Leiv Bornecrantz and Secretary, Department of Social Services
[2014] AATA 327
[2014] AATA 327
Division GENERAL ADMINISTRATIVE DIVISION File Number(s)
2013/4897
Re
Leiv Bornecrantz
APPLICANT
And
Secretary, Department of Social Services
RESPONDENT
DECISION
Tribunal Deputy President RP Handley
Date 27 May 2014 Place Sydney The decision under review is varied by reducing from 50% to 45% the assets and income of Hanbury Investments Pty Ltd attributed to Mr Bornecrantz. The decision is otherwise affirmed.
..........................[sgd]..............................................
Deputy President RP Handley
Catchwords
SOCIAL SECURITY – age pension – assets test – attributable stakeholder of a company – controlled private company – asset attribution percentage of less than 100%
SOCIAL SECURITY – age pension – assets test – whether an individual can elect to be treated as a non-homeowner – principal home exception
Legislation
Social Security Act 1991 (Cth) ss 11(4), 1118, 1207A, 1207B, 1207C, 1207N, 1207R, 1207Q, 1207U, 1207X, 1208E, 1208H
Cases
Secretary, Department of Employment and Workplace Relations v Vanderpluym [2007] FCA 876
Secretary, Department of Families, Housing, Community Services and Indigenous Affairs and Egberts [2007] AATA 2102
Secretary, Department of Social Services v Garvey (1989) 22 FCR 136Secondary Materials
Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000
Social Security (Attribution of Assets) Principles 2001REASONS FOR DECISION
Deputy President RP Handley
Mr Bornecrantz has applied to the Tribunal for the review of a decision made by the Social Security Appeals Tribunal (SSAT) to affirm a decision to reduce the rate of his age pension due to the value of his assets.
BACKGROUND
Mr Bonecrantz was born in Sweden in 1946 and currently lives there with his wife. He holds qualifications as an accountant and company secretary. Mr and Mrs Bornecrantz became Australian citizens by conferral on 7 November 2011.
In April 2011, Mr Bornecrantz applied to Centrelink for the age pension, declaring, amongst other things, that he currently received a pension of $2,006.54 a year from the Swedish Government and, as at 31 December 2010, had a superannuation account with a balance of $27,820. On 7 June 2011, Centrelink decided to pay him the age pension from 25 June 2011 at a reduced rate.
In a decision dated 22 April 2013, an Authorised Review Officer (ARO) varied the decision, resulting in Mr Bornecrantz’s pension being reduced to $311.02 a fortnight. The ARO’s decision focussed largely on the attribution of the assets held by two companies, Hanbury Investments Pty Ltd (‘Hanbury’) and Hasso Pty Ltd (‘Hasso’). Mr Bornecrantz established both companies, held shares in each, and at various times acted as their Director. Since 1997, he and his wife have lived in properties purchased by Hanbury. The ARO decided that the rate of age pension payable to Mr Bornecrantz should be recalculated on the basis of the following findings:
·Mr Bornecrantz had divested himself of his superannuation account from 16 November 2011. It was therefore not an asset to be considered in calculating his age pension after 16 November 2011.
·50% of the assets and income of Hanbury should be attributed to Mr Bornecrantz.
·100% of the assets and income of Hasso should be attributed to Mr and Mrs Bornecrantz jointly.
·Loans to Hanbury from Mrs Bornecrantz ($186,794) and from Ms Hughes, the only other shareholder in Hanbury ($95,443), were not to be recognised as liabilities of Hanbury because no written loan agreements had been provided to the Department.
·The value of Mr Bornecrantz’s interest in his principal home should be disregarded for the purpose of the assets test. The principal home being:
oUntil 21 November 2011, Mr Bornecrantz’s NSW property.
oAfter 21 November 2011, Mr Bornecrantz’s property in Sweden.
Mr Bornecrantz applied to the SSAT for a review of the ARO’s decision. In its decision of 29 August 2013, the SSAT affirmed the ARO’s decision. On 30 September 2013, Mr Bornecrantz applied to the Tribunal for a review of the SSAT’s decision.
LEGISLATION AND ISSUES
The regime for calculation of the age pension is set out in the Social Security Act 1991 (the Act). The primary purpose of the pension is to maintain a basic level of income for those who are unable to provide for themselves: Secretary, Department of Social Services v Garvey (1989) 22 FCR 136. The age pension is means tested.
Section 1064 of the Act provides that the rate of age pension is to be calculated by reference to the Rate Calculator in Part 3.2 of the Act. Section 1064-A1 establishes the general rate calculation process. Step 11 of s 1064-A1 provides that the method of calculation to be applied is whichever of the Assets Test or the Income Test that results in the lowest rate of pension. I am satisfied, given the substantial difference between Mr Bornecrantz’s assets as opposed to his income, and having considered Centrelink’s calculations, that the Assets Test would result in the lower rate of pension. The Assets Test is therefore to be applied in calculating Mr Bornecrantz’s rate of age pension.
It is important to note that, in applying the Assets Test, s 1064-A2 provides that where two people are members of a couple, they will be treated as pooling their income and assets and sharing them on a 50/50 basis. Mr and Mrs Bornecrantz’s assets are therefore to be combined in applying the Assets Test.
The application of the Assets Test to Mr Bornecrantz raises a number of issues for the Tribunal to decide:
(a)The value of Mr Bornecrantz’s assets for the purposes of the Assets Test;
(b)Whether Hanbury was a ‘designated private company’;
(c)If so, whether Hanbury was a ‘controlled private company’ in relation to Mr Bornecrantz;
(d)If so, whether Mr Bornecrantz was an ‘attributable stakeholder’ of Hanbury;
(e)If so, whether Mr Bornecrantz’s ‘asset attribution percentage’ should be lower than 100%;
(f)Whether loans made by Mrs Bornecrantz and Ms Hughes should be considered as liabilities of Hanbury.
At the end of the hearing, Mr Bornecrantz also questioned whether he could elect to be treated as a non-homeowner for the purposes of the Assets Test. This issue is also considered below.
THE COMPANIES: HANBURY AND HASSO
In about 1983, Mr Bornecrantz and Ms Lynette Hughes purchased an art gallery and picture framing business which was vested in a company registered for that purpose - Hanbury Investments Pty Ltd (Hanbury). Mr Bornecrantz incorporated Hanbury on 11 May 1983 with an issued share capital of $10,000. Of the 10,000 shares, 5,000 were issued to Ms Hughes and 5,000 shares to Mr Bornecrantz. Ms Hughes was a Director from 25 August 1983 to 1 January 2003 and was reappointed as a Director on 27 January 2014. Mr Bornecrantz has been the Secretary of Hanbury since it was incorporated and was a Director from 25 August 1983 to 1 October 1998 and from 4 April 2004 to 15 May 2012. In addition to Ms Hughes, the only other current Director of Hanbury is Ms Carolyn Slinn, who is Mrs Bornecrantz’s sister.
Mr Bornecrantz said the art gallery and picture framing business was sold in about 1986, with the proceeds of sale being received while he was overseas. On his return to Australia, Mr Bornecrantz invested his share of the proceeds in property. He used Hanbury as a vehicle for property investment and later for a transport subcontracting business.
In 1988, Ms Hughes loaned Mr Bornecrantz $3,000 for his personal expenses. The terms of this loan were set out in a document dated 20 September 1990 by which Mr Bornecrantz stated he was assigning to Ms Hughes all the voting rights and all other rights attached to his 4,999 shares in Hanbury as a security and personal lien for the loan. The document is expressed in the present tense but, given Mr Bornecrantz’s evidence that he had provided the share certificate to Ms Hughes at the time of the loan, I find that Mr Bornecrantz gave consideration for the loan at the time it was entered into and that the terms of the agreement were only recorded later.
Mr Bornecrantz failed to repay the loan and, pursuant to the terms of his agreement with Ms Hughes, his evidence is that Ms Hughes thereby became the beneficial owner of his 4,999 shares. On 14 March 1994, Mr Bornecrantz and Ms Hughes signed a “Transfer of Shares” whereby Mr Bornecrantz transferred the shares to Ms Hughes which she agreed to hold subject to the conditions of issue. This transfer, which Mr Bornecrantz said was on the reverse side of the share certificate, was not registered with the Australian Securities and Investments Commission (ASIC) at the time. He said he did not register the transfer because of the hassle involved in doing so. Apparently, Ms Hughes subsequently lost the share certificate and it was not until 28 January 2014 that Mr Bornecrantz registered the transfer of the shares, which he said was relatively easy because it could be done remotely online.
Mr Bornecrantz registered another company for the purposes of his transport subcontracting business activities - Hasso Pty Ltd (Hasso). However, while reference to the company is included in the documents provided to Centrelink by Mr Bornecrantz, there do not appear to be any issues in dispute concerning Hasso.
In about 1993, Mr Bornecrantz commenced a relationship with Ms Elizabeth Fairall (ne Chadwick). According to Ms Fairall (in a letter to the Deputy Premier of Queensland dated 8 August 1997 protesting about the imposition of stamp duty), in about 1996, she and her former husband were divorced and Ms Fairall obtained a small terrace house in Sydney as part of the property settlement. In order to support herself, Ms Fairall mortgaged the terrace house and purchased a coffee shop business in Bondi Junction. The business was not successful and Ms Fairall eventually ceased operating the business. She stated that she had to sell her house in order to cover her losses.
Ms Fairall decided to move to Brisbane and purchase a more affordable house with her remaining capital. However, at that time, she needed to return to England (her country of birth) to visit her mother and arranged, at Mr Bornecrantz’s suggestion, for the purchase to be effected through his company, allowing the purchase to be completed in her absence. Ms Fairall transferred $165,000 to Hanbury for this purpose. The transfer of the title of the property (at Kate Street, Gordon Park, Queensland) to Hanbury was registered on 17 June 1997. Mr Bornecrantz and Ms Fairall subsequently lived in the property – located at Kate Street, Gordon Park, Queensland – as their principal home. The property was later sold and registration of the transfer of title took place on 31 May 2011.
Mr Bornecrantz’s evidence is that he used the security of the Kate Street, Gordon Park property in order to raise funds for Hanbury’s purchase of other property. This included an investment property at Garfield Road, Logan Central, Queensland, of which Hanbury became the registered owner on 17 June 1997 and which was sold in 2013, with the transfer of title being registered on 9 August 2013.
In June 1999, Hanbury purchased a further property at Macquarie Fields, to the south west of Sydney. In June 2011, when Mr Bornecrantz became eligible for the age pension, this was his and Mrs Bornecrantz’s principal home. (Mr Bornecrantz and Ms Fairall had married in June 2006.) The Macquarie Fields property was Mr Bornecrantz’s principal home until 21 November 2011 after which he and Mrs Bornecrantz moved to a property purchased by Hanbury in Bengtsfors, Sweden, which was still their principal home at the time of the hearing. Mr Bornecrantz said he has arranged for the Macquarie Fields property to be sold and hoped it would be on the market from 1 May 2014. He said he also intends to sell the Swedish property but repairs to the property must be undertaken before this can be achieved.
Mr Bornecrantz said he and his wife intend to move to the UK where they will purchase a house with the funds to which his wife is beneficially entitled from the sale of the Hanbury owned properties. He contends that his wife is entitled to the legal ownership of a house in the UK of equivalent standard to the property at Kate Street, Gordon Park, which had been purchased with her assets.
A search of the database maintained by the Australian Securities Investment Commission (ASIC) made on 11 March 2014 reveals that 9,999 of the 10,000 issued shares in Hanbury are registered in Ms Hughes’ name and that she holds these shares beneficially. One issued share is shown as registered in Mr Bornecrantz’s name although not beneficially held by him. The transfer of 4,999 issued shares to Ms Hughes was affected on 28 January 2014. However, the 1996 Annual Report for Hanbury records that Mr Bornecrantz was not the beneficial owner of the 5,000 shares registered in his name at that time. Mr Bornecrantz said he interpreted Ms Hughes having the beneficial ownership of these shares as meaning that he remained on the share register on her behalf.
As noted above, as at 11 March 2014, the Directors of Hanbury are Ms Hughes (since 27 January 2014) and Ms Slinn (since 14 May 2012) and the Secretary is Mr Bornecrantz (since 25 August 1983).
DISCUSSION OF ASSETS
Superannuation
Section 1118 of the Act provides that the value of an individual’s investment in a superannuation fund is to be disregarded for the purpose of calculating that person’s assets until the person reaches the pension age (65) or begins to receive payments out of the fund. Centrelink accepted that at 16 November 2011 Mr Bornecrantz had expended all of his superannuation investment and it therefore should not be considered in calculating his rate of pension after that date. His wife, on the other hand, is now 63 years old. Whether Mrs Bornecrantz’s superannuation is to be considered an asset for the purposes of calculating her husband’s rate of pension is dependent on whether she has begun to receive payments from her fund. There is no evidence before the Tribunal that Mrs Bornecrantz has begun to receive superannuation payments. However, if Mrs Bornecrantz is in receipt of payments, her superannuation fund is to be considered an asset for the purpose of calculating Mr Bornecrantz’s rate of age pension.
Hanbury Investments Pty Ltd
Part 3.18 of the Act deals with the consideration of a person’s interests in private companies for the purposes of the assets test. Section 1208E provides relevantly:
(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 provision 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 asset referred to in paragraph (b).
Note: For attribution of the assets of a special disability trust, see section 1209Y.
In determining what percentage of Hanbury’s assets should be attributed to Mr Bornecrantz, the Tribunal must firstly decide whether Mr Bornecrantz is an ‘attributable stakeholder’ (s 1208E(1)(a)). Section 1207X deems that an individual is an attributable stakeholder of the company, unless the Secretary determines otherwise, if a company is a “controlled private company in relation to an individual”.
Is Hanbury a Controlled Private Company?
The Tribunal must therefore decide whether Hanbury is a ‘controlled private company’ in relation to the individual. Section 1207Q, however, requires that for a company to be regarded as a controlled private company, it must be a ‘designated private company’. A ‘designated private company’ is described in s 1207N:
(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
…
Noting that Hanbury’s revenue is less than $25 million and that it has fewer than 50 employees, I am satisfied that Hanbury is a designated private company.
In order for a company to be a controlled private company in relation to an individual, s 1207Q states that the individual must pass the ‘control test’. The section provides relevantly:
(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 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.
In relation to s 1207Q(2)(a), the first control test, the term ‘direct voting interests’ is defined in s 1207R(1):
(1) An entity holds a direct voting interest in a company at a particular time equal to the percentage of the voting power in the company that the entity is in a position to control at that time.
Section 1207U provides that ‘interest’ in a share includes both legal and equitable interests:
(1) This section applies for the purpose of working out the percentage of a company's total paid-up share capital in which an entity holds an interest.
(2) Subject to this section, for the purposes of this Division, an entity holds an interest in a share if the entity has any legal or equitable interest in the share.
The question for the Tribunal is whether on his own, or together with his associates, Mr Bornecrantz exercises sufficient control over Hanbury for the purposes of the control test. In doing so, the Tribunal must consider whether Ms Hughes, or the other directors of Hanbury during the period since June 2011, are associates of Mr Bornecrantz - Mrs Bornecrantz and Ms Ann-Christin Gelin (Mr Bornecrantz’s sister) until 1 June 2012, and Ms Slinn (Mrs Bornecrantz’s sister) from 14 May 2012. An ‘associate’ is defined in s 1207C(1) to include:
(e) a relative of the individual;
(f) an entity who, in matters relating to the trust or company:
(i) acts, or is accustomed to act; or
(ii) under a contract or an arrangement or understanding (whether formal or informal), is intended or expected to act;
in accordance with the directions, instructions or wishes of:
(iii) the individual; or
(iv) the individual and another entity who is an associate of the individual because of another paragraph of this subsection;
(g) an entity that is a declared associate of the individual (see subsection (2));
(h) a business partner of the individual or a business partnership in which the individual is a business partner;
An ‘entity’ is defined in s 1207A as including an individual.
A ‘relative’ of the individual is defined in s 1207B relevantly as follows:
(1) For the purposes of this Part, a relative , in relation to a person (the first person ), means any of the following:
(a) the spouse of the first person;
(b) a parent, grandparent, brother, sister, uncle, aunt, nephew, niece, first cousin, second cousin or lineal descendant of the first person;
(c) the spouse of a person covered by paragraph (b);
(d) a parent, grandparent, brother, sister, uncle, aunt, nephew, niece, first cousin, second cousin or lineal descendant of the spouse of the first person;
(e) the spouse of a person covered by paragraph (d);
(f) a child of a person covered by any of the preceding paragraphs.
The Respondent contends that Mrs Bornecrantz and Ms Gelin are both relatives of Mr Bornecrantz pursuant to this definition. Ms Slinn does not fall within the definition. The Respondent also contends that Ms Hughes is otherwise an ‘associate’ of Mr Bornecrantz because, in matters relating to Hanbury, she acts in accordance with Mr Bornecrantz’s instructions.
Mr Bornecrantz’s evidence is that Ms Hughes is not interested in the detail of running the business – she is now aged 80 – and leaves the running of Hanbury to him. She has, nevertheless, been aware of Hanbury’s business activities and, for example, acted as a guarantor for Hanbury’s purchase of the property in Brisbane. Hanbury has never distributed any return to the shareholders. In more recent years while Mr Bornecrantz was a Director of Hanbury, the annual accounts attribute Director’s fees to him of $8,000 per annum. He has never been paid these fees. The total amount shown as owing to him by Hanbury (the Balance Sheet for 2010 shows a current account liability to Mr Bornecrantz of $46,545) includes Director’s fees which have never been paid plus other expenses for which he has not been reimbursed.
Mr Bornecrantz said Ms Hughes has been irritated by the repercussions for Hanbury following Mr Bornecrantz’s application for the age pension. She has instructed him to liquidate the company and sell all Hanbury’s assets. In doing so, Mr Bornecrantz is seeking to protect his wife’s interests given that the provision of her funds to Hanbury enabled Hanbury’s property investments. Mr Bornecrantz said the two Queensland properties have been sold, the Macquarie Fields property is to be placed on the market imminently, and the Swedish property will be sold once essential repairs have been undertaken. The sale of Hanbury’s properties will fund the purchase of a home for his wife in the UK, equivalent to the standard of the Kate Street, Gordon Park property which was purchased using her funds. Any funds not required for this purpose will be distributed to the shareholders. Mr Bornecrantz said Ms Hughes has agreed to this.
The Respondent contends that the first control test (s 1207Q(2)(a)) is satisfied because Mr Bornecrantz and his ‘associate’, Ms Hughes, together hold more than 50% of the direct voting interests in Hanbury, without reference to whether they hold legal or beneficial interests. Ms Hughes has held 5,000 of the 10,000 issued shares in Hanbury since its incorporation. The documentary evidence and that of Mr Bornecrantz indicates that she has also held the beneficial interest in a further 4,999 shares since at least 1994. In my view, Mr Bornecrantz’s evidence supports a finding that Ms Hughes is his associate. As he stated, she is not interested in Hanbury’s affairs and has left the running of its business to him. I am satisfied that she has generally been accustomed to act in accordance with his instructions or wishes. Thus, I find the evidence supports a finding that Mr Bornecrantz passes the first control test in relation to Hanbury.
In relation to s 1207Q(2)(b), the second control test, s 1207T provides:
(1) An entity holds a direct control interest in a company at a particular time equal to the percentage of the total paid-up share capital of the company in which the entity holds an interest at that time.
I agree with the Respondent’s contention that the evidence discussed above also supports a finding that Mr Bornecrantz satisfies the second control test: Mr Bornecrantz and Ms Hughes together hold more than 15% of the direct control interests in Hanbury. Thus, whether pursuant to s 1207Q(2)(a) or (b), I am satisfied that Mr Bornecrantz passes the control test in relation to Hanbury.
Is Mr Bornecrantz an Attributable Stakeholder of Hanbury?
Since Mr Bornecrantz satisfies the control test, Hanbury is a controlled private company in relation to Mr Bornecrantz. Pursuant to s 1207X(1)(a), Mr Bornecrantz will therefore be deemed an attributable stakeholder of Hanbury ‘unless the Secretary otherwise determines’. Thus, the section confers discretion on the decision-maker to decide that an individual is not to be regarded as an attributable stakeholder. The Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000 (Attributable Stakeholder Principles) sets out the principles to be taken into consideration by the decision-maker in making this determination. The following paragraphs are relevant:
7 Circumstances affecting relationship with company or trust
(1) The Secretary must consider whether there are relevant circumstances that make it inappropriate for the individual to be an attributable stakeholder of the company or trust.
(2) For subsection (1), relevant circumstances 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.
8 Contribution to company or trust
If the individual has made a contribution to the company or trust, the Secretary must consider 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 received consideration for the contribution, the amount of consideration.
…
11 Benefit from assets and income of company or trust
(1) The Secretary must consider whether the individual receives or derives any kind of benefit (other than a benefit mentioned in section 9 or 10) from the assets or income, or both, of the company or trust.
(2) For this section, benefit:
(a) is not limited to a benefit to which the individual has a legal or equitable entitlement; and
(b) includes benefits received or derived in the form of property or services.
…
13 Other circumstances
The Secretary must consider any other circumstance that affects the involvement of the individual with the activities or the administration of the company or trust.
The evidence indicates that Mr Bornecrantz has exercised effective control over the management of Hanbury and the direction of its activities - he has run Hanbury since its art gallery and picture framing business was sold. To the extent that Hanbury has since been successful in property investments, Mr Bornecrantz has made a valuable contribution to its business from which he has not derived any benefit by way of remuneration. He has, however, derived a benefit from Hanbury by way of modest contributions to a superannuation account (now paid out) and by virtue of the fact that he and Mrs Bornecrantz have lived in the company’s properties rent free and, according to Hanbury’s financial statements, with at least some of the associated expenses paid for by the company.
Taking this into account, in my view, it is not inappropriate for Mr Bornecrantz to be an attributable stakeholder of the company.
What percentage of Hanbury’s assets should be attributed to Mr Bornecrantz?
If the Tribunal decides not to exercise the discretion in s 1207X(1)(a), it must determine what percentage of Hanbury’s assets should be attributed to Mr Bornecrantz. Section 1207X(1)(b) states:
(1) For the purposes of this Part, if a company is a controlled private company in relation to an individual:
…
(b) if the individual is an attributable stakeholder of the company—the individual’s asset attribution percentage in relation to the company is:
(i) 100%; or
(ii) if the Secretary determines a lower percentage in relation to the individual and the company—that lower percentage;
The question is therefore whether a lower percentage should be attributed to Mr Bornecrantz. In making this determination, the Attributable Stakeholder Principles provide relevantly:
16 Circumstances affecting relationship with company or trust
(1) The Secretary must consider whether there are relevant circumstances that make it inappropriate for the individual to have an asset attribution percentage of 100%.
(2) For subsection (1), relevant circumstances 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 and, if so, the extent of that control.
17 Contribution to company or trust
If the individual has made a contribution to the company or trust, the Secretary must consider 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 received consideration for the contribution, the amount of consideration.
20 Benefit from assets and income of company or trust
(1) The Secretary must consider whether the individual receives or derives any kind of benefit (other than a benefit mentioned in section 18 or 19) from the assets or income, or both, of the company or trust.
(2) For this section, benefit:
(a) is not limited to a benefit to which the individual has a legal or equitable entitlement; and
(b) includes benefits received or derived in the form of property or services.
22 Other circumstances
The Secretary must consider any other circumstance that affects the involvement of the individual with the activities or the administration of the company or trust.
The Respondent submits that Mr Bornecrantz’s asset attribution percentage in relation to Hanbury should be 50% for the reasons set out by the SSAT in its decision. A significant matter for the SSAT in making its determination was the ownership of shares in Hanbury, namely the proportion of those shares in which Mr Bornecrantz has legal and beneficial interests. Since the SSAT decision on 29 August 2013, Mr Bornecrantz has registered the transfer of 4,999 of his shares to Ms Hughes in accordance with the agreement signed in 1994.
In my view, the shares held by Mr Bornecrantz do not reflect the degree of control and benefit derived by him from Hanbury. Equally, the shares held by Ms Hughes do not reflect her interest in the company. Mr Bornecrantz’s evidence is that the person holding the most significant ‘equitable’ interest in Hanbury is his wife pursuant to the $165,000 she loaned to the company in 1997 and the additional contributions she made to the company from her salary while working as a store manager for Lifeline in Ingleburn. It is by virtue of these funds that Mr Bornecrantz has managed to generate a capital appreciation in Hanbury’s assets. His evidence is that this interest entitles his wife to the purchase of a property of equivalent standard in the UK, to which they plan to move. Mr Bornecrantz has also made a financial contribution to Hanbury by not drawing any remuneration for his services and by contributing to the payment of its expenses. Similarly, the accounts indicate that Ms Hughes has made financial contributions to the business, which are attributed to her as loans to the company.
Determining with any precision what percentage of Hanbury’s assets should be attributed to Mr Bornecrantz is very difficult. However, given the evidence, I find that 90% of the assets of Hanbury are attributable to Mr and Mrs Bornecrantz and 10% to Ms Hughes. The 10% attributable to Ms Hughes reflects Mr Bornecrantz’s evidence that, if Hanbury were to be liquidated, his wife has the principal interest in the company’s assets, albeit an equitable interest, which, as a result of his management of the company’s assets, has increased significantly in value. Only a relatively small residue of funds would be due to Ms Hughes as the holder of 9,999 of the 10,000 issued shares. Of the 90% attributable to Mr and Mrs Bornecrantz, it is in my view reasonable to attribute 45% to each of them. This would reflect the substantial interest that Mrs Bornecrantz has in the company’s assets. In such circumstances, the attribution of a greater percentage of Hanbury’s assets to Mr Bornecrantz is not appropriate. However, given the benefit Mr Bornecrantz stands to gain from his wife’s interest, and in view of the substantial control that Mr Bornecrantz exercises over Hanbury, an attribution percentage of 45% would be reasonable.
Should the loans be regarded as liabilities of Hanbury?
Mr Bornecrantz submits that loans made by his wife and Ms Hughes to Hanbury should be considered as liabilities of the company, and the company’s assets should be reduced accordingly. Section 1208E of the Act provides that excluded assets are not to be included in the calculation of the value of an individual’s assets. In determining whether an asset is an excluded asset, the decision-maker must have regard to the Social Security (Attribution of Assets) Principles 2001 (the Attribution of Assets Principles): s 1208E(4).
The loans to Hanbury made by Mrs Bornecrantz and Ms Hughes were not in exchange for shares in Hanbury. In particular, the loan of $175,241 from Mrs Bornecrantz was purportedly in return for an interest in property. In the case of a loan, whether secured by a charge or encumbrance on property, or unsecured, the Principles require the decision maker to take into account whether the loan is an ‘arm’s length transaction’ in deciding whether the loan should be excluded.
Section 1208G(1) provides for the value of a particular asset to be reduced by the charge or encumbrance over that asset. However, in making a decision to exclude the charge or encumbrance, the decision-maker must comply with the Attribution of Assets Principles. Similarly, in the case of unsecured loans, s 1208H states:
Effect of unsecured loan on value of assets
(1) For the purposes of the application of this Division to a particular individual and a particular company or trust, if:
(a) the company or trust is the borrower under a loan; and
(b) the loan is not secured by a charge or encumbrance over one or more of the assets of the company or trust;
the Secretary may, by writing, determine that the value of a specified asset of the company or trust is to be reduced by the whole, or a specified part, of the amount of the loan.
(2) A determination under subsection (1) has effect accordingly.
(3) In making a determination under subsection (1), the Secretary must comply with any relevant decision-making principles.
Paragraph 8 of the Attribution of Assets Principles require, in the case of a charge or encumbrance, that the decision maker take into account whether the transaction that gave rise to the charge or encumbrance was an arm’s length transaction. Criteria for an arm’s length transaction are set out in paragraph 9 and other relevant matters in paragraph 10. In the case of unsecured loans, the relevant paragraphs of the Attribution of Assets Principles are very similar and state the following:
12 Effect of unsecured loan on value of assets
In relation to an unsecured loan, the Secretary must take into account:
(a) whether a transaction that gave rise to the loan was an arm’s length transaction, having regard to the criteria described in section 13; and
(b) the matters referred to in section 14.
13 Criteria for arm’s length transaction
(1) For paragraph 12 (a), a transaction is an arm’s length transaction if:
(a) the transaction is for the purposes of the business activities of the company or trust; and
(b) the transaction is made under a written agreement that is signed by each party to the agreement, and witnessed by an individual who is not a party to the transaction; and
(c) each party to the transaction is:
(i) at least 18 years old; or
(ii) at least 16 years old and engaged in a full-time occupation; or
(iii) at least 16 years old and receiving a social security entitlement; and
(d) the transaction is made for an arm’s length amount.
(2) For subparagraph (1) (c) (ii), a full-time occupation:
(a) includes any employment, trade, business, profession, vocation or calling; and
(b) does not include a course of education at a school, college, university or similar institution.
14 Other matters
For paragraph 12 (b), the Secretary must also take into account, in relation to the transaction that gave rise to the charge or encumbrance:
(a) whether the individual is the sole attributable stakeholder, or a member of a couple both members of which are the only 2 attributable stakeholders of the company or trust; and
(b) whether the loan is secured by a charge or encumbrance over an asset other than an asset described in paragraph 1208H (1) (b) of the Act; and
(c) the commercial, social and familial relationships (if any) between the parties to the transaction; and
(d) the nature and circumstances of the transaction.
I am not satisfied that either Ms Hughes’ or Mrs Bornecrantz’s loans to Hanbury were arm’s length transactions in accordance with the criteria in paragraph 13. In neither case were the loans made under the terms of a written agreement of the kind required by paragraph 13(1)(b). While Mr Bornecrantz set out the terms of the agreement made with his wife in 1997, this was done after the event and for the purpose of producing written evidence of the agreement at the request of Centrelink (He has never claimed that such a written agreement was entered into at the time the agreement was made.) Turning to the other matters referred to in paragraph 14 which go to the structure and control of the company, and the relationship of the parties, the close relationship of the parties is such to negate these loans being arm’s length transactions.
Thus, having regard to the Attribution of Assets Principles and noting in particular that the loans were not arm’s length transactions, I am not satisfied that the loans should be taken into account in reducing the value of Hanbury’s assets.
Principal Home
Finally, the Tribunal must decide whether Hanbury’s properties in New South Wales and Sweden were Mr Bornecrantz’s principal home before and after 21 November 2011 respectively. According to s 1118, the value of a right or interest which gives Mr Bornecrantz reasonable security of tenure in the home will be disregarded for the purpose of calculating the value of the his assets.
As noted above, Mr Bornecrantz raised the issue of whether a person can elect to be treated as a non-home owner for the purposes of the assets test, which would have the consequence that he would be permitted a higher level of assets. The Tribunal requested further submissions from the parties on this issue. Having considered those submissions, I find that Mr Bornecrantz cannot elect to be treated as a non-homeowner. While Mr Bornecrantz argued, in general terms, that it is unconscionable to reduce the rate at which his pension is payable, it is the relevant provisions of the Act that must be applied in determining his entitlements.
A homeowner is defined in s 11(4) of the Social Security Act 1991 relevantly as:
(b) a person who is a member of a couple is a homeowner if:
(i) the person, or the person's partner, has a right or interest in one residence that is:
(A) the person's principal home; or
(B) the partner's principal home; or
(C) the principal home of both of them; and
(ii) the person's right or interest, or the partner's right or interest, in the home gives the person, or the person's partner, reasonable security of tenure in the home;
There is no provision in the Act for an individual to elect not to be treated as a non-homeowner. Such a provision would undoubtedly undermine the policy that underlies the homeowner thresholds of the assets test. As stated by Greenwood J in Secretary, Department of Employment and Workplace Relations v Vanderpluym [2007] FCA 876 at [12]:
The policy of the legislation in the setting of an assets value limit for determining the threshold at which a parenting payment, partnered or otherwise, might cease to be payable is to recognise that a person who is (or their partner is) a homeowner will have a lower assets value limit (recognising that the value of that right or interest is excluded) than a person (including that person’s partner) who is not a homeowner. A non-homeowner, in part recognition that a homeowner has the benefit of the excluded value of their home, will be entitled to a higher limit on the value of his or her assets before being disqualified from access to a parenting payment whether a member of a couple or not…
A person cannot have the benefit of both the principal home exception and the higher threshold for non-homeowners in the assets test.
The principal home exception mirrors the test for determining whether an individual is a homeowner. Section 1118(1) provides relevantly:
(b) if the person is a member of a couple--the value of any right or interest of the person in one residence that is the principal home of the person, of the person's partner or of both of them that is a right or interest that gives the person or the person's partner reasonable security of tenure in the home
The exception, however, must be read in light of the attributable stakeholder provisions. Section 1208E(1)(c) provides that where an individual is an attributable stakeholder of a company, the value of an asset that would be disregarded if it was owned by an individual personally, is not to be included in the value of the company’s assets. As stated in Secretary, Department of Families, Housing, Community Services and Indigenous Affairs and Egberts [2007] AATA 2102, at [32 and 33], the effect of this provision is that:
It requires the decision-maker to determine whether the value of an asset which is owned, in this case by the Trust, would be exempt if the same asset were owned by the relevant individual …
[T]he hypothetical question requires consideration of how the Act would apply if the individual owned the asset. In answering that question, it cannot be correct to assume that the individual owned something different from that which was owned by the Trust.
As Mr Bornecrantz is an attributable stakeholder, s 1208E applies. For the purposes of considering the principal home exception, the Tribunal is therefore to regard the properties as being owned by Mr Bornecrantz personally and not by Hanbury.
Mr and Mrs Bornecrantz treated the properties in New South Wales and Sweden as their home and principal residence, before and after 21 November 2011 respectively. Having made the required assumption that Mr Bornecrantz held the same interest as Hanbury, being indefeasible title to the properties, I am led to conclude that Mr Bornecrantz had reasonable security of tenure. The value of these properties should therefore be excluded in calculating the value of Mr Bornecrantz’s assets for the relevant periods when each was in turn his principal home.
It is not then open to the Tribunal to find that Mr Bornecrantz does not satisfy the homeowner test. Although s 11(4) speaks of a person’s right or interest in the principal home, it is reasonable that that right or interest should be read to include an interest held by a company whose assets are attributed under the Act to an individual. To hold otherwise would potentially allow Mr Bornecrantz to benefit from both the principal home exception and the lower threshold for non-homeowners. This would be fundamentally inconsistent with the policy underlying the homeowner thresholds, as outlined by Greenwood J in Vanderpluym. Thus, Mr Bornecrantz is to be treated as a homeowner under the Act.
DECISION
The decision under review is varied by reducing from 50% to 45% the assets and income of Hanbury Investments Pty Ltd attributed to Mr Bornecrantz. The decision is otherwise affirmed.
I certify that the preceding 61 (sixty-one) paragraphs are a true copy of the reasons for the decision herein of Deputy President RP Handley ..........................[sgd]..............................................
Associate
Dated 27 May 2014
Date(s) of hearing 24 April 2014 Date final submissions received 20 May 2014 Applicant In person Solicitors for the Respondent Dr S Thompson; Sparke Helmore
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