Lee-Warner and Repatriation Commission
[2003] AATA 533
•6 June 2003
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2003] AATA 533
ADMINISTRATIVE APPEALS TRIBUNAL )
) No Q2002/554
VETERANS' APPEALS DIVISION ) Re DANIEL LEE-WARNER Applicant
And
REPATRIATION COMMISSION
Respondent
DECISION
Tribunal Deputy President Don Muller Date6 June 2003
PlaceBrisbane
Decision The Tribunal varies the decision under review and determines that the assets of Daniel Lee-Warner as at 27 November 2001, for the purposes of service pension calculations, pursuant to the provisions of the Veterans’ Entitlements Act 1986, be re-calculated on the basis that:
(i) the property owned by Kite Bar Pty Ltd at Julatten be valued at $150,000, and
(ii) the amount of $20,923 characterised as a loan from Kite Bar Pty Ltd to David Lee-Warner be deleted from the assets of Kite Bar Pty Ltd.
Signed
D.W. MULLER
DEPUTY PRESIDENT
CATCHWORDS
VETERANS’ AFFAIRS – service pension – value of assets sham transactions to lower the value of assets
Income Tax Assessment Act 1936: s108(1)
REASONS FOR DECISION
Deputy President Don Muller 1.This is an application to review a decision of a Delegate of the Repatriation Commission dated 26 March 2002, that the assets of Daniel Lee-Warner, the Applicant, as at 27 November 2001, totalled $255,802.33, which resulted in a reduction of the Applicant’s service pension pursuant to the Veterans’ Entitlements Act 1986.
2.The Applicant’s assets were determined by the Delegate to consist of the following:
Financial Institutions $ 670.00
Shares $ 13,464.84
Vehicle Nil
Family Trust Nil
Shares in Kite Bar Pty Ltd $225,208.49
Sole trader assets $ 6,459.00
Home contents $ 10,000.00
Loan to trust Nil_______
Total $255,802.33
3.The contentious matters are:
(i)the value to the Applicant of his shares in Kite Bar Pty Ltd, and
(ii)the value of the assets of Kite Bar Pty Ltd.
4.The Applicant, Daniel Lee-Warner, holds 89,999 shares in Kite Bar Pty Ltd. The remaining share (out of a total of 90,000 shares), is owned by the Applicant’s son, James Mackay Lee-Warner. The purchase price of the shares was declared to be $89,999.00 and $1.00 respectively. The assessment under review put the value of Kite Bar Pty Ltd at $225,211.00. The Applicant’s share of that was calculated to be $225,208.49.
5.There are two items included in the assets of Kite Bar Pty Ltd which are contentious:
(i)The value of a property at Julatten, which was valued at $201,000 for the purposes of the decision under review.
(ii)The value of a “loan” of $20,923 made by Kite Bar Pty Ltd to the Applicant in the 1995/96 financial year, which is still on the books of Kite Bar Pty Ltd as an unpaid loan.
6.On 21 April 1980, Kite Bar Pty Ltd became the Registered Owner of a property at Julatten, approximately 23 kms west of Mossman, North Queensland. The property covers an area of 18.22 hectares. It is zoned Rural A under the provisions of the Mareeba Shire Council, which covers rural pursuits, agriculture, animal husbandry and permits rural living.
7.The Unimproved Capital Value was $86,000 effective as at 30 June 1999.
8.The property has power and telephone services available to it. There is a bore to supply water. There are living quarters which have a septic tank fitted. The report of John Picard of the Australian Valuation Office described the living quarters as follows:
“The living quarters are understood to have been erected in 1987 and consist of a shed converted to an unfinished residence containing an area of 90m2. The shed has a galvanised iron truss gable roof clad with corrugated iron which is lined on the rake, a rough finish concrete floor, but it is not fully enclosed. It provides two bedrooms, a lounge area, kitchen and carport, with a bathroom, toilet and laundry in a small lean-to area attached to the rear. The bedrooms which are fully enclosed are on a timber floor raised about one metre above the concrete, and are lined and ceiled. The lounge, kitchen and carport do not have external walls. Kitchen appliances and shelves are very basic. The external walls of the dwelling are fibrous cement. The dwelling is connected to the power supply, has a septic tank and also a rain water tank and provides basic accommodation. It is apparently rented out at $125 per week. The improvements are considered to represent only a minor portion of the total value of the property.”
9.Mr. Picard’s valuation went on to say, among other things:
“The property is used as a rural living block with hobby style horticultural pursuits, rather than commercial crops. Surrounding properties are put to similar uses, with some larger properties used for grazing purposes or commercial crops.
The veteran advised that there was a hectare of land growing coffee bush that was drip irrigated, and some banana and exotic fruit trees were also noted.
The veteran originally submitted that the total value of the property was $250,000 and plant and machinery value was $5,499.
This Office originally inspected the property from the road on 25 January 2002, and this report is a review valuation as at that date. The living quarters cannot be seen from the property entrance, and the valuer at that time relied upon the veteran’s written description that the improvements were a 23 year old fibrous cement 2 bedroom home in good condition. Even so, he felt that the veteran’s opinion of value was too high, and he assessed the property value at $200,000 and the plant and machinery at $1,000.
The problems currently being experienced in the sugar cane industry are having a flow on effect to the real estate market, with a general lessening of demand, and prices remaining static or even falling in some sectors and locations. However this Officer annually inspects a ‘benchmark’ rural living lot in Julatten, and it is evident that this locality remains popular with those persons preferring a rural living life style, and prices and demand appear to have remained steady and shown slight increases over previous years. The recent sale of two close-by 2ha rural living lots with modern homes that have each sold for $170,000 are evidence of this fact.
The subject property has been valued by the direct comparison method and in particular, direct comparison with sales of large parcels of vacant land, as the improvements to this property only constitute a minor portion of the total value. The added value of the improvements has been fixed having regard to those sales in which the improvements were minimal.
Thus the value of the subject property as at 25.01.2002 is as follows.
Vacant land of 18.22 ha $120,000
Plus dwelling (with power connected) 90m2@ $325/m2 $ 29,250
Plus for bore $ 5,000
Plus horticultural improvements $ 5,000
$159,250
Rounded $159,000”
10.There is no challenge to Mr. Picard’s valuation of the property but evidence was given by Bruce William Peden, chartered accountant, that for the Applicant to realise the asset he would have to spend about $5,000 to wind up Kite Bar Pty Ltd, and it would cost him about $5,000 in various expenses to sell the property through an agent or auctioneer. Mr. Peden put the value of the property to the Applicant as a realisable asset at $150,000.
11.It was submitted on behalf of the Applicant that the value of the property owned by Kite Bar Pty Ltd should be further reduced because of a transaction which took place in 1995.
12.In 1995 the following documents came into existence:
(i)A Trust Deed, dated 1st March 1995, naming Kite Bar Pty Ltd as Trustee and Beneficiaries including the Applicant, the Applicant’s children, a grandchild of the Applicant and a spouse of a beneficiary. The Trust Deed was signed by the Applicant but no date was placed next to the signature. There is a Queensland Stamp Duty stamp on the front of the Trust Deed, which shows the date on which the Trust Deed was stamped as 28 September 1995.
(ii)A lease contract executed on 14 September 1995, which purported to lease the property at Julatten owned by Kite Bar Pty Ltd, to “Kite Bar Pty Ltd as trustee for the Daniel Lee-Warner Family Trust established by a trust Deed dated 1st March 1995 made between Jo Atherton Jarrett as Settlor and Kite Bar Pty Ltd as Trustee”.. The lease was to run from 1 April 1995 to 28 February 2027. The annual rental was to be $3,900 for the first year and thereafter “indexed”.
13.The Applicant gave evidence that he initiated the above arrangements in 1995 because he had become estranged from his second wife. He saw the arrangement as being a device by which he could frustrate any claims that his second wife might have on his assets. The children named as beneficiaries were children of his first marriage.
14.On 25 September 2002, the Applicant by way of Statutory Declaration determined to retire Kite Bar Pty Ltd as trustee of the Daniel Lee-Warner Family Discretionary Trust and replace it with his two children, James MacKay Lee-Warner and Anne MacKay Cook as Trustees.
15.It was submitted on behalf of the Applicant that two consequences arose out of the transactions of 1995 and 2002.
(i)The long lease of 32 years reduced the value of the property because it discouraged potential purchasers. The real value is to be ascertained by reference to the annual rent.
(ii)When the Applicant retired Kite Bar Pty Ltd as Trustee of the Family Trust, he lost control of the asset. For him it is now unrealisable and therefore worthless.
16.The valuer and the accountant agree that if the value in the property is to be ascertained by reference to the rent, plus the possibility of eventually getting control of the property in thirty years time, the value is $53,000.
17.The Tribunal takes the view that the lease from Kite Bar Pty Ltd to Kite Bar Pty Ltd as Trustee for the Daniel Lee-Warner Family Trust was a sham designed to allow the Applicant to avoid his obligations under the Family Law Act 1975. The same sham is now being put forward as a device to allow the Applicant to avoid the provisions of the Veterans’ Entitlements Act 1986.
18.The Statutory Declaration of 25 September 2002 is of no effect because the purported lease was a sham.
19.The Tribunal will give the Applicant the benefit of Mr. Peden’s evidence about the difficulties associated with actually realising the asset of the property at Julatten and his share in Kite Bar Pty Ltd, and assess the Applicant’s asset due to his Kite Bar Pty Ltd shares at $150,000.
20.As to the “loan” of $20,923.00 made by Kite Bar Pty Ltd to the Applicant in the taxation year 1995/96, Mr. Peden gave evidence that the books of the company show it as a loan. However, the records do not show how it came into existence. One of Mr. Peden’s colleagues thought that it may have been the sum total of “drawings” by the Applicant for that year. A note on the company file indicates that $17,270 was used to purchase a Ford utility on 16 May 1996 and the balance was for private purposes. The Ford utility was registered in the Applicant’s name. In the mid 1990s, Kite Bar Pty Ltd made a profit by selling aloe vera and coffee.
21.The “loan” was never paid back to Kite Bar Pty Ltd and presumably the Applicant had no intention of doing so.
22.It was submitted on behalf of the Applicant that the $20,923 is asset neutral because if it represents an asset of Kite Bar Pty Ltd, it also represents a debt owed by the Applicant.
23.The Tribunal takes the view that the $20,923 was paid by Kite Bar Pty Ltd to the Applicant as a dividend in 1995/96 and if the Commissioner of Taxation had known about it he would have deemed it to be so pursuant to s.108 of the Income Tax Assessment Act1936 which provided:
“108(1) [Amounts representing distribution of profits] If a private company:
(a) pays an amount to an associated person by way of an advance or loan; or
(b)pays or credits an amount on behalf of, or for the individual benefit of, an associated person;
so much (if any) of the amount paid or credited as, in the opinion of the Commissioner, represents a distribution of profits shall, for the purposes of this Act other than Division 11A of Part III and Division 4 of Part VI, be deemed to be a dividend paid by the company:
(c) to the associated person as a shareholder in the company;
(d) out of profits derived by the company; and
(e)on the last day of the year of income of the company in which the payment or credit referred to in paragraph (a) or (b) is made.”
24.The Tribunal determines that although the $20,923 is shown in the books of Kite Bar Pty Ltd as a loan, it is not a loan and should be deleted from the assets.
25.Consequently, the Tribunal determines that the assets of Daniel Lee-Warner as at 27 November 2001, for the purposes of the Veterans’ Entitlements Act 1986 should be re-calculated on the basis that:
(i)the value of the property at Julatten is worth $150,000 to Daniel Lee-Warner, and
(ii)the amount of $20,923 characterised as a loan from Kite Bar Pty Ltd to Daniel Lee-Warner be deleted from the assets of Kite Bar Pty Ltd.
26.The decision under review will be varied accordingly.
I certify that the 26 preceding paragraphs are a true copy of the reasons for the decision herein of Deputy President Don Muller
Signed: .......................................................................................
C. O’Donovan, AssociateDate/s of Hearing 28 November 2002
Date of Decision 6 June 2003
Solicitor for the Applicant MacDonnells
Counsel for the Respondent Ms. H. Barskill
Solicitor for the Respondent Australian Government Solicitor
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