Linton; Secretary, Department of Family and Community Services
[2006] AATA 98
•7 February 2006
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2006] AATA 98
ADMINISTRATIVE APPEALS TRIBUNAL )
) No N2005/650
GENERAL ADMINISTRATIVE DIVISION ) Re SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES Applicant
And
FREDERICK LINTON
Respondent
DECISION
Tribunal Senior Member Robin Hunt Date7 February 2006
PlaceSydney
Decision The tribunal varies the decision under review and finds the respondent was only one of several controllers of the trust. The tribunal remits the matter to the Secretary to make a decision in accordance with the principles set out in the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000. ..............................................
Ms R Hunt Senior Member
CATCHWORDS
SOCIAL SECURITY – Age pension – Cancellation – Application of assets test – Attribution of trust assets - Family trust and family company as trustee – Control of family trust affecting attribution of assets – Effect of power to appoint trustees – Appointor not mentally capable at time of application of test - Effect of actual control as opposed to theoretical control – Decision under review varied.
LEGISLATION
Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000
CASES
Re Giedans and Secretary, Department of Family and Community Services (2003) 75 ALD 768
REASONS FOR DECISION
7 February 2006 Senior Member Robin Hunt SUMMARY
1. Mr Frederick Linton, the respondent, established a family trust in 1975 along with a family company to act as its trustee. Mr Linton was the settlor of the trust and set up the trust under the terms of a trust deed. Mr Linton and his wife were among the beneficiaries of the trust and were directors of the family company. In 1993, the trust deed was amended so that he and his wife were no longer named as beneficiaries. Whereas Mr and Mrs Linton’s descendants, as a class, had been included in the schedule as beneficiaries, under the 1993 amendment their four adult children became the only named beneficiaries.
2. In 2001, Mr Linton and his wife resigned as directors of the family company but Mr Linton stayed on as company secretary. Centrelink attributed to Mr Linton assets of the trust for age pension purposes. Mr Linton had been receiving the pension until the Secretary became aware of the trust and cancelled his pension on 20 October 2004. A decision maker affirmed the cancellation action on 5 November 2004, as well as an authorised review officer on 21 February 2005. Mr Linton then applied to the Social Security Appeals Tribunal (SSAT) for review. The SSAT decided his age pension should be restored and despatched its decision on 26 April 2005. The Secretary then applied for review of the SSAT decision. I have found that Mr Frederick Linton was a controller of the family trust but that his four adult children and possibly his wife were also controllers. On this basis, I have remitted the matter to the Secretary for apportionment and recalculation of the appropriate attribution of assets to Mr Linton of the family trust assets.
BACKGROUND
3. The factual background is agreed between the parties, apart from issues as to the control of the family trust. Mr Frederick Linton passed away on 2 November 2005. Mr Bruce Linton, his son and executor, represented his deceased father at the tribunal’s hearing.
4. The history of the trust, in summary, involves establishment of the Linton Family Trust on 29 July 1975. On or about the same date, a family company, Tonlin Enterprises Pty Ltd, was set up to act as trustee. Mr Frederick Linton and his wife were directors of Tonlin. The deed of settlement between Mr Frederick Linton as settlor and Tonlin as trustee defined “beneficiaries”. Beneficiaries included persons named in the first schedule or persons nominated in writing by the trustee with a proviso restricting any entitlement of the settlor and the trustee as beneficiaries. Despite the proviso in the definition against the settlor being a beneficiary, Mr Frederick Linton was named as a beneficiary in the first schedule to the deed. As well, Mr Linton’s wife was named as a beneficiary. Their children, grandchildren and other classes were included but not named. Seven organisations, including a retirement village and others involved in charitable or Christian objects, were named as beneficiaries. The trustee retained power to nominate other organisations with similar objects.
5. On 17 May 1993, the trust deed was changed as to the naming of beneficiaries under the first schedule to the deed. The amending deed of trust deleted reference to Mr and Mrs Linton in the first schedule. Mr Bruce Linton told the tribunal that Mr and Mrs Linton’s four adult children were substituted in their place. This is not quite correct but may reflect Mr Linton’s understanding and practice in relation to the trust. According to the records before me, Tonlin resolved at a meeting on 17 May 1993 to delete Frederick Stanley Linton and Margaret Elizabeth Linton as beneficiaries of the trust. However, Mr Bruce Linton’s description of the change is not reflected as precisely in the amending deed of trust, which is framed in more general terms. Mr and Mrs Linton are no longer named as beneficiaries and the first schedule is further amended so as to make a broad class of relatives of Mr and Mrs Linton beneficiaries. The four adult children are not named as beneficiaries. At some point, which is not clear from the information before me, all four children became directors of Tonlin and assumed control of the trust to this extent.
6. At inception, Mr Frederick Linton was a director of the trustee company, Tonlin. Mr Linton and his wife continued as directors of Tonlin until 27 June 2001, when they resigned. When Mr and Mrs Linton ceased to be directors or shareholders in Tonlin in 2001, they transferred their shares to two of their children, Bruce Linton and Ian Linton, on the same day. Mr Frederick Linton consented on that day to hold office as company secretary. A copy of a search of ASIC records made on 2 October 2004 shows that the directors of Tonlin at that date were Bruce Linton, Ruth Hamilton, Heather Berry and Ian Linton. This document also confirms Mr and Mrs Linton ceased to be directors on 27 June 2001 and that Mrs Linton ceased as secretary on that day, when Mr Linton took over this role.
7. Further records show the trust purchased a property in Toowoon Bay in January 1991. Twelve years later, in November 2003, the trust sold the Toowoon Bay property for $526,015.45. The sale generated a capital gain of $356,209.45. Tax returns before the tribunal confirm Mr Bruce Linton’s statement that the four children of Mr Frederick Linton, who were beneficiaries of the trust, paid the capital gains tax on this disposal.
ISSUES
8. The issue is whether the Secretary’s decision to cancel Mr Linton’s age pension because his assets exceeded those permitted for the age pension entitlement was correct. This involves consideration of attributed assets held in the private trust.
9. Section 1064 of the Social Security Act 1991 provides that the rate of age pension is calculated after applying the income reduction and assets reduction tests. Mr Frederick Linton’s age pension was cancelled on the basis that his attributed assets of the trust placed him over the cut-off limit for age pension in accordance with the assets reduction test. The SSAT found that the test had been wrongly applied and Mr Frederick Linton was entitled to the pension as he was not a controller of the family trust. If I find that he was a controller of the trust, the next matter for the tribunal is the appropriate attribution of the trust assets.
CONSIDERATION
10. An applicant for the age pension may be assessed as to control of a trust in two ways, either via the “control” test or via the “source” test. Mr Linton’s age pension was cancelled on the basis of attributed assets of the trust as a result of his standing as a controller of the trust. Before me, the Secretary did not press a case that Mr Linton should be attributed trust assets under the source test. I agree that this test is not appropriate as there is no evidence before me that Mr Linton transferred property or services to the trust after 9 May 2000, the date referred to in s1207V(3) as the relevant date for the purposes of this test.
The Control Test
11. The control test is set out in s1207V(2) of the Act and provides that a person is captured if he or she or a group in relation to the person retains such core management abilities or functions as controlling a trustee, wielding veto power, changing trustees or the terms of the trust or influencing distributions from the trust. I consider Mr Frederick Linton controlled the trust in this manner although the situation altered over the years. Bearing in mind that the trustee was Tonlin, Mr Frederick Linton was nevertheless able to vary the trust deed at least to the extent set out in clause 9. He was able to remove or appoint the trustee under this clause. Such power comes within s1207V(1)(b). Although the subsection refers to “a group in relation to the individual”, this in fact covers the individual as the definition of “group” in s1207A covers one entity alone and “entity” means an individual as well as a company or trust, as well as other things. It is clear in my opinion, therefore, that Mr Frederick Linton was caught by the control test by virtue of s1207V(2)(b) of the Act.
12. It is true that Mr Frederick Linton no longer was able to directly initiate modifications to the trust or its beneficiaries via Tonlin as he was no longer a director. However, under clause 9 and schedule 3 of the trust deed, Mr Frederick Linton was empowered to appoint or remove trustees as well as to remunerate trustees. His executor or administrator was also given these rights under clause 9 but at the time under consideration Mr Linton was still alive. As a result, he retained the control described in s1207V(2)(b).
13. There is no need to look for further reasons why Mr Frederick Linton was within the control test but there is further evidence to this effect. There is evidence before me that the trustee of the trust was accustomed or under an informal obligation or might reasonably be expected to act in accordance with the directions, instruction or wishes of Mr Frederick Linton. This is another of the tests set out at s1207V(2)(h). Mr Bruce Linton gave evidence to the tribunal that he and his siblings respected the wishes so their father. An example of this was the sale of the Toowoon Bay property which he told the tribunal had become a worry to their father. Further, Mrs Heather Berry told the tribunal that she turned to her father for assistance in filling out the first version of the module PT (Private Trust) she completed when seeking an allowance for herself and her family when her husband was unemployed. She later filled out another version when she spoke to Mr Bruce Linton but by then it was too late, the decision had been made to cancel her father’s pension on the basis that he controlled the trust. Mrs Berry told the tribunal she turned to her father for advice first as he knew the history of the trust, it had been “his life” and the family were not then aware of how much his mental faculties had deteriorated. This became obvious soon afterwards. I accept that Mr Frederick Linton’s abilities had deteriorated and note the comments of the SSAT who acknowledged his inability to give evidence at that hearing although he was present.
14. According to the module PT (Private Trust) completed by Mr Frederick Linton’s daughter, Mrs Berry, dated 30 September 2004, Mr Frederick Linton was the appointer who had informal control of the trust and had the power to veto a trustee’s decision, replace the trustee, control the trustee’s actions or change the trust deed. He also could exercise control independently (T21, ff66-70). This indicates Mr Frederick Linton could control the way the trust operated and, as a result, he satisfied the control test pursuant to s1207V(2)(h) of the Act. While Mrs Berry told the tribunal that she was mistaken about much of the information in the PT module and later filled out a more accurate version, much of the information in the module was correct in my view. Mr Frederick Linton, for example, never lost his formal power of appointment.
15. According to the SSAT decision record, Mr Bruce Linton gave evidence that he had assumed formal control of the family trust because his father was no longer capable. He gave similar evidence before me. I accept that, due to his age, Mr Frederick Linton had become vague and forgetful over the last 5 years of his life. Mr Linton further gave evidence to the effect that his father had been a figure head and exercised a nominal or token role as secretary to the company he had initially run but he no longer grasped many details of the operation of the trust or its routine compliance obligations. The family had left their father in the role of secretary out of loyalty and tradition but he had no real role regarding the trust. He still kept the records in a filing cabinet at his home as he was secretary and the records had always been stored there. In addition, Mr Linton told me the four children paid all of the capital gains tax on the disposal of the Toowoon Bay property. This was borne out by copies of tax returns before me. The SSAT decided that Mr Frederick Linton had lost the ability to control the trust and was unable to exercise any discretion about trust distributions or to initiate modifications of the trust or its beneficiaries although he still had theoretical power to change trustees. As a result, the SSAT found that Mr Linton was not captured by the control test under s1207V(2) of the Act. While I agree with the fact findings of the SSAT, I do not find that Mr Frederick Linton was therefore no longer in control of the trust according to s1207V(2). His lack of insight cannot overcome the finding that he met the control test under subsections (2)(b) and possibly subsection (2)(h).
16. However, it seems to me that it is equally true, on the evidence of Mr Bruce Linton and of Mrs Heather Berry, that all of the directors of the trustee company, Tonlin, exercised control of the trust in the way contemplated under s1207V(2)(h). Their evidence was that the family had meetings and discussions before they took any action as trustee. Mrs Linton senior was also a member of the family and no doubt present at these discussions. The evidence is that the family reached decisions on the trust by consensus. In other words, the directors of Tonlin, as trustee of the trust, were accustomed or “might reasonably be expected to act in accordance with the directions, instructions or wishes of a group in relation to the individual”. This is a test of control under s1207V(2)(h). It follows, in my opinion, that each of the directors and possibly Mrs Linton as well were captured by the control test for the purposes of the Act and for the attribution of assets for calculation of Mr Frederick Linton’s portion.
Attribution of trust assets
17. In relation to the attribution of trust assets, s1207X(2) of the Act states, in relation to a controlled private trust, an individual’s attribution percentage is 100% unless the Secretary determines otherwise. At the time of the Secretary’s determination, Mrs Berry was also claiming social security benefits as well as her father and at least five persons met the control test, that is, Mr Frederick Linton and his four adult children. The company search made of ASIC records confirms that all four children were directors of the trustee company in 2004.
18. Section 1207X(5) states that, when examining whether an individual should be attributed with 100% of the assets of the trust, relevant decision making principles must be complied with. These principles are set out in the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000. The principles direct a decision maker to have regard to one or more of the following when making a decision about attribution:
·Circumstances affecting relationship with company or trust
·Contribution to company or trust
·Past benefit from distributions by company or trust
·Future benefit from distributions by company or trust
·Benefit from assets and income of trust
·Existing attributions to individual (and whether they are stakeholders of any other trusts); and
·Other circumstances
19. Mr Frederick Linton was the secretary of Tonlin, which was the trustee of the family trust. He controlled the trust theoretically by virtue of the power to appoint, dismiss or remunerate trustees. However, the evidence is that day to day running was beyond him. While he advised Centrelink that much of the funds in the trust were his from the sale of his house and business and that he used the funds to supplement his pension from time to time, these transfers were made many years previously. I also take note of the evidence of Mr Bruce Linton and Mrs Berry that the four children of Mr Frederick Linton paid the capital gains tax on the disposal of the trust property at Toowoon Bay. Mr Bruce Linton claimed they had made other payments into the trust and produced ledgers. Mr Frederick Linton was no longer capable of giving evidence by the time of the SSAT hearing and his powers of giving a reliable and accurate account of the true position to Centrelink when it made the initial decision were already waning. The indications are that he did not understand the effect of his claims and that they may well have been inaccurate as his children were the persons who already decided how to operate the trust. Mr Frederick Linton’s statements, therefore, are not the best basis for assessing attribution. In my view, it is not appropriate to attribute 100% of the assets to Mr Frederick Linton on the authority of Re Giedans and Secretary, Department of Family and Community Services (2003) 75 ALD 768. In that case, the Member noted, at paragraph 45, that there was no evidence to show that Mr Geidans had effectively transferred the running of the company to anyone else, despite his desire to do so. I note that the Member’s decision is a persuasive example of treatment a similar case but is not binding. I have not come across any higher authority or better example on the point.
20. I have therefore decided to remit the matter to the Secretary to recalculate the appropriate attribution of assets to Mr Frederick Linton for the period in question on the basis that Mr Frederick Linton was not the only individual in control of the trust.
DECISION
21. The decision under review is varied and the tribunal finds that the respondent was only one of several controllers of the trust. The tribunal remits the matter to the Secretary to make a decision in accordance with the principles set out in the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000.
I certify that the 21 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member Robin Hunt
Signed: .....................................................................................
Zoe McDonald
AssociateDate of Hearing: 18 January 2006
Date of Decision: 7 February 2006
Counsel for the Applicant: Mr G. Lozynsky
Solicitor for the Applicant: Centrelink Legal Services Branch
Representative for the Respondent: Mr B. Linton
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