Hoefl and Secretary, Department of Social Services (Social services second review)
[2020] AATA 4647
•19 November 2020
Hoefl and Secretary, Department of Social Services (Social services second review) [2020] AATA 4647 (19 November 2020)
Division:GENERAL DIVISION
File Number(s): 2020/3365
Re:Johann Hoefl
APPLICANT
AndSecretary, Department of Social Services
RESPONDENT
DECISION
Tribunal:Deputy President I R Molloy
Date:19 November 2020
Place:Brisbane
The decision under review is affirmed.
...........................[SGD].............................................
Deputy President I R Molloy
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 – whether 33.33% attribution applies – whether applicant is entitled to age pension based on assets and income – decision under review affirmed
LEGISLATION
Social Security Act 1991 (Cth)
SECONDARY MATERIALS
Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2017 (Cth)
REASONS FOR DECISION
Deputy President I R Molloy
19 November 2020
The Applicant, Mr Hoefl, applied for review of a decision of the Social Services and Child Support Division of the Tribunal made on 1 May 2020 in respect of his income and assets as they relate to his aged pension claim made on 13 November 2019.
As is well-known, eligibility for the aged pension is subject to a means test. The Social Security Act 1991, Part 3.18, sets up a system for the attribution to individuals of the assets and income of private companies and trusts in certain circumstances. The aim is to ensure that such persons receive comparable treatment under the means test to those that hold their assets directly.
The decision of 1 May 2020 set aside a decision of an Authorised Review Officer and remitted Mr Hoefl’s claim for aged pension for reconsideration with a direction that his eligibility as at 13 November 2019 be reassessed on the basis he is to be attributed with 33.33% of the income and assets of a company Gemeden Pty Ltd (“Gemeden”), another company Chilcotin Pty Ltd (“Chilcotin”) and the Chilcotin Trust (“the Trust”).
Mr Hoefl seeks to set aside this decision with a finding that he is not to be attributed with any percentage of the income or assets of the companies or the Trust or, as I understand it, at most his percentage attribution should be limited to 16.67% of the income and assets of the Trust. The respondent contends that the tribunal decision of 1 May 2020 should be affirmed whereby the income and assets of the companies and the Trust attributed to Mr Hoefl was reduced to 33.33% from the 50% confirmed on review by the Authorised Review Officer.
ISSUES
The principal issues are:
(a)whether Mr Hoefl is an “attributable stakeholder”, as that term is used in the Act, in Chilcotin, Gemeden and/or the Trust, and
(b)if yes to (a), whether Mr Hoefl should be attributed with less than 100% of the assets and income of such of those entities in which he is an attributable stakeholder, and if so what percentage should be attributed to him.
BACKGROUND
Mr Hoefl was born in 1938, is not partnered, and is a homeowner.
The Trust commenced on 19 October 1977. Its Trustee is Chilcotin. On 12 July 1988 an irrevocable declaration was made converting the Trust from a discretionary fixed trust, requiring fixed equal entitlements to the beneficiaries. There are six beneficiaries of the Trust, Mr Hoefl, his daughter Andrea Hoefl Von Loehneysen, and Andrea’s four children.
Chilcotin has three directors, Mr Hoefl, his daughter Andrea, and (since 30 October 2019) her husband Konrad Von Loehneysen. Mr Hoefl had a 50% interest in Chilcotin until the sale of his share to Konrad which also took place in late October 2019. Mr Hoefl resides in Australia. Andrea and her husband and children reside in Germany.
Gemeden is a share trading and investment company and the assets of the company are owned by the Trust. There have been transfers of property to the Trust after 9 May 2000, in the form of interest free loans made by the beneficiaries to Gemeden following the sale of a property in Bronte, New South Wales.
Funds were also deposited with Chilcotin by Mr Hoefl’s daughter following a sale of a property at Bondi Junction in 2002. The last distribution made by the Trust was in June 2008, with funds being deposited into newly created accounts with Gemeden.
On 13 November 2019, when Mr Hoefl lodged his claim:
(a)aged pension was not payable to a single homeowner with assets exceeding $574,500 in value;
(b)aged pension was not payable to a single pensioner if income was more than $53,060.80 per annum.
The Trust tax return for 2019 indicates its total assets were $1,489,925.38, its trading income was $78,547.27 and its profits were $56,848.18.
Mr Hoefl estimated his net personal assets were $128,243 and his personal income for the current financial year would be about $17,000.
On 30 January 2020 Mr Hoefl’s claim for aged pension was rejected on the basis that his assets and income exceeded the allowable limit after attribution to him of 50% of the assets and income of Gemeden, Chilcotin and the Trust.
On 20 February 2020 the Authorised Review Officer affirmed this decision.
On 1 May 2020 the Tribunal set aside the decision, and remitted Mr Hoefl’s claim for reconsideration with the direction that he be attributed with 33.33% of the assets and income of Gemeden, Chilcotin and the Trust.
By application lodged on 25 May 2020 Mr Hoefl sought review of the Tribunal’s decision of 1 May 2020.
SOCIAL SECURITY ACT 1991, PART 3.18
As I have said, Part 3.18 of the Social Security Act 1991 (“the Act”) provides in certain circumstances for the attribution to individuals of the assets and income of private companies and private trusts.
For assets 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 of the Act); and
(b)the company must be a controlled private company or the trust must be a controlled private trust in relation to the individual (sections 1207Q and 1207V of the Act); and
(c)the individual must be an attributable stakeholder of the company or the trust (section 1207X of the Act).
Designated Private Company or Trust
Section 1207N(1) of the Act provides that for the purposes of Part 3.18 a company is a “designated private company” at a particular time if:
(a)the company satisfies at least two 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; and
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; and
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)).
I am satisfied on the evidence that Gemeden and Chilcotin were designated private companies as they meet the criteria set out in section 1207N(1) of the Act and are not excluded pursuant to section 1207N(5) of the Act.
Section 1207P(1) of the Act sets out the conditions and/or requirements whereby a trust is taken not to be a designated private trust. I am satisfied that the Trust does not fall outside the category of a designated private trust under any of the provisions of s 1207P of the Act.
Controlled Private Company or Controlled Private Trust
Pursuant to section 1207Q(1) of the Act, a company is a controlled private company in relation to an individual if the company is a designated private company and the individual passes the control test set out in subsection (2) or the source test set out in subsection (3).
Section 1207Q(2) of the Act provides:
(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 rights 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.two 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.
Under 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 recordable force and whether or not based on legal or recordable rights.
Pursuant to sections 1207A and 1207C of the Act, for the purposes of Part 3.18, in determining inter alia whether a company is a controlled private company (or whether a trust is a controlled private trust) in relation to an individual, the associates of an individual include a relative of the individual. “Relative”, pursuant to section 1207B of the Act, includes a lineal descendant of the person, and a spouse of a lineal descendant of the person.
Mr Hoefl is a director and secretary of Gemeden. The other directors are his daughter and son-in-law. The shares in Gemeden are held by Chilcotin. This is a company in which, as referred to below, all the voting interests are held by associates of Mr Hoefl. Under section 1207C(1)(l) of the Act, an associate of an individual also includes a company where a majority voting interest is held by associates of the individual.
I am satisfied, having regard to section 1207Q(2) of the Act, that Gemeden is a controlled private company in relation to Mr Hoefl.
Mr Hoefl’s evidence is that he sold his previous 50% shareholding in Chilcotin. Since October 2019 the shares in Chilcotin have been held by Mr Hoefl’s daughter and son-in-law. His son-in-law has been appointed a director. However, Mr Hoefl has retained his directorship of Chilcotin and, in any case, his relatives are directors and therefore associates pursuant to section 1207C(1)(e) of the Act. The aggregate of the direct voting interests in Chilcotin held by his associates is 100%.
I am satisfied Mr Hoefl passes the control test under section 1207Q(2) of the Act in relation to Chilcotin.
Section 1207V of the Act provides that a trust is a controlled private trust in relation to an individual if the trust is a designated private trust and the individual passes the control test or source test set out in that provision. Under section 1207V(2) of the Act the individual passes the control test in relation to a trust if the individual, or an associate of the person, is a trustee of the trust.
Under section 1207C of the Act, an associate of an individual includes a company, where a majority voting interest in the company is held by individuals or entities that are associates of the individual. As Chilcotin, the trustee of the Trust, is an associate of Mr Hoefl, he passes the control test in relation to the Trust under section 1207V(2).
Attributable Stakeholder
For assets or income of a company or trust to be attributed to an individual, the individual must be an attributable stakeholder of the company or the trust.
Under section 1207X, for the purposes of Part 3.18 of the Act, if a company is a controlled private company in relation to an individual, or if a trust is a controlled private trust in relation to an individual, that individual is an attributable stakeholder of the company or trust unless the decision-maker otherwise determines. If the individual is an attributable stakeholder of the company or trust then that individual’s asset attribution percentage in relation to the company or trust is 100%, again unless the decision-maker determines otherwise.
Under section 1207X(5) of the Act, in making a determination of these matters, the decision-maker must comply with any relevant decision-making principles. These include the principles set out in the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2017 (“the Principles”). Part 1, section 4 of the Principles sets out the purpose:
These Principles set out decision-making principles with which the [decision-maker] 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 sets out the considerations that must be taken into account when determining if a person is not an attributable stakeholder of a company or trust. Section 6(3) provides:
In particular, the [decision-maker] 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 in not an attributable stakeholder of the company or trust.
Parts 3 and 4 of the Principles set out the decision-making principles with which the decision-maker must comply in making a determination that an individual’s asset attribution percentage or income attribution percentage respectively in relation to a company or a trust, is a specified percentage lower than 100%. Part 3, section 15(3), and Part 4, section 24(3) are in similar terms to section 6(3), in that the decision-maker must consider whether the effect of one or more of the circumstances mentioned in those Parts, in relation to the individual and the company or trust, provides a sufficient basis on which to determine respectively a percentage attribution of assets or income lower than 100%.
The Principles and circumstances contained in each of Part 2, Part 3 and Part 4 are sufficiently similar to allow the corresponding provisions from each Part to be considered together. I take into account sections 6, 15, and 24 of the Principles, and in particular subsection (3) of each of those provisions.
Sections 7, 16 and 25 of the Principles require the decision-maker to consider whether there are relevant circumstances that make it inappropriate for the individual to be an attributable stakeholder of the company or trust, or that make it inappropriate for the attributable individual to have an asset or income attribution percentage of 100%. The relevant circumstances, under subsection (2) of these provisions, 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.
In respect of the company Gemeden, Mr Hoefl is one of three directors, and is also a secretary of the company. He is the only office-holder residing in Australia. According to the findings contained in the decision dated 1 May 2020, Mr Hoefl makes investment decisions for the company with the assistance of the company’s share brokers, Morgans. In respect of the other entities, Chilcotin and the Trust, Mr Hoefl is one of three directors of Chilcotin (the corporate Trustee). He is one of Chilcotin’s secretaries and one of the six beneficiaries of the Trust.
Sections 8, 17 and 26 of the Principles require the decision-maker to consider, if the individual has made a contribution to the company or trust, 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 receives consideration for the contribution, the amount of consideration.
The decision dated 1 May 2020 includes the following:
25. Under paragraphs 8, 17 and 26 of the Principles, the tribunal must consider any contribution by Mr Hoefl to the company or trust. With regard to Gemeden, Mr Hoefl told the tribunal that the money initially used for its investments in 2008 came from the beneficiaries of the Trust, including himself. In particular, the beneficiaries of the Trust had each received a distribution of $350,000 as a result of a sale of a property at Bronte. Mr Hoefl told the tribunal that Andrea also moved money from Chilcotin to Gemeden prior to 2008, using proceeds from the sale of a property. In terms of other contributions, the tribunal notes that the AAT2 found in its September 2019 decision that the banking arrangements of Mr Hoefl and Gemeden are significantly intertwined with the company’s transactions with Morgans being paid through Mr Hoefl’s personal ANZ Bank overdraft facility. While Mr Hoefl confirmed with the tribunal that he paid Gemeden’s brokerage bills out of his own bank accounts, he said that these payments were reimbursed automatically by the company. Although these financial contributions by Mr Hoefl may well be reimbursed, the tribunal considers that they are nonetheless evidence of him making ongoing financial contributions to the company.
26. With regard to other entities, AAT1 observed in January 2019 that the Trust was constituted in 1977 using money from Mr Hoefl and his late wife. There were other later contributions to the Trust, including by Andrea. None of the evidence given by Mr Hoefl at the latest hearing contradicted this state of affairs.
The evidence before me does not satisfy me that I should not accept these findings. Gemeden received earnings from its investments. Mr Hoefl is paid a director’s fee $1,850.00 and a further $10,000.00 per annum to compensate him for his efforts. There is evidence in relation to directors’ advances totalling $230,681.04.[1]
[1] Exhibit A – T-Documents, Gemeden Balance Sheet, T14, page 182
Under sections 9, 18 and 27 of the Principles, the decision-maker must consider whether Mr Hoefl has received a past benefit from a distribution from the company or trust and, if so, the value of the benefit. Mr Hoefl’s evidence was that Gemeden had not paid any dividends and that he had not received a past benefit from the company. In respect of the Trust, Mr Hoefl’s evidence is that he received a distribution in 2008 in the sum of $350,000.
Sections 10, 19 and 28 of the Principles require the decision-maker to consider whether it is reasonably foreseeable that Mr Hoefl may benefit from a future distribution by the company or the Trust.
Mr Hoefl’s evidence was that “the reality is that there will be no trust distribution for years.” He says:
“That in or about 2009, the Board decided that a 100% retention of net profit was the way forward for Gemeden with its rather weak balance sheet. It was and is the long-term plan to grow its capital base so it can make secured loans to the Trust beneficiaries. Gemeden has never paid a dividend, only beneficiaries can borrow at arm’s length. I do not keep funds on deposit with the company. I never made a capital contribution nor did any family member. The 100% retention policy is reviewed annually.
“It is highly improbable that I can ever convince myself and the board (which I do not control) to alter the very wise 100% retention policy, wise in light of a looming recession in Australia. There is no possibility of ever getting assets legally out of Gemeden other than by way of a dividend.
“Considering the foregoing, I believe I am not an attributable stakeholder under Part 2 of the SS Principles, sections 6, 7 and 10, as reasoned in Issue 1 and 4 of my appeal dated 16.4.2020.”
“However, if a dividend is paid in the distant future then the Trust Deed as amended in 1988 forces the directors to distribute 100% of that dividend equitably and evenly among the beneficiaries. Nothing, ‘not even 10 cents’, can go to the directors/trustees. Being one of six beneficiaries I would today get a 16.67% share as reasoned in Issue 3.
“It is undeniable that trust and corporate law precludes directors from ever diverting shareholder or trust funds for their own enjoyment. Therefore the Tribunal cannot regard directors as Attributable Stakeholders in Gemeden or the Trust.
“Centrelink cannot attribute assets to anyone that can’t legally benefit from them.
“There do not exist attributable stakeholders unless or until a dividend is declared.
“The Tribunal did not accept that the money is inaccessible to me or others. This begs the question: if not by way of a board resolution, how can trust money flow legally out of Gemeden and enter my bank account? If there is no legal way, there cannot be any attribution.”
I take into account what Mr Hoefl has to say. I do not accept that the money in Gemeden, for instance, is inaccessible to Mr Hoefl. Gemeden’s income, as the previous Tribunal observed, has remained with Gemeden because Mr Hoefl and the other directors determined that this should be the case. As the respondent points out, the shareholders of Chilcotin (the corporate trustee) are Mr Hoefl’s associates, and the directors can approve Gemeden making loans to the beneficiaries including Mr Hoefl.
Sections 11, 20 and 29 of the Principles require the decision-maker to take into account whether the individual receives or derives any other kind of benefit from the assets or income of the company or trust. The previous decision-maker recorded that Mr Hoefl confirmed that he receives director fees from Gemeden of $1,850 per year. He also receives an annual income of $10,000. He also receives reimbursement for payments that he makes to Morgans on Gemeden’s behalf.
I also note the findings of the Tribunal, in a decision dated 16 January 2019, that Mr Hoefl’s loan deposit account with Gemeden has been managed by him as if it were a private trading account, and evidence of “a pattern of interrelated dealings between Mr Hoefl and Gemeden Pty Ltd involving substantial payments by Mr Hoefl to an account with the stockbroking business Morgans and compensatory payments to Mr Hoefl from Gemeden Pty Ltd.”
Under sections 12, 21 and 30 of the Principles, the decision-maker must take into account whether Mr Hoefl is the attributable stakeholder of any other trust or company. There is no evidence that Mr Hoefl has any involvement in any entities apart from Gemeden, Chilcotin and the Trust.
Sections 13, 22 and 31 of the Principles require the decision-maker to consider any other circumstance that affects the involvement of the individual with the activities or the administration of the company or trust. Although Mr Hoefl emphasised that he is only one of three directors of Gemeden and Chilcotin, the previous Tribunal observed, that in his written submissions, Mr Hoefl acknowledged that “I obviously have a strong influence on board decisions” in relation to Gemeden and “I might even be called ‘the primary controlling mind’ of the structure’”.
The preceding Tribunal observed, at paragraph 33 of its reasons:
“In determining whether Mr Hoefl should be regarded as an attributable stakeholder of Gemeden, Chilcotin and the Trust, the Tribunal is mindful that a person is an attributable stakeholder under section 1207X of the Act unless determined otherwise. Having considered the Principles, the tribunal observes that Mr Hoefl is a director and secretary of Gemeden and Chilcotin, the latter company being the corporate Trustee of the Trust. Mr Hoefl is also a beneficiary of the Trust. Mr Hoefl is the only officeholder who lives in Australia and is the person who attends to the day-to-day operations of the entities. He has also previously made a financial contribution to Gemeden and the Trust. He receives financial remuneration from Gemeden, both as an employee and director, and has previously received distributions from the Trust. Although no dividends or trust distributions are likely to be made in the immediate future, this is due to a decision by the boards of Gemeden and Chilcotin (of which Mr Hoefl is a member), rather than any absence of income or the funds to do so. Given this evidence of his involvement with, and influence over, the entities, the Tribunal considers that Mr Hoefl should be regarded as an attributable stakeholder of Gemeden, Chilcotin and the Trust under section 1207X of the Act.[2]
[2] Exhibit A – T-Documents, T2, page 11-12.
All of that accords with my own findings. Furthermore, I return to the purpose of the Principles and the circumstances which the decision-maker must consider. In particular, under section 6(3) the decision-maker must consider whether the effect of one or more of the circumstances mentioned in Part 2, 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. I have taken into account the purpose of the Principles and the circumstances mentioned in Part 2. I do not consider the effect of one or more of the circumstances mentioned in Part 2, in relation to Mr Hoefl and Gemeden, Chilcotin or the Trust, provides a sufficient basis on which to determine that Mr Hoefl is not an attributable stakeholder in respect of either company or the Trust.
Percentage attribution
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.
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.
CONCLUSION
In consequence, the decision dated 1 May 2020 is affirmed. The matter is remitted to the Chief Executive of Centrelink for reconsideration in accordance with the direction that Mr Hoefl’s eligibility for aged pension as at 13 November 2019 is to be assessed on the basis that he is to be attributed with 33.33% of the income and assets of Gemeden Pty Ltd, Chilcotin Pty Ltd and the Chilcotin Trust.
I certify that the preceding 56 (fifty-six) paragraphs are a true copy of the reasons for the decision herein of Deputy President I R Molloy
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Associate
Dated: 19 November 2020
Date(s) of hearing: 13 November 2020 Applicant: Self-represented Respondent: Mr R. McQuinlan
Principal Government Lawyer
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