Kimpton and Repatriation Commission
[2005] AATA 916
•20 September 2005
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2005] AATA 916
ADMINISTRATIVE APPEALS TRIBUNAL )
) No W2004/469 & W2004/470
VETERANS' APPEALS DIVISION )
Re PERCY KIMPTON
BERYL KIMPTONApplicants
And
REPATRIATION COMMISSION
Respondent
DECISION
Tribunal Associate Professor G A Barton, Member Date20 September 2005
PlacePerth
Decision The Tribunal sets aside the decision under review and remits this matter to the respondent for reconsideration in accordance with the following direction: that the respondent determine, in accordance with s 52ZZR(2) of the Veterans’ Entitlements Act 1986, (‘the Act’) that the loan of Kimpton & Sons Pty Ltd, that was receivable from Mr Guy Kimpton, and the loans of Kununurra Poll Shorthorn Pty Ltd, that were receivable from the applicants and Mr and Mrs Gregory Kimpton, are excluded assets for the purposes of s 52ZZR(1)(d) of the Act and that the respondent re-assess the applicants’ rate of service pensions, with effect from 18 March 2002, in accordance with that determination.
(sgd) G A Barton
Member
CATCHWORDS
Veterans entitlements – service pension – assets test – attribution of assets of private companies – asset – loan receivables – controlled private company – designated private company – direct voting interest – control test – attributable stakeholders – attribution of assets – excluded assets – determination.
Veterans’ Entitlements Act 1986
s.5L(2)(12)
Sch 6 – F1
s.52C
s.52CA
s.52ZZR
s.52ZZJ
s.52ZZC
s.52ZZA
s.52ZZD
s.52ZZE
s.52ZQ(1)(e)
s.52ZP(1)
Repatriation Commission v Harrison 148 ALR 590
REASONS FOR DECISION
20 September 2005 Associate Professor G A Barton, Member 1. On 4 August 2004 the respondent’s delegate decided to retain the deprived asset amounts in relation to Kimpton & Sons Pty Ltd (‘KS) and Kununurra Poll Shorthorn Pty Ltd (‘KPS’) which had been included in the applicants’ service pension assessments under the Veterans’ Entitlements Act 1986 (‘the Act’) since 18 March 2002. A Senior Review Officer in the Compliance and Review Section of the respondent decided to affirm the delegate’s decision on 1 December 2004 and the applicants, Percy and Beryl Kimpton, who are husband and wife, have applied for review of this decision.
2. Percy Kimpton gave evidence as did the applicants’ son, Scott Kimpton, and their Chartered Accountant, Bruce Byrnes, a partner in the firm Page Kirk & Jennings. Mr Byrnes made submissions on behalf of the applicants who tendered documentary exhibits A1 to A5 and lodged a statement of facts and contentions. The financial statements and special purpose financial reports for KS and KPS referred to in these reasons were prepared by Page, Kirk & Jennings.
3. Ms S Maharaj of counsel represented the respondent and called the expert evidence of Martin Langridge, a Chartered Accountant and partner (forensic) in the firm Deloitte Touche Tohmatsu. The respondent lodged a statement of facts and contentions and written submissions, and tendered Mr Langridge’s report of 1 February 2005 (R1) and a letter from Gary Doran, a registered liquidator and partner in Deloitte Touche Tohmatsu, stating that he had read R1 and concurred with the findings it contains (R2).
4. Documents T1 to T9 were before the Tribunal pursuant to s37 of the Administrative Appeals Tribunal Act 1975. At the direction of the Tribunal the respondent lodged, on 15 April 2005, a schedule of changes to the applicants’ pension calculations if the deprived asset amount were changed to $87,718. The applicants’ letter in response was lodged on 12 May 2005.
5. KS was formed under the Companies Act 1961 (WA) in September 1972 with a nominal capital of $10,000 divided into 10,000 shares of $1 each for various objects including to carry on the business of “grazier, butcher, agriculturist, farmer, horticulturist, pastoralist, and to deal in all products of animal husbandry and agriculture”. (R1, appendix 18). The applicants subscribed for one share each and in June 1984 a share was issued to each of their sons, Gregory, Guy and Scott. KS did not trade after 30 June 1995. There was a sale of its business assets in 1996 and its liquidation was completed in April 2003 (A3).
6. By clause 4 of the memorandum of association of KS there was a power to divide the shares in the capital for the time being into several classes carrying “any preferential qualified special or deferred rights, privileges or conditions”.
7. Clauses 10 and 11 of the articles of association of KS provided as follows:
“10.
SHARES
(1)Shares when issued shall be classified as follows:-
(a)Share Numbers 1 – 100 shall be “A” Class shares
(b)Share Numbers 101-200 shall be “B” Class shares
(c)Share Numbers 201-300 shall be “C” Class shares
(d)Share Numbers 301-400 shall be “D” Class shares
(e)Share Numbers 401-500 shall be “E” Class shares
The remaining Shares shall be classified as Ordinary Shares until the Directors shall otherwise decide.
Except where otherwise provided all Shares shall entitle the holders to one vote for each Share held.
11.VOTING RIGHTS OF “A” CLASS & “B” CLASS SHAREHOLDERS RESPECTIVELY
At a General Meeting on a show of hands or on a poll no Resolution shall be deemed to have been carried unless persons voting in favour of the Resolution shall constitute the majority of the Shareholders of “A” Class Shares and also the majority of the holders of “B” Class Shares.
In the event of the Resolution not being carried by such majorities it shall, upon the request of any person present at the meeting and entitled to vote, be submitted by the Chairman to the President for the time being of the Institute of Chartered Accountants or his nominee whose determination shall be deemed to be a Resolution of the Company.”
8. Clause 13 of the articles of association of KS provided as follows:
“13. DIVIDEND VARIATION
Notwithstanding anything contained in the preceding Articles but subject however as hereinafter provided if at any time the capital by reason of the creation or issue of preference shares or otherwise is divided into different classes of shares any dividend (whether interim or otherwise) may be declared by the Company in general meeting and paid on the shares of any one or more class or classes to the exclusion of the shares of any other classes or class and if at any meeting dividends are declared on more than one class the dividend declared on the shares of any such class may be at a higher or lower rate than or at the same rate as the dividend declared on the shares of the other or others of such classes. It shall be no objection to any resolution which shall declare a higher rate of dividend on the shares of any class or classes than the dividend declared on the shares of any other classes or class or which shall declare a dividend on the shares of any class or classes to the exclusion of the shares of any other classes or class that such resolution was passed by virtue of the votes of the holders of the shares of the classes or class to receive the higher rate of dividend or to receive the dividend (as the case may be) and that such resolution was opposed by the holders of the shares of the class or classes to receive the lower rate of dividend or to be excluded (as the case may be)”.
9. The constituent documents of KS do not address its winding up. Regulation 112 for the management of a company limited by shares in Table A of the Fourth Schedule to the Companies Act 1961 (WA) provides as follows in relation to a winding up:
“112. If the company is wound up the liquidator may, with the sanction of a special resolution of the company, divide amongst the members in kind the whole or any part of the assets of the company (whether they consist of property of the same kind or not) and may for that purpose set such value as he deems fair upon any property to be divided as aforesaid and may determine how the division shall be carried out as between the members or different classes of members. The liquidator may, with the like sanction, vest the whole or any part of any such assets in trustees upon such trusts for the benefit of the contributories as the liquidator, with the like sanction, thinks fit, but so that no member shall be compelled to accept any shares or other securities whereon there is any liability.”
10. According to the Australian Securities and Investments Commission (‘ASIC) 2002 annual return for KS (R1, appendix 19) the five fully paid issued shares in KS each constituted a separate class of share owned beneficially by Percy Kimpton (A class), Beryl Kimpton (IB class), Gregory Kimpton (C class), Guy Kimpton (D class) and Scott Kimpton (E class). The register did not change prior to the winding up of KS in April 2003.
11. KPS was formed under the Companies Act 1961 (WA) in January 1971 with a nominal capital of $100,000 divided into one hundred thousand shares of one dollar each for various objects including “to conduct and carry on the business of stud masters and commercial breeders and fatteners of cattle sheep and other livestock” and Percy Kimpton was one of five subscribers for shares (R1, appendix 8).
12. According to the ASIC 2002 annual return for KPS (R1, appendix 9) the 10,000 issued fully paid ordinary shares in KPS were owned beneficially, as to 2,500, by Beryl Kimpton, as to 2,500, by Percy Kimpton, as to 2,500, by Gregory Kimpton, and as to 2,500, jointly by Percy and Beryl Kimpton. The register remained unchanged until KPS was liquidated in April 2003.
13. Relevantly clauses 4 and 116 of the KPS articles of association provided:
“SHARE CAPITAL AND VARIATION OF RIGHTS
4. Without prejudice to any special rights previously conferred on the holders of any existing shares or class of shares, but subject to the Act shares in the Company may be issued by the Directors and any such share may be issued with such preferred, deferred, or other special rights or such restrictions, whether in regard to dividend, voting, return of capital or otherwise, as the Directors subject to any ordinary resolution of the Company, may determine.”
…
WINDING UP
116. If the Company is wound up the liquidator, may, with the sanction of a special resolution of the Company, divide amongst the members in kind the whole or any part of the assets of the Company (whether they consist of property of the same kind or not) and may for that purpose set such value as he deems fair upon any property to be divided as aforesaid and may determine how the division shall be carried out as between the members or different classes of members. The liquidator may, with the like sanction vest the whole or any part of any such assets in trustees upon such trusts for the benefit of the contributories as the liquidator, with the like sanction, thinks fit, but so that no member shall be compelled to accept any shares or other securities whereon there is any liability.”
14. KPS did not trade after the year ended 30 June 1993 (A3).
15. Percy Kimpton testified that the business of KPS failed in about 1972 due to an outbreak of red water fever in the company’s herd caused by cattle tick. The other original shareholders withdrew from the company and from 1975 to 1979 he, his wife, her brother and his son Gregory used KPS for trading in agriculture. From 1979 to 1980 KPS traded as a transport company carting grain. KPS stopped trading from 1981 to 1991. His wife’s brother withdrew from KPS in 1989 and on 2 November 1992 he and his wife resigned as company directors to give control of KPS to his son Gregory and his wife Susan for the purpose of pursuing their own business interests and from that point “we ceased to have any control or influence over the company”. (A1) He could not say why he and his wife continued to hold shares in KPS.
16. In relation to KS, Percy Kimpton stated that the company was involved in agriculture until 1980. KS was not used again until 1989 when the applicants and their sons Scott and Gregory resigned as directors leaving the control of KS to their son Guy and his wife Julie who conducted a transport business through the company.
17. Percy Kimpton retired in 1994 and applied for a service pension.
18. In 2001 the Commonwealth Department of Veterans Affairs advised the applicants that the Act was to be amended from 1 January 2002 to include attribution rules relating to the capital and income of private companies and the respondent subsequently sought information from the applicants about their interests in KS and KPS. According to the respondent they informed it that the assets of KPS and KS consisted exclusively of unsecured loans of $41,770 and $254,860 respectively and that they had no plans to wind up the companies. It was not disputed that the borrowers of the KPS loans were the applicants and their son Gregory and his wife Susan. The KS loan account was in the name of the applicants’ son Guy.
19. Bruce Byrnes testified that from his review of the work paper files for KPS and KS, the loans to shareholders appear to have been made prior to the dates that the companies stopped trading (A3). The subsequent movements in the loan accounts reflect administrative costs paid by Guy and Greg Kimpton on behalf of KS and KPS and the payment of a dividend to shareholders of KPS.
20. By 30 June 2002 the KPS loan balances were: PL & B J Kimpton $23,964 and G J & S V Kimpton $17,055 to produce a total outstanding balance of $41,019. At 30 June 2002 the directors of KPS considered the loans doubtful but they were neither written off nor forgiven (A3).
21. By 30 June 2002 the KS loan balance to Guy Kimpton was $252,160. It was considered doubtful but was neither written off nor forgiven (A3).
22. The Social Security and Veterans’ Entitlements Legislation Amendment (Private Trusts and Private Companies – Integrity of Means Testing) Act No 132 of 2000 inserted Division 11A of Part III B of the Act to attribute, from 1 January 2002, certain assets and/or income of private trusts and private companies to individuals for the purpose of assessing their entitlement to service pensions.
23. On 16 January 2002, Graeme Esson, the technical manager and authorised representative of Kingston Capital Limited advised Percy Kimpton, in response to a query of December 2001 regarding his “Veterans’ Affairs pension and the new rules that now apply to private trusts and companies”, that he had received information from Bruce Byrnes that KS and KPS had been dormant for a number of years and that if the companies currently have little or no value his service pension will not be affected by the new rules. However, if they have some value in the future then it is likely that the respondent will attribute at least 50% of KS to Percy Kimpton and 100% of the value of KPS jointly to the applicants for inclusion in the assets test (A5). Percy Kimpton sent a copy of this letter of advice to Bruce Byrnes under cover of a handwritten letter dated 23 January 2003, which the parties agreed was written on 23 January 2002, stating in part:
“I am not sure what the situation regarding these companies are(sic) however if you consider they could cause a problem in the future, what steps could be taken to avoid this becoming a problem with our pension.” (A5)
24. On 6 February 2002 the respondent’s delegate wrote to the applicants advising them of a reduction in their service pensions from 19 February 2002. This reduction occurred because assets of $101,464.00 in respect of KS, and $41,770.00 in respect of KPS (‘the attributed assets’), were attributed to the applicants pursuant to the amendments to the Act referred to in paragraph. 22 of these reasons.
25. On 18 February 2002 Percy Kimpton sent a copy of the respondent’s letter of 6 February 2002 to his accountant Bruce Byrnes (A4).
26. On 28 February 2002 and 12 March 2002 Bruce Byrnes discussed the attributed assets with the respondent’s delegate to establish the action that could be taken to have them removed from the assessment of the applicants’ service pensions (A3).
27. On 20 March 2002 Bruce Byrnes wrote to the respondent’s delegate stating that KS and KPS have been dormant for many years and have a “nil” asset position at 18 March 2002. He enclosed signed balance sheets for KS and KPS as at 18 March 2002 and letters of intent, from their directors, to liquidate and delist them in that financial year (A3, attachment 2). The loan receivables, of which the attributed assets were a part, were omitted from the balance sheets at KS and KPS. After a number of discussions in the period April to July 2002, Bruce Byrnes informed the respondent’s delegate that no action had been taken to prove the debts uncollectable but they were considered doubtful. He advised that as the debts had not been forgiven, KS and KPS would be liquidated (A3).
28. The notes to the financial statements of KS as at 30 June 2002 record a receivable, being an unsecured loan to Guy Kimpton, in the amount of $246,697 and a provision for doubtful debts of $246,697 and the balance sheet shows no net assets and no equity (R1, appendix 12). The notes to the financial statements of KPS as at 30 June 2002 record receivables, being an unsecured loan to the applicants of $17,055 and an unsecured loan to Gregory and Susan Kimpton of $23,187 and a provision for doubtful debts of $40,242. The balance sheet shows no net assets and no equity at 30 June 2002 (R1, appendix 2).
29. On 24 September 2002 the respondent’s delegate informed the applicants that their service pension had been increased from 4 April 2002. It appears that this calculation of the applicants’ service pension was a response to Bruce Byrnes’ letter of 20 March 2002 stating that KS and KPS had a “nil” asset position at 18 March 2002 because the previously attributed assets were treated as gifted from 18 March 2002 and so recorded as “deprived assets” subject to a disposal preclusion period of 5 years from 18 March 2002 to 18 March 2007. The values assigned to the deprived assets were $91,164.00 (KS) and $23,955.00 (KPS) (A3, attachment 3).
30. The applicants did not apply for review of the decisions of 6 February 2002 and of 24 September 2002 within the time limits prescribed by s 57A of the Act.
31. On 17 October 2002 an Australian Securities and Investment Commission (‘ASIC’) form 520 – Declaration of Solvency – was lodged with ASIC for each of KS and KPS prior to them going into members’ voluntary liquidation. The form 520 for KS recorded estimated realisable loans and advances of $252,160 and that for KPS, estimated realisable loans and advances of $40,242. The estimated expenses of winding up each company were $4,000 producing an estimated surplus after paying debts in full of $248,160 for KS and $36,242 for KPS (R1, appendices 13 and 3).
32. KS entered into a members’ voluntary liquidation on 31 October 2002 (R1, appendix 15 – ASIC form 505) and the notes to the special purpose financial statements for KS for the period ended 31 October 2002 show a receivable, being an unsecured loan of $244,697 to Guy Kimpton (R1, appendix 14). Guy Kimpton’s wife Julie was appointed liquidator (R1, appendix 15 – ASIC form 505) and her receipts and payments in the liquidation of KS are reported in annexure A to ASIC form 524 – presentation of accounts and statement by liquidator – as follows:
“ Receivables as at Liquidators Liquidators
31 October 2002 Receipts Payments
Mr P L Kimpton 5,001.00 5,001.00
Mrs B J Kimpton 5,001.00 5,001.00
Mr G J Kimpton 1.00 1.00
Mr S W Kimpton 26,707.00 26,707.00
Mr L G Kimpton 244,697.00 207,587.00 205,046.26
Page Kirk & Jennings 2,540.76
Total 244,697.00 244,297.00 244,297.00”
(R1, p10; appendix 16)
33. KPS entered into a members’ voluntary liquidation on 31 October 2002 (R1, appendix 5 – ASIC form 505) and the notes to the special purpose financial statements for KPS for the period ended 31 October 2002 show receivables, being an unsecured loan of $18,250 to Gregory Kimpton and an unsecured loan to the applicants of $17,055 (R1, appendix 4). Gregory Kimpton’s wife Susan was appointed liquidator (R1, appendix 5 – ASIC form 505) and her receipts and payments in the liquidation of KPS are reported in annexure A to ASIC form 524 – presentation of accounts and statement by liquidator - as follows:
“
Receivables as at Liquidators Liquidators
31 October 2002 Receipts Payments
Mr P L Kimpton 8,191.06 8,191.06
Mrs B J Kimpton 8,191.06 8,191.06
Mr P L & Mrs B J Kimpton 17,055.00 8,191.06 8,191.06
Mr G J & Mrs S V Kimpton 18,250.00 8,191.06 8,191.06
Mr G L Kimpton 2,540.76
Page Kirk & Jennings 2,540.76
Total 35,305.00 35,305.00 35,305.00”
(R1, p6; appendix 6)
34. The liquidation of KS and KPS was completed on 30 April 2003.
35. On 1 May 2003 the applicants wrote to the respondent’s delegate requesting that the amount of their service pensions be reviewed in light of the liquidation of KS and KPS. A re-assessment reducing the service pensions of the applicants from 15 May 2003 was communicated to them on 30 May 2003. Their interests in KS and KPS were removed from the respondent’s record of their financial assets but the deprived assets referred to in paragraph 29 of these reasons were retained. The applicants’ motor car was assigned a net market value of $15,500.
36. On 11 July 2003 the applicants requested a review of their pension assessment of 30 May 2003 on the grounds that the value of the deprived assets in respect of KPS and KS, on the basis of the distributions made by the liquidators, were $6,500 and $2 respectively and that the market value of the car, based on an independent valuation was $5,000 (T7). On 18 September 2003 the respondent’s Senior Review Officer affirmed the decision of 30 May 2003 save that the reduced value of the applicant’s car was accepted with effect from 10 July 2003. The applicants requested that the Tribunal review the decision of 18 September 2003 as it related to their interests in KS and KPS (A3, attachment 8).
37. Following a Tribunal conference the respondent agreed to re-assess the applicant’s service pensions and this re-assessment resulted in the delegate’s decision of 4 August 2004 which was affirmed by the respondent’s Senior Review Officer on 1 December 2004.
38. On 4 August 2004 the respondent’s delegate assessed the applicants’ service pensions by making a determination to retain the deprived asset amounts related to KS and KPS which the delegate decided had been correctly included in the calculation of their service pensions since 18 March 2002, see paragraph 29 of these reasons. The respondent’s Senior Review Officer affirmed this decision on the following basis:
“After consideration of the case, I make the following findings:
Under the Private Trusts & Companies legislation effective from 01 January 2002, if you diminish the income or assets of a private company, disposal of income and assets rules apply if adequate consideration is not received. The value of the disposed income or assets will remain assessable for 5 years.
The 2002 Balance sheets from Kimpton & Sons Pty Ltd and Kununurra Poll Shorthorn Studs Pty Ltd showed that assets held by the company previously had been wiped out. Based on this information, A Delegate of the Repatriation Commission determined on 4 August 2004 that Disposal of Assets rules should continue to apply as no supportive evidence had been provided to indicate that the disposed assets were irrecoverable.” (Statement of reasons of 1 December 2004, File No WX077016).
39. The hearing proceeded on the basis that the loan receivables of KPS and KS were ‘doubtful’ rather than ‘forgiven’ when Bruce Byrnes informed the respondent that KS and KPS had a nil asset position at 18 March 2002, see paragraph 29 of these reasons. The liquidation of KPS and KS reflects that the loan receivables were collected.
40. The gravamen of Bruce Byrnes’ submissions on behalf of the applicants is that the ‘deprived assets’ in relation to KS and KPS in the calculation of the applicant’s service pensions since 18 March 2002 are incorrectly classified and valued and that the values to be attributed to the assets should be the values determined at the liquidation of KS and KPS (A3).
41. The applicants’ entitlements to service pensions under the Act are means tested on the basis of an assets test. The method statement for the assets test is at Sch 6-F1 of the Act. It is based on the value of the person’s assets which is a reference to the value of the person’s interest in any asset, s 52(2) of the Act. Sections 52C and 52CA of the Act affect the value of assets subject to a charge or encumbrance or used in primary production, but generally, for the purpose of Sch 6-F1, ‘assets’ does not mean ‘net assets’ and none of its steps is a general deduction for liabilities; Repatriation Commission v Harrison 148 ALR 590 at 596.
42. The value of the applicants’ assets for the purpose of the assets test included a percentage of the value of the assets of KS and KPS from 1 January 2002 provided the following conditions for such attribution, prescribed in s 52ZZR of the Act, were satisfied:
“52ZZR Attribution of assets
(1)For the purposes of this Act, if:
(a)an individual is an attributable stakeholder of a company or trust at a particular time on or after 1 January 2002; and
(b)at that time, the company or trust owns a particular asset (whether alone or jointly or in common with another entity or entities); and
(c)if, at that time, that asset had been owned by the individual instead of by the company or trust, the value of the asset would not be required to be disregarded by any express provisions of this Act; and
(d)at that time, the asset is not an excluded asset (see subsection (2));
there is to be included in the value of the individual’s assets an amount equal to the individual’s asset attribution percentage of the value of the assets referred to in paragraph (b).
Excluded assets
(2)The Commission may, by writing, determine that, for the purposes of the application of subsection (1) to a specified individual and a particular company or trust, a specified asset is an excluded asset.
(3)A determination under subsection (2) has effect accordingly.
(4)In making a determination under subsection (2), the Commission must comply with any relevant decision-making principles.”
43. By s 52ZZJ (1) (a) of the Act, if a company is a controlled private company in relation to an individual, the individual is an attributable stakeholder of the company unless the respondent determines otherwise.
44. Section 52ZZC of the Act relevantly prescribes when a company is a controlled private company in relation to an individual as follows:
“52ZZC Controlled private companies
(1)For the purposes of this Division, a company is a controlled private company in relation to an individual if the company is a designated private company and:
(a) the individual passes the control test set out in subsection (2); or
(b)the individual passes the source test set out in subsection (3).
Control test
(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 rights 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.”
45. Section 52ZZA(1) of the Act prescribes that a company is a designed private company at a particular time as follows:
“52ZZA Designated private companies
(1) For the purposes of this Division, a company is a designated private company at a particular time if:
(a)the company satisfies at least 2 of the following conditions in relation to the last financial year that ended before that time:
(i)the consolidated gross operating revenue for the financial year of the company and its subsidiaries is less than $10 million;
(ii)the value of the consolidated gross assets at the end of the financial year of the company and its subsidiaries is less than $5 million;
(iii)the company and its subsidiaries have fewer than 50 employees at the end of the financial year; or
(b)the company came into existence after the end of the last financial year that ended before that time; or
(c)the company is a declared private company (see subsection (2));
and the company is not an excluded company (see subsection (5)).”
46. It was not contested and the Tribunal finds that KS and KPS at all relevant times satisfied the conditions set out in s 52ZZA(1)(a)(i)(ii) and (iii) and so the Tribunal finds that they were designated private companies from 1 January 2002 until they were deregistered in April 2003.
47. An entity holds a direct voting interest in a company at a particular time equal to the percentage of the total rights of shareholders to vote in the company that the entity is in a position to control at that time, ss 52ZZD(1) and 52ZZE(1) of the Act. It was not disputed and the Tribunal finds that at all relevant times the shareholders in KPS were the applicants and their son Gregory and the shareholders in KS were the applicants and their three sons. By s 52ZQ (1) (e) and s 52ZP (1) of the Act the applicants’ sons are their associates and so the Tribunal finds that the applicants passed the control test in s 52ZZC (2) (a) of the Act in respect of KPS and KS from 1 January 2002 until the companies were deregistered in April 2003 and that KPS and KS were controlled private companies in relation to the applicants during that period for the purpose of s 52ZZJ of the Act.
48. In light of the above conclusions, the Tribunal finds that the applicants were attributable stakeholders in KPS and KS, for the purpose of s 52ZZR (1) (a), from 1 January 2002 until the companies were deregistered in April 2003. At no stage during the hearing was it suggested by either party that the respondent had determined otherwise pursuant to s 52ZZJ of the Act.
49. ‘Asset’ is not specifically defined for the purpose of Division 11A in Part IIIB of the Act and so, by s 5L(1) of the Act, has the meaning of ‘property or money’. It was not contested and the Tribunal finds that the disputed loan receivables of KPS and KS were choses in action and as such were assets owned by them, for the purpose of s 52ZZR (1) (b), from 1 January 2002 to 11 April 2003 (the date when KS and KPS were divested of assets in the course of winding up; R1, appendices 6 and 16).
50. In relation to s 52ZZR(1)(c) the Tribunal finds that had the disputed loan receivables been owned by the applicants instead of KPS and KS, their value would not be required to be disregarded by an express provision of the Act. At no stage did the applicants seek to access the financial hardship rules on the ground that the loan receivables were unrealisable assets; ss 52Y, 52Z (1), 52ZZS and 52 (11) (12) of the Act. By 30 June 2002 the applicants were debtors as to $23,964 of the KPS loan balances, see para. 20 of these reasons. The effect of the notional exercise prescribed by s 52ZZR (1) (c) is that the loan balance owed by the applicants is eliminated because they are both debtors and creditors of that amount. The Tribunal finds this fact relevant to the making of any written determination pursuant to s 52ZZR (2) of the Act.
51. The following statements from the Explanatory Memorandum (at pp 3-4) to the Social Security and Veterans’ Entitlements Legislation Amendment (Private Trusts and Private Companies – Integrity of Means Testing) Bill 2000 are relevant to the operation of Division IIA of Part IIIB of the Act in this matter and in particular s.52ZZR(1)(d) and (2):
“A test based on identifying control of a structure is justified on the grounds that the controller of a structure can be considered the de facto ‘owner’ of the structure’s assets when he or she can use the assets for his or her own purposes or benefit. In assessing whether an individual passes the control test, the interests of that individual and of the individual’s ‘associates’ (as defined in the legislation) will be taken into account. This prevents a person in relation to whom a trust or company is a controlled private trust or company from diluting his or her interest in a structure (for example, by issuing non-voting shares in a company).
---
To ensure that people are not treated unfairly or affected unintentionally as a result of this measure, there are provisions in the attribution process for assets and/or income to be disregarded, if appropriate. Legislative asset hardship provisions will also apply, as a protection for those asset-rich/income-poor people who genuinely require taxpayer support.”
52. By s 52ZZR (1) (d) an individual’s asset attribution percentage of the value of excluded assets is not included in the value of the individual’s assets for the purpose of the Act.
53. By s 52ZZR (2) the respondent has the discretion to make a written determination, for the purposes of the application of s 52ZZR (1) to the applicants and KS and KPS, that the disputed loan receivables were excluded assets. The Tribunal finds that the applicants would be treated unfairly as a result of Division llA of the Act if the respondent were not to make such a determination.
54. The evidence of the formation and use of KS and KPS and of the nature of the shares held by the applicants and their sons in them, does not show an intention on the part of the applicants to use the disputed loan receivables for their own purposes or benefit or to dilute their interest in them. They were unrealisable assets in the hands of KS and KPS as, on the evidence, they could not reasonably be expected to sell them or use them as security for borrowing, s 5L (12). In any event Division llA looks through KS and KPS and extinguishes the disputed loan receivables to the extent that it attributes amounts to the applicants which they owe to KPS, c/f Repatriation Commission v Harrison 148 ALR 590.
55. In light of the above findings it is not necessary for the Tribunal to consider the applicants’ asset attribution percentage in relation to KPS and KS pursuant to s 52ZZJ or whether the liquidation of KS and KPS amounted to a disposal of assets pursuant to s 52E of the Act.
56. The Tribunal sets aside the decision under review and remits this matter to the respondent for reconsideration in accordance with the following direction: that the respondent determine, in accordance with s 52ZZR(2) of the Act that the loan of KS, that was receivable from Mr Guy Kimpton, and the loans of KPS, that were receivable from the applicants and Mr and Mrs Gregory Kimpton, are excluded assets for the purposes of s 52ZZR(1)(d) of the Act and that the respondent re-assess the applicants’ rate of service pensions, with effect from 18 March 2002, in accordance with that determination.
I certify that the 56 preceding paragraphs are a true copy of the reasons for the decision herein of Associate Professor G A Barton, Member
Signed: June Rainey
AssociateDate of Hearing 30 March 2005
Date of Decision 20 September 2005
Counsel for the Applicant Mr Bruce Byrnes
Solicitor for the Applicant Page Kirk & Jennings
Counsel for the Respondent Ms Sashi Maharaj
Solicitor for the Respondent Ms Michelle Sokolich
Australian Government Solicitor
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