Jan Houben and Secretary, Department of Social Services

[2015] AATA 217

[2015] AATA  217

Division	GENERAL ADMINISTRATIVE DIVISION
File Number	2014/4073
Re	Jan Houben
APPLICANT
And	Secretary, Department of Social Services
RESPONDENT

DECISION

Tribunal	The Hon. Brian Tamberlin QC, Deputy President
Date	13 April 2015
Place	Sydney

The Tribunal affirms the decision under review.

.............................[sgd]...........................................

The Hon. Brian Tamberlin QC, Deputy President

CATCHWORDS

SOCIAL SECURITY – age pension – asset attribution - grounds for attributing less than 100% of shareholding – decision affirmed

LEGISLATION

Social Security Act 1991 ss 44, 1064, 1207B(1) 1207N, 1207Q

Social Security (Administration) Act 1999 s 109(1)

Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000

REASONS FOR DECISION

The Hon. Brian Tamberlin QC, Deputy President

1. This is an application for review of a decision of the Social Security Appeals Tribunal (SSAT) made on 11 July 2014 which varied a decision by an Authorised Review Officer (ARO) to assess the Applicant’s asset attribution percentage as 49 per cent. 

2. There are three issues for this Tribunal to consider:

   (a)whether the decision to set the Applicant’s rate of age pension by reference to the assets test is correct; and, if so,

   (b)whether the Applicant is an attributable stakeholder of a company known as EJF Engineering Pty Ltd (EJF); and, if so,

   (c)whether there are any grounds for attributing less than 49 per cent of the assets of the company to him in determining his rate of age pension.

   FACTUAL BACKGROUND

3. The Applicant is one of two shareholders in the private company EJF and on 5 June 2013 he made a claim for the age pension.

4. On 16 September 2013 the Applicant’s claim for age pension was granted and he was attributed with 50 per cent of both the income and assets of the company.  On 30 December 2013 the Applicant requested a review of the decision by the original decision-maker who on 6 January 2014 affirmed the decision under review.

5. On 6 January 2014 the Applicant requested a review by an ARO. On 24 May 2014 the ARO determined that the decision to attribute 50 per cent of the company’s income and assets to the Applicant was correct. The officer also made a decision to grant him arrears of age pension from 30 June 2013 to 12 December 2013 due to assessment of income from the company in accordance with s 109(1) of the Social Security (Administration) Act 1999 (the Administration Act).

6. The Applicant then applied for a review by the SSAT on 29 May 2014.

7. The SSAT varied the decision under review and determined that the Applicant’s asset attribution percentage was 49 per cent.  On 6 August 2014 the Applicant applied for review by this Tribunal and provided a number of additional documents to support his case in the form of a written statement, correspondence and financial documents.

   LEGISLATION

8. The relevant legislation is found in the Social Security Act 1991 (the Act) and the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000 (the Principles).

9. The Act provides for the calculation of a person’s age pension rate, specifying that the lower of the income reduced rate and the assets reduced rate is the provisional annual payment rate.

10. Part 3.18 of the Act deals with the attribution of income and assets to individuals which form part of the structure of a company or trust.

11. In order for a company to be classified as a designated qualified company for the purposes of this Part, it needs to fulfil two of the conditions outlined in s 1207N of the Act as follows:

    Designated private companies

    (1) For the purposes of this Part, a company is a designated private company at a particular time if:

    (a) the company satisfies at least 2 of the following conditions in relation to the last financial year that ended before that time:

    (i) the consolidated 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)).

12. Section 1207Q(1) provides that a company is a controlled private company if the company is a designated private company and the individual passes the control test or the source test set out in subsections (2) or (3) of that section respectively.  An individual passes the control test in relation to a company if the aggregate of the direct voting interests in the company that the individual holds and the direct voting interests in the company held by associates of the individual is 50 per cent or more.

    REASONING

    Issue One – Should the Applicant’s rate of age pension be set by reference to the assets test?

13. Yes. It is not in dispute that the Applicant owns 49 of the 100 issued ordinary shares for the company and that his son, Jonathon Houben, owns the remaining 51 shares.  The Applicant was initially in possession of 51 shares when the company was formed in 2002 and he sold two of the shares on 25 May 2013 for $6,500 per share.  At that time he also resigned as director and company secretary. There is no contrary valuation evidence to persuade me that the shares are worth less than this amount.

14. Under s 44 of the Act an age pension is not payable to a person if the person’s age pension rate would be nil.

15. Section 55 of the Act provides that a person’s rate of age pension is calculated using Rate Calculator A at s 1064 of the Act if a person is not permanently blind. Step 9 of the calculator provides that the asset test in Module G is to be used to work out the reduction for assets.

16. On this approach, the Applicant’s assets amount to $69,111 in financial assets with his wife also owning $69,111 in financial assets and an amount of $396,458 in trust and company assets for the company EJF.  There are also other smaller assets amounting to $2,750 including home contents and a motor vehicle. 

17. The Applicant’s total assets amount to $468,319, with his wife’s assets totalling $69,861, giving a combined total of $538,180.  Under Module 2, which provides for the calculation of assets for a member of a couple, the value of the assets of the Applicant and his wife is 50 per cent of the combined total which equals $269,090.

18. Applying the formula set out in s 1064 of the Act I am satisfied that the Applicant’s “assets excess” was $190,250 and as at the date of claim the standard rate of aged pension was $553.10.

    Issue Two  – Is the Applicant an attributable stakeholder of the company?

19. Yes. The Applicant’s company, EJF, is a designated company under the Act as it satisfies all elements in s 1207N(1), namely that:

    (a)the consolidated revenue for the financial year of the company and its subsidiaries is less than $25 million;

    (b)the value of the consolidated gross assets at the end of the financial year of the company is less than $12.5 million; and

    (c)the company and its subsidiaries have fewer than 50 employees at the end of the financial year.

20. The 100 shares issued by the company are owned solely by both the Applicant and his son.

21. Under s 1207B(1) of the Act the expression “associates” of an individual include a relative of the individual. A relative includes a child of the individual. Accordingly, the Applicant is an associate of his son Jonathon.

22. On this basis the Applicant passes the control test under s 1207Q(2)(a) because the direct voting interests of both the Applicant and his son combined is more than 50 per cent.  As a consequence, the company is a controlled private company pursuant to s 1207Q(1) and the Applicant is therefore an attributable stakeholder of the company.

    Issue Three – Are there grounds for attributing less than 100 per cent of the assets of the company to the Applicant?

23. Yes. Section 1207X provides that an individual’s asset attribution percentage in a company is 100 per cent, unless the Secretary determines a lower percentage. In this case the Secretary has made a determination that the appropriate asset attribution percentage for the Applicant with regard to the company is 49 per cent.

24. In reaching her conclusion that 49% was the appropriate attribution, the Secretary had to consider the relationship between the individual and the company, and in particular whether the effect of one or more of the circumstances in relation to the individual provides a sufficient basis on which to determinate a percentage lower than 100 per cent as the asset attribution percentage.

25. The Applicant’s case is that his attribution percentage should be zero per cent when assessing his rate of pension.  He says that the value of his shares would amount to less than $100,000.  He also says that he has not been involved in the running of the company since withdrawing as director and secretary on 25 May 2013 and his cessation of employment in the company approximately four years ago.  He also says that there are special circumstances which go to discretion, namely that his wife suffers from debilitating dementia and that he is responsible for her care.

26. The Applicant sold two shares to his son on 25 May 2013 for a price of $6,500 per share. This is a recent sale between persons in a position to estimate the value of the shares. If this amount were to be applied to each of the Applicant’s 49 shares this would total an amount of $318,500.

27. Although the Applicant ceased as director and secretary in May 2013 there is no evidence to suggest that he is no longer involved with the company.  In a Centrelink Private Company form dated 4 June 2013 he stated that he “continues” to have voting rights in the company and continues to be entitled to dividends and he is entitled to capital distributions on winding up.  The Applicant says that he in fact did not receive a dividend in the 2012/2013 financial year due to his lack of involvement with the company, but he had received a dividend on 30 June 2012 and the only reason why he was not paid a dividend in the subsequent year was due to financial losses incurred in that year due to a downturn in the market.  As the Respondent points out, there is no evidence to suggest that the Applicant will not receive dividends in future years if profits are generated.  The extent of his participation in the company is not determined by the profitability of the company but rather with his entitlement to dividend if profits permit.

28. Notwithstanding that providing care for the Applicant’s wife could be seen to restrict his ability to engage in company activities, there is not a sufficient basis for a reduction of his assets attribution percentage to zero because he still owns 49 per cent of the shares in the company, and he is entitled to shareholder rights attaching to those shares, including voting rights and capital distribution.  Accordingly, an asset attribution percentage of zero per cent is not appropriate and an attribution of 49 per cent is correct. 

29. Having regard to the foregoing, the evidence supports the conclusion that the Applicant is an attributable stakeholder of the company, and that there is no evidence to suggest that an asset attribution percentage of zero per cent is warranted in the circumstances. 

30. Taking into account the Applicant’s present shareholding as at the date of his age pension claim on 5 June 2013 and the rights attaching to that shareholding, the asset attribution percentage of 49 per cent is reasonable and appropriate in the circumstances.

    DECISION

31. The Tribunal affirms the decision under review.

I certify that the preceding 31 (thirty -one) paragraphs are a true copy of the reasons for the decision herein of The Hon. Brian Tamberlin, QC, Deputy President

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Associate

Dated 13 April 2015

Date of hearing	16 December 2014
Applicant	In person
Advocate for the Respondent	Ms K Martini
Solicitors for the Respondent	Department of Human Services