and Hugo had turned 18 years of age, they could sign loan acknowledgement forms to confirm the loan existence for their loans to Gemeden to be recognised. If they determined to go do so, and the Applicant lodged a new claim for the Age Pension, then, prima facie, a new attribution rate could be calculated – Exhibit 1 T10 p. 160. This is a matter for Oscar and Hugo in the first instance, and then for the Applicant should they go down that course.
DECISION
The decision under review is affirmed.
I certify that the preceding 137 (one hundred and thirty-seven) paragraphs are a true copy of the reasons for the decision herein of Deputy President J Sosso
...........[SGD]............................................................
Associate
Dated: 30/06/2022
Date of hearing: 15 March 2022 Applicant: In-person
Solicitor for the Respondent: Mr Andrew Summers
Australian Government Solicitor
5
4
9