Joanne Klein and Secretary, Department of Social Services

[2014] AATA 351

[2014] AATA 351

Division	GENERAL ADMINISTRATIVE DIVISION
File Number	2014/1135
Re	Joanne Klein
APPLICANT
And	Secretary, Department of Social Services
RESPONDENT

DECISION

Tribunal	Mr R G Kenny, Senior Member
Date	4 June 2014
Place	Brisbane

The Tribunal affirms the decision under review.

.............................Sgd........................................

Mr R G Kenny, Senior Member

CATCHWORDS

SOCIAL SECURITY – Pensions, benefits and allowances – Loan to trust by applicant – Entry of loan amount as a liability to applicant in trust balance sheet included as a financial asset – Deemed income provisions - Decision under review affirmed 

LEGISLATION

Social Security Act 1991 (Cth) ss 8, 9, 117, 1064, 1076-1084, 1122

CASES

Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634

SECONDARY MATERIALS

Guide to Social Security Law s 4.12.10.20, 4.6.5.65

REASONS FOR DECISION

Mr R G Kenny, Senior Member

4 June 2014

BACKGROUND

1. Joanne Klein (“the applicant”) is in receipt of the disability support pension. This is a social security payment under the Social Security Act 1991 (Cth) (“the Act”).
   She receives less than the full amount of that payment because of Centrelink’s decision to credit her with a level of deemed income. The Centrelink calculation was challenged by the applicant but the decision has been affirmed by an authorised review officer and, in turn, by the Social Security Appeals Tribunal.

2. The following facts are not in dispute. The applicant commenced a business in 2007 which was operated via the Joanne Klein Family Trust (“the trust”). The trustee was Joandco Pty Ltd (“the company”) of which the applicant was sole director and shareholder. She gave sums of money to the company, as trustee, to commence the business and to continue its activities. These amounts totalled $206,348.11 and the trust’s most recent balance sheet, dated 30 June 2011, records a debt to the applicant in that amount. The business is no longer operating and the company has been deregistered by ASIC. No trustee has been appointed in the place of the company. Centrelink treated the amount of $206,348.11 as a loan owed by the trust to the applicant and applied the deeming provisions of the Act to it. This was done in reliance on the applicant’s income[1] and deemed income from the applicant’s financial assets (which included the loan) in accordance with s 1064[2] and ss 1076 to 1084 of the Act; the definitions of “income” and “financial asset” in s 8 and s 9 of the Act, respectively; and s 1122 of the Act which reads:

   If a person lends an amount after 27 October 1986, the value of the assets of the person for the purposes of this Act includes so much of that amount as remains unpaid but does not include any amount payable by way of interest under the loan. 

   [1] See s 117 of the Act.

   [2] In particular, s 1064-A1 step 11.

3. The amount of $206,348.11 was paid to the trust after 1986 and remains unpaid by the trust to the applicant. There is no evidence that it includes any interest component.

   
   

   The deemed income in relation to the loan was calculated to be $7,573 per annum and was included in the applicant’s assessable income for the purposes of determining the amount of disability support pension she was to receive.

   THE APPLICANT

4. The applicant submitted that it was not appropriate for Centrelink to apply the deemed income provisions to the amount of $206,348.11. This was because the amount no longer existed and represented a loss by her, because the trust was no longer trading and because she was not in a financial position to allow her to register the company and reappoint it as a trustee. In support of her position, the applicant referred to s 4.12.10.20 of the

   
   

   Guide to Social Security Law (“the Guide”) which reads:

   Disposal of assets to a private trust or private company by an attributable stakeholder

   If a person gives an asset (whether fixed or financial) to a private trust or private company on or after 1 January 2002, and the person is an attributable stakeholder or as a result of the transfer, is subsequently attributed with a percentage of the assets of the structure, the asset will NOT be a deprived asset of the person. (Subject to the percentage of the assets of the structure attributed to the person.)

5. The applicant submitted that she met the terms of that provision and that, accordingly, the loan should not be treated as a financial asset.

6. The applicant confirmed that she had taken no steps to forgive the loan or to wind up the trust and advised that it lay dormant because it was possible that, in the future, she may use it as a vehicle for some other business and gain a taxation advantage from its past losses at that time. The applicant conceded that, if the loan was taken into account as a financial asset, Centrelink had correctly calculated the level of deemed income at $7,573.

   THE RESPONDENT

7. Mr Tim Ffrench submitted that Centrelink was obliged to treat the loan as a financial asset because it is an entry in the balance sheet of the trust which still exists even though there is no trustee. He submitted that the applicant had not forgiven the loan or sought to wind up the trust. He also submitted that a new trustee could be appointed and that the applicant may elect to do this in the future as she indicated that she may utilise the trust in the future.

   CONSIDERATION

8. The submission made by the applicant relates to the effect of s 4.12.10.20 of the Guide. This is published by the respondent to provide assistance to those who administer the Act. While not bound to apply policy instructions of the kind referred to in the Guide, the Tribunal will usually apply the guidelines unless, unlike the situation here, there are cogent reasons in a particular case for not doing so.[3] I am satisfied that the section of the Guide identified by the applicant has no application to her. The opening words demonstrate that it applies “[i]f a person gives an asset (whether fixed or financial) to a private trust or private company”. This would require the applicant to give the amount of the loan to the trust. If this were done, it would qualify as a deprived asset in her hands. However, that has not been done. Nor has the loan been forgiven and it was the applicant’s evidence that she has no intention of doing so because she perceives a possible future use of the trust.

   [3] See Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634 at 639-645.

9. The Guide makes provision for loans which are taken to no longer exist. In that regard,

   
   

   s 4.6.5.65 thereof relevantly reads:

   4.6.5.65 Loans that No Longer Exist

   Summary

   This topic discusses:

   …

   ·     when a loan no longer exists - loans made to a company, trust or individual, and

   …

   When a loan no longer exists - loans made to a company, trust or individual

   Legally, a loan ceases to exist at the time it is repaid, or when the debtor is formally released from the loan. A debtor is released from a loan contract under a bankruptcy or where the loan is forgiven.

   For social security purposes, there are some other situations where a loan is also treated as no longer existing. Loans that no longer exist are sometimes referred to as irrecoverable loans, though this term is not mentioned in the SSAct. Although there is no longer a loan, there may be another type of asset, such as a debt.

   A loan no longer exists for social security purposes when:

   ·     it is repaid, OR

   ·     the borrower is bankrupt, OR

   ·     the borrower enters a debt agreement under Part 9 or 10 of the Bankruptcy Act 1966 (Commonwealth), OR

   ·     the lender forgives the loan usually via a deed or gift of release (see explanation 1), OR

   ·     the lender takes a loan contract to court to have it enforced and obtains a court order to allow collection of the money (see explanation 2), OR

   ·     the lender takes a loan contract to court to have it enforced and is unsuccessful in court (see explanation 3), OR

   ·     the lender seizes the asset against which the loan is secured (see explanation 4), OR

   ·     property against which the loan is secured is sold and the proceeds used to repay some or all of the loan, OR

   ·     the company (or trust) that borrowed the money is wound up (see exception), OR

   ·     the company (or trust) that borrowed the money is in the process of irreversible winding up (see explanations 1 & 5), OR

   ·     the period specified in the relevant state Statute of Limitations has elapsed since the date of the first breach of the loan contract (see explanation 6), OR

   ·     a company that borrowed the money is in administration and subsequently placed in liquidation, or loans to the company become subject to a deed of company arrangement. In these cases, the loan is taken to have ceased to exist from the date that the company was placed in administration (see explanation 7).

10. I am satisfied that none of those avenues for bringing about the cessation of the existence of the loan in this matter have been utilised. I am satisfied that, in accordance with
    s 1122 of the Act, the value of the applicant’s assets includes the loan of $206,348.11.
    I am also satisfied that Centrelink has correctly calculated the amount of disability support pension payable to the applicant.

    DECISION

11. The Tribunal affirms the decision under review.

I certify that the preceding 11 (eleven) paragraphs are a true copy of the reasons for the decision herein of Mr R G Kenny, Senior Member

.............................Sgd.......................................

Associate

Dated 4 June 2014

Date of hearing	30 May 2014
Applicant	In person
Solicitors for the Respondent	Mr Tim Ffrench, Department of Human Services