Lindeman and Repatriation Commission
[2004] AATA 225
•4 March 2004
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2004] AATA 225
ADMINISTRATIVE APPEALS TRIBUNAL )
) No N2003/1104
VETERANS' APPEALS DIVISION ) Re Philippa Lindeman Applicant
And
Repatriation Commission
Respondent
DECISION
Tribunal RP Handley, Deputy President Date4 March 2004
PlaceSydney
Decision The Tribunal affirms the decision under review.
...............................................
R P Handley
Deputy President
CATCHWORDS
REPATRIATION COMMISSION – age service pension – assets exceed assets value limit – examination of the Applicant’s assets and value – examination of the Applicant’s company and its share structure and assets – examination of the applicable legislation – financial hardship rules – examination of the Applicant’s personal circumstances – held the relevant Principles were applied correctly to the Applicant – person’s mental incapacity cannot circumvent the policy behind the assets test – decision under review is affirmed.
Veterans’ Entitlement Act 1986 ss 52ZZA, 54ZN, 52ZZC(1), 52ZZC(2), 52ZZJ(1), 52ZZZQ(1), 52Y, 52ZZJJ(5)
Guardianship Act 1987 (NSW)
Social Security and Veterans’ Entitlement Legislation Amendment (Private Trusts and Private Companies – Integrity of Means Testing) Bill 2000
Re Drake and Minister for Immigration and Ethnic Affairs(No 2) (1979) 2 ALD 634
REASONS FOR DECISION
4 March 2004 RP Handley, Deputy President Summary
1. A delegate of the Repatriation Commission, the Respondent, decided to reduce the rate of age service pension payable to Mrs Philippa Lindeman, the Applicant, on the ground that her assets exceeded the applicable assets value limit. This was due to the assets of a grazing company being attributed to her.
Background
2. Mr Grant Lindeman, who was born on 1 December 1913, served in the RAAF from 3 September 1939 to 26 November 1945. He and his wife, Mrs Philippa Lindeman, who was born on 8 May 1921 and is now aged 82, lived on a grazing property called “Findrack” situated about 30 kilometres from Armidale. They had two children, Nicholas Lindeman, born 12 June 1946, and Joanne Carey Leoni (nee Lindeman), born 31 December 1950. Mr Grant Lindeman died on 3 August 2000 at the age of 86. Mrs Lindeman continues to live on her own on the property, although Mr Nicholas Lindeman lives on an adjoining property. Ms Leoni lives in Armidale.
3. The grazing property “Findrack” comprises 668.6 hectares on which is situated the two bedroom house where Mrs Lindeman lives. The property is owned by a proprietary limited company, Grantel Investments Pty Limited (“Grantel Investments”). On 22 August 2000, the property was valued by an Australian Valuation Office registered valuer. The market value of the whole property was estimated to be $300,000, including the house and curtilage valued at $160,000.
4. The current office holders of Grantel Investments are Mrs Lindeman, who is a Director and the Secretary of the company, and Mr Nicholas Lindeman who is a Director. However, Mr Lindeman states that because his mother is mentally incapacitated, he manages the company’s affairs and controls its bank account. His mother’s participation in the company’s affairs is limited to signing documents at her son’s request. The principal shareholders in the company are Mrs Lindeman who holds 23 A class 7% preference shares of $1 each, and Mr Lindeman and Ms Leoni who each hold one share of this class.
5. Amendments to the Veterans’ Entitlement Act 1986 (“the Act”) relating to the assessment of pensions took effect on 1 January 2002. Because of Mrs Lindeman’s involvement in a private company, she was sent information about the changes in 2001. By letter dated 9 October 2001, she was asked to provide the Department of Veterans’ Affairs with details of Grantel Investments. Mr Lindeman responded on his mother’s behalf by letter dated 19 October 2001. The assets of the company comprise the property “Findrack”, stock, plant and equipment, and gold coins valued in the company’s balance sheets for the financial year ending 30 June 2002 at $103,364.75. The gold coins were described by Mr Lindeman as 199 one ounce Australian “nugget” gold coins issued by the Perth Mint, subject to a scheme for the Mint to repurchase the coins at the Australian dollar spot price for gold. They are not collector’s coins. In the financial year ending 30 June 2002 the company made a small operating loss of $2,336.27. Most of the company income was derived from livestock agistment. No directors’ fees were paid. However, Mr Lindeman was paid a “consultant’s fee” of $6,000.
6. On 12 February 2003, a delegate of the Repatriation Commission decided that Grantel Investments is a “controlled private company” in relation to Mrs Lindeman and she is an “attributable stakeholder” of the company and 100% of its income and assets should be attributed to her for the purpose of calculating the rate of pension payable. The delegate decided that the “hardship” rules did not apply in Mrs Lindeman’s case because she could readily sell some of the gold coins. Mr Lindeman sought a review of this decision on his mother’s behalf. On 27 June 2003, the decision was affirmed after a review by a senior review officer. On 9 July 2003, Mr Lindeman, acting on behalf of his mother, lodged an application for a review of the decision by the Tribunal. After an exchange of documents by the parties, Mr Lindeman asked the Tribunal to determine the matter on the papers without conducting a hearing.
Applicable Law and Policy
7. The relevant amendments to the Act took effect on 1 January 2002 and set up a system for the attribution to individuals of the assets and income of private companies and private trusts. The simplified outline of the relevant provisions in s 54ZN of the Act states:
For an asset or income to be attributed to an individual:
(a)the company must be a designated private company or the trust must be a designated private trust (sections 52ZZA and 52ZZB); and
(b) the company must be a controlled private company in relation to the
individual or the trust must be a controlled private trust in relation to the individual (sections 52ZZC and 52ZZH); and
(c)the individual must be an attributable stakeholder of the company or trust (section 52ZZJ).
8. Section 52ZZA provides that a designated private company includes a company where the value of its and its subsidiaries’ consolidated gross assets at the end of the financial year is less than $5,000,000 and the company and its subsidiaries have fewer than 50 employees at the end of the financial year. Thus, Grantel Investments is a designated private company.
9. Section 52ZZC(1) states that a designated private company is a controlled private company in relation to an individual if the individual passes either the control test or the source test. Section 52ZZC(2) provides that an individual passes the control test in relation to a company, if, amongst other criteria, the individual and his/her associates hold direct voting interests of 50% or more. This is the case with Mrs Lindeman’s shares in Grantel Investments where she holds 23 of the 25 issued A class 7% preference shares.
10. Section 52ZZJ(1) provides that if a company is a controlled private company in relation to an individual, the individual is an attributable stakeholder of the company unless the Commission otherwise determines, and the individual’s asset attribution percentage in relation to the company is 100% unless the Commission determines a lower percentage. Section 52ZZJ(5) states:
In making a determination under this section, the Commission must comply with any relevant decision-making principles.
11. Pursuant to the power in s 52ZZZQ(1), the Commission formulated the Veterans’ Entitlements (Attributable Stakeholders and Attribution Percentages) Principles 5 February 2001 (“the Principles”). Paragraph 7 of the Principles states:
Circumstances affecting relationship with company or trust
(1)The Commission 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 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.
The Tribunal will return to the application of the Principles below.
12. The Tribunal must also consider whether the “financial hardship rules” apply to Mrs Lindeman’s situation. Section 52Y provides for the Repatriation Commission to determine that the section applies to the person where a service pension is not payable to a person because of the application of an assets test and, amongst other criteria, the person has an unrealisable asset and “the Commission is satisfied that the person would suffer severe financial hardship if this section did not apply to the person”. Guidance as to what constitutes “severe financial hardship” is set out in departmental policy. This is contained in a Department of Veterans’ Affairs Fact Sheet, a copy of which was provided by the Respondent. Relevantly, this states:
To be assessed as being in severe financial hardship, you need to meet all of the following criteria:
· the total annual rate of pension which would be paid to you under the assets test plus all income you receive, is less than the maximum annual rate of pension
· your readily available funds do not exceed $6,000 for a single person or $10,000 combined for members of a couple
· there is no other course of action which you could reasonably be expected to take to improve your financial position.
Readily available funds are assets which can be readily accessed as cash and include cash on hand, money in bank, credit union or building society accounts, fixed term deposits, bonds and shares. Where the hardship situation is long term or permanent, the surrender value of a life insurance policy and the value of a caravan or second car may also be included.
13. The Tribunal notes that in the case of relevant policy of a government department or agency, in the absence of a statutory obligation to do so, the Tribunal will ordinarily apply that policy unless it is unlawful or its application would cause injustice, or there are other cogent reasons for not applying it in the circumstances of the particular case: Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634 at 645. In Mrs Lindeman’s case, in the Tribunal’s opinion there are no cogent reasons for not applying the policy as to severe financial hardship.
14. As the Respondent has pointed out, Mrs Lindeman can access readily available funds in the form of the gold coins which can be realised under the repurchase scheme with the Perth Mint described by Mr Lindeman. The value of the coins varies with the spot price for gold. However, the Tribunal notes that according to Mr Lindeman the coins were valued at $111, 440 on 12 November 2001, and they are shown in the company’s balance sheet for the year ending 30 June 2002 as being valued at $103,364.75. In the Tribunal’s opinion, with access to such assets, Mrs Lindeman cannot be said to be in severe financial hardship and the financial hardship rules do not, therefore, apply.
15. Returning then to the outstanding issue, the application of the Principles, the Tribunal must consider whether there are relevant circumstances that make it inappropriate for Mrs Lindeman to be an attributable stakeholder of Grantel Investments. Mr Lindeman set out what he sees as the circumstances that justify making an exception in the case of his mother. These include the following:
· Mrs Lindeman is incapable of managing her own affairs by reason of mental incapacity and, for example, would be incapable of taking the steps necessary to wind up Grantel Investments. Currently, Mr Lindeman controls the company’s affairs.
· Because Mrs Lindeman no longer exercises her functions as a working director of Grantel Investments, she receives no director’s fee.
· Grantel Investments has made a small loss annually in recent years.
· Apart from her service pension, Mrs Lindeman has no other source of income. Mr Lindeman and his sister, Ms Leoni, are currently paying for two hours Home Care service per week at a cost of $16 ($8 per hour) to enable Mrs Lindeman to stay on in her own home.
· The income and assets limits for service pensions are unrealistic and inappropriate for service pensioners who own rural properties.
· Whereas previously Grantel Investments owed Mrs Lindeman $8,000, as at 6 July 2003, Mrs Lindeman owed Grantel Investments about $2,000 in respect of rent (paid by Ms Leoni in respect of the house at “Findrack”) drawn down progressively against her account with the company at a rate of $250 per month.
16. The Respondent contends that if Mrs Lindeman is incapable of managing her own affairs, the appropriate response is to consider making an application under the Guardianship Act 1987 (NSW) for an order to be made permitting a person to manage Mrs Lindeman’s affairs in her best interests. The Respondent suggests that underpinning Mr Lindeman’s submissions is that Mrs Lindeman’s assets – that is her shares in Grantel Investments – are now being managed in the interests of her son who will, in due course, inherit those shares.
17. The Respondent states that the express object of the relevant amendments to the Act was to place persons who hold assets in a private trust or private company in the same position as those who do not. For relatives of a person to use a person’s incapacity to circumvent the provisions would establish a disturbing precedent.
18. The Respondent referred the Tribunal to relevant extrinsic materials which discuss the object or purpose of the legislative amendments and, in particular, to the Explanatory Memorandum and Second Reading Speech for the relevant Bill (the Social Security and Veterans’ Entitlement Legislation Amendment (Private Trusts and Private Companies – Integrity of Means Testing) Bill 2000). The Explanatory Memorandum states:
The Bill … aims to ensure that customers who hold their assets in private companies or private trusts receive comparable treatment under the means test to those customers who hold their assets directly. The assets and income of the structure will be attributed to the person or persons who control the company or trust, or to the person or persons who are the source of the capital or corpus of the company or trust.
19. In the Tribunal’s opinion, Mrs Lindeman’s situation is one contemplated by the amendments to the Act. While, of course, it is sad that she is now suffering from a degree of mental incapacity, the Tribunal does not regard this as a relevant circumstance making it inappropriate for her to be an attributable stakeholder of Grantel Investments. While she may not herself be able to exercise effective control of the company by reason of her mental incapacity, Mr Lindeman is in a position to take such steps as are necessary to manage the assets of the company for her benefit, whether informally, as at present, or more formally with the benefit of appropriate authorisation under the Guardianship Act 1987 (NSW). For example, it would appear relatively straightforward for some or all of the gold coins to be realised and for the proceeds to be applied for Mrs Lindeman’s benefit.
20. With regard to Mrs Lindeman’s asset attribution percentage in relation to the company, as stated above, s 52ZZJ(1) provides for this to be 100% unless the Commission determines a lower percentage. Section 52ZZJJ(5) requires that such a determination must comply with any relevant decision-making principles. Reference must therefore be made to the Principles of 5 February 2001. Part 3 of the Principles is concerned with the determination of asset attribution percentages. Paragraph 16 is drafted in similar terms to paragraph 7, set out above, and states:
Circumstances affecting relationship with company or trust
(1)The Commission 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.
21. Reference is made in the Principles to a consideration of the individual’s contribution to the company or trust, to whether the individual has received any past benefit or will receive any future benefit from a distribution made by the company or trust, and any other circumstance that affects the involvement of the individual with the activities of or the administration of the company or trust.
22. In the Tribunal’s opinion, the same reasoning applies as is discussed above in relation to whether there are relevant circumstances that make it inappropriate for Mrs Lindeman to be an attributable stakeholder of the company. Her mental incapacity is not a “relevant circumstance” in the particular circumstances of this case.
23. The Tribunal therefore concludes that the relevant provisions of the Act and Principles were applied correctly in Mrs Lindeman’s case and the decision under review should be affirmed.
I certify that the 23 preceding paragraphs are a true copy of the reasons for the decision herein of Mr RP Handley, Deputy President.
Signed: .......................................................................................
AssociateDate/s of Hearing Hearing on the papers
conducted 16 February 2004
Date of Decision 4 March 2004
Representative for the Applicant Mr N Lindeman
Representative for the Respondent Ms A Nanson, Solicitor
1
0
0