Lymberopoulos and Secretary, Department of Family and Community Services
[2005] AATA 801
•19 August 2005
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2005] AATA 801
ADMINISTRATIVE APPEALS TRIBUNAL )
) No S2004/360 & S2004/361
GENERAL ADMINISTRATIVE DIVISION ) Re GEORGE LYMBEROPOULOS AND ANASTASIA LYMBEROPOULOS Applicant
And
SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES
Respondent
DECISION
Tribunal Senior Member L Hastwell Date19 August 2005
PlaceAdelaide
Decision The Tribunal affirms the decisions under review.
L HASTWELL
(Signed)
Senior Member
CATCHWORDS
SOCIAL SECURITY – pensions, benefits and allowances – Disability Support Pension – Partner Allowance – attributable income – effective control of Family Trust – decision affirmed
Social Security Act 1991 ss 1207C, 1207P, 1207V, 1207X, 1209E
Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000 ss 24, 25, 31
Edstein and Secretary, Department of Family and Community Services [2004] AATA 68
REASONS FOR DECISION
19 August 2005 Senior Member L Hastwell 1. On 30 June 2004 Centrelink made a decision to reduce the rate of Disability Support Pension (DSP) payable to Mr George Lymberopoulos, and to reduce the rate of Partner Allowance payable to Mrs Anastasia Lymberopoulos (the applicants) due to the attribution of trust income to Mr Lymberopoulos. The trust income had been paid to a Family Trust. These decisions were affirmed by an Authorised Review Officer on 16 August 2004. Upon further review to the Social Security Appeals Tribunal (the SSAT) the decisions were affirmed on 23 September 2004. The applicants have sought a review of these decisions to this Tribunal.
background
2. The two applications for review were heard together as the determination of Mr Lymberopoulos’ application for review will determine the outcome of Mrs Lymberopoulos’ application for review. The relevant income tests include combined income of married couples, so regardless of whether the Family Trust income is attributed as to 100 percent to the applicant, Mr Lymberopolous, or as to 50 percent to each of the applicants, the outcome will be the same in terms of the effect on their entitlements.
3. The applicants are the directors of G Lymberopoulos Proprietary Limited (the Company), which is the Trustee of the G Lymberopoulos Family Trust (the Trust).
4. The applicants are the joint appointors of the Trust pursuant to the Deed of Trust dated 1 February 1988 [Exhibit R2].
5. The applicants each own three of the ten issued shares in the Company. Their four children each own one of the other four issued shares in the Company. Equal rights are attached to all ten shares in the Company.
6. Between the late 1980s and 1997 the Trust ran a service station business. When the business was closed down in 1997, a settlement was negotiated with the Shell Company (Shell) who took over the site. Various debts were paid, and the excess funds of $80,000.00, were used to purchase a 10 percent interest in Rosehill Vineyards (Rosehill) which is run as a partnership between a number of stakeholders.
7. In the year ended 30 June 2003, Rosehill was profitable and made a distribution to all partners. The sum of $9,753.00 was paid to the Trust, being its proportional distribution of profits for that year. The Trust did not receive that distribution as it was paid to the bank in reduction of a loan advanced to all the stakeholders in Rosehill when the winery was being established.
8. The respondent (the Department) attributed 100 percent of this income to the applicant, Mr Lymberopoulos. The Department now contends that the correct position is that the income should be distributed as to 50 percent to each of the applicants. This does not alter the primary decision.
issues
9. The issues for determination in this case are:
(a)whether the distribution from Rosehill to the Trust is income which can be attributed to the applicants, or either of them;
(b) whether the applicant or both of the applicants have effective control of the Trust, and can be attributed with 100 percent of the Trust’s income;
(c) whether there are any relevant circumstances that would allow the Tribunal to vary the income attribution amount that would normally apply.
legislation
10. Section 1207P defines a designated private trust. The parties agree that the Trust in this case comes within that definition.
11. The relevant legislation is contained in the Social Security Act 1991 (the Act). Section 1207V provides as follows:
“1207V(1)For the purposes of this Part, a trust is a controlled private trust in relation to an individual if the trust is a designated private trust and:
(a)the individual passes the control test set out in subsection (2); or
(b)the individual passes the source test set out in subsection (3).
Control test
1207V(2)For the purposes of this section, the individual passes the control test in relation to a trust if:
(a)the individual, or an associate of the individual (other than an associate covered by paragraph 1207C(1)(j)), is the trustee, or any of the trustees, of the trust; or
(b)a group in relation to the individual was able to remove or appoint the trustee, or any of the trustees, of the trust; or
(c)a group in relation to the individual was able to vary the trust deed or to veto the decisions of the trustee; or
(d) the aggregate of:
(i)the beneficial interests in the corpus or income of the trust held by the individual (whether directly or indirectly); and
(II)the beneficial interests in the corpus or income of the trust held by associates of the individual (whether directly or indirectly);
is 50% or more; or
(e)a group in relation to the individual had the power (by means of the exercise by the group of any power of appointment or revocation or otherwise) to obtain, with or without the consent of any other entity, the beneficial enjoyment of the corpus or income of the trust; or
(f)a group in relation to the individual was able in any manner whatsoever, whether directly or indirectly, to control the application of the corpus or income of the trust; or
(g)a group in relation to the individual was capable under a scheme of gaining the enjoyment or the control referred to in paragraph (e) or (f); or
(h)a trustee of the trust was accustomed or under an obligation (whether formally or informally) or might reasonably be expected to act in accordance with the directions, instructions or wishes of a group in relation to the individual.”
12. Section 1207C of the Act sets out the categories of persons who are “associates” of an individual. It includes a relative of the individual (s 1207C(1)(e)). Section 1207A defines “a group” to include “an individual”.
13. If the applicant or applicants pass their control test then s 1207X(2) of the Act provides:
“Trust
1207X(2) For the purposes of this Part, if:
(a)a trust is a controlled private trust in relation to an individual; and
(b)the trust is not a concessional primary production trust in relation to the individual (see section 1208U);
then:
(c)the individual is an attributable stakeholder of the trust unless the Secretary otherwise determines; and
(d)the individual is an attributable stakeholder of the trust—the individual’s asset attribution percentage in relation to the trust is:
(i) 100%; or
(ii)if the Secretary determines a lower percentage in relation to the individual and the trust—that lower percentage; and
…”
14. Section 1207X(5) of the Act provides that in making a determination the Secretary must comply with any relevant decision making principles. Principles are established in the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000 (the Principles), Part 4 of which sets out the circumstances that the Secretary must consider in determining whether in any given case an attributable stakeholder’s attribution percentage should be less than 100 percent. Paragraph 24 of the Principles provides:
“24(1)This Part applies if, but for a determination by the Secretary, the income attribution percentage of the attributable stakeholder, in relation to the company or trust, would be 100%.
(2)The Secretary must consider the relationship between the individual and the company or trust, having regard to the circumstances mentioned in this Part.
(3)In particular, the Secretary must consider whether the effect of one or more of the circumstances mentioned in this Part, in relation to the individual and the company or trust, provides a sufficient basis on which to determine a percentage lower than 100% as the income attribution percentage.”
15. Some guidance as to relevant circumstances is given in paragraph 25 of the Principles. Paragraph 31 of the Principles appears to broaden the discretion further.
16. Paragraph 25 of the Principles provides:
“25(1)The Secretary must consider whether there are relevant circumstances that make it inappropriate for the individual to have an income 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)circumstance 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. Paragraph 31 of the Principles provides:
“31 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
18. The applicants were represented by Ms Riley from the Welfare Right Centre. Both of the applicants gave evidence. Their son, Dennis Lymberopoulos gave his evidence by telephone. A number of exhibits were tendered, which included witness statements from each of the applicants’ other three children, Kon Lymberopoulos [A10], Elefterios (Terry) Lymberopoulos [Exhibit A12] and Peter Lymberopoulos [Exhibit A11]. The vendor of the service station business, Mr Paul Tsanaktsidis, also provided a written statement which was tendered as Exhibit A13.
19. Mr Kilderry, a Departmental advocate, appeared for the Department. Mr Malcolm Davies, an employee of Centrelink and a National Advisor for Complex Financial Arrangements, gave evidence for the Department. The T documents were accepted into evidence as Exhibit A1.
20. Mr Lymberopoulos told the Tribunal that he and his wife and family decided to purchase a service station business in the late 1980s. They jointly borrowed funds to enter into the venture. On accounting advice they set up the Company and the Trust. The decision to enter into this venture was triggered by the fact that his two eldest children had decided to leave school, and he was hopeful of providing a future for his whole family by embarking upon this venture. Various promises were made to them by Shell as to what the future held, and it appeared promising. He and his wife borrowed a substantial sum of money to purchase the business. At the time, their two younger children were still at school.
21. From the outset, their two oldest sons, Dennis and Kon, worked full-time in the business. Dennis and Kon both gave up jobs to join their parents in this venture. The two younger children, who were teenagers at the time, also worked in the business after school and on weekends. The applicants could not have run the business on their own, and the whole family worked together to build up the business, working long hours and tolerating, in the early stages, difficult living conditions to try to make the business profitable.
22. Shell did not fulfil their promise to spend funds on improving and redeveloping the site. The business was not as profitable as they had hoped. In 1995 Mr Lymberopoulos realised that Shell were shutting down a lot of sites, and that they were not going to develop their site in the way that they had hoped. They refinanced loans and the four children were included as guarantors on the new loan. The loan was in the Company name with all the shareholders being guarantors. Dennis had decided to obtain other employment, which he found at another petrol station. In 1997 Shell closed the service station down. The applicant sought legal advice and ultimately negotiated a settlement with Shell. After settling all debts there was $80,000 left. These funds, by family agreement, were invested in Rosehill. The children participated in the decision to invest in Rosehill.
23. During the years that the service station business was operating the family members did not receive a specific wage from the business. The family members were all supported from business profits and living expenses for the whole family were paid for by the business. All of the children were eventually signatories on the business cheque account. There was a great deal of trust between all family members. The applicants have assisted the children with deposits for houses, and it would appear that approximately $20,000 was gifted to each of Kon and Peter to assist them to purchase houses in the 1990s.
24. The applicant’s evidence was that in his view his sons had a legal and a moral right to their proportional share of the Trust’s income and assets as they worked long and hard in the business and in many ways they gave up having a normal life for a number of years to assist in the business.
25. Mrs Lymberopoulos gave evidence. She confirmed her husband’s evidence about the children’s involvement in the business. She worked in the shop which was attached to the service station, and she also worked long hours. She said that they all felt like they were “the bosses”, and she and her husband considered that the profits of the Trust belonged to the whole family. She confirmed that in her view the profits from the settlement with Shell belonged to the entire family and not just to the applicants.
26. Mrs Lymberopoulos acknowledged that she and her husband helped the boys each buy a car, and over the years they assisted them with finances. The boys were able to take money from the business to support their basic needs. Mrs Lymberopoulos also provided a written statement [Exhibit A8] which confirmed much of her evidence.
27. Dennis Lymberopoulos gave evidence by telephone. His statement was at Exhibit A9. He confirmed the contents of that statement, and once more emphasised that it was a family decision to go into the business and that he worked very long hours in the business. The profit margins were nothing like they had hoped, and they had not realised how difficult it would be to manage. He acknowledged that they were able to take money out of the business for their basic needs such as money to go to the doctor, or for their basic necessities, but they were not paid a wage as such. He eventually went to work for ANR because of the better prospects. He considered that he had a 10 percent interest in the net sale proceeds of the service station. He said that as far as Rosehill was concerned, he was not particularly involved in that, although he does see the financial records of the Trust. He acknowledged that when he recently made an application for a loan he did not disclose the assets of the Trust as being an asset of his at this present point in time.
28. Mr Davies gave evidence for the Department. He took the Tribunal through the legislation and elaborated on the attribution test and the reasons behind the legislation. He pointed out that net profit is attributed before it is distributed among beneficiaries as per the financial records of the Trust, based on the attribution principles. He said that reduction of attribution below 100 percent usually occurs when for instance the shareholding of the trustee company is such that the couple could not control the company, ie have a minority shareholding. He pointed out that in this case they have a majority shareholding.
submissions
29. There was no dispute by the applicants that they were jointly the controllers of the Trust, and that they passed the control test and that the income from the Trust was income within the definition of the Act, and that the distribution of $9,753.00 did occur in the year ended 30 June 2003. The applicants’ submission was that a distribution percentage of 60 percent should apply to them instead of 100 percent, such distribution percentage being a reflection of their shareholding in the Company.
30. The applicants’ position was that their sons had a legal and/or equitable and/or moral interest in the proceeds from the sale of the service station business, and it was therefore inappropriate to attribute 100 percent of the income of the Trust to the applicant, Mr Lymberopoulos or 100 percent to both applicants.
31. The applicants’ position was that the four children had worked in the business for less than normal wages on the understanding that they owned an interest in the Company equivalent to their shareholding. They asserted that it would be unconscionable for the applicants to claim more than 60 percent of the funds received by the Trust because of the contribution made by their children to the family business when it was operating. In particular, paragraph 31 of the Principles was relied on.
32. The Department’s submission was that the Principles should apply, and in this case they require that 100 percent of the income of the Trust should be attributed to each applicant. The Department relied on the documents that established that the applicants were joint appointors of the Trust, and held a majority shareholding in the Company. It was a discretionary Trust, and therefore a trustee could determine distribution of the income as to 50 percent to each of them. The Department submitted that there was nothing in this case that would allow an attribution percentage lower than 50 percent as to each applicant to apply.
findings of fact and application of the law
33. It is common ground that the Company is the trustee of the Trust. It is also common ground that the applicants in their individual capacity are the joint appointors of the Trust.
34. It is not disputed that the applicants have a joint majority interest in the Company with them each owning four of the ten issued shares in the Company.
35. Pursuant to s 1207V(2) of the Act the applicant, Mr Lymberopoulos, passes the control test for the Trust in that he and his wife are the joint appointors of the Trust and can hire or fire trustees if they do not agree with their decisions. In that regard the Tribunal refers to s 1207V(2)(b) of the Act. They also control the trustee company by virtue of their positions as sole directors of that company. In addition their combined voting rights allow them to control the trustee company. None of these issues are in dispute.
36. Pursuant to s 1207X(2) of the Act this Trust is a controlled private trust in relation to both of the applicants, and under s 1207X(2)(c) and (d) they are each an attributable stakeholder unless otherwise determined, and the income attribution percentage in relation to the individual is 100 percent unless the Secretary determines a lower percentage. This is determined by the application of s 1207X(2)(c) and (e)(i) and (ii).
37. The Tribunal must decide whether a determination can be made under s 1207X(2)(e)(ii) of the Act that a lower percentage attribution should apply to either or both of the applicants. At this stage the Department’s contention is for an attribution rate of 50 percent to apply to each of the applicants.
38. Decision making Principles have been formulated by the Secretary, pursuant to s 1209E of the Act. This section allows the Secretary to formulate decision making Principles in writing which must then be complied with in making decisions under, inter alia, s 1207X of the Act.
39. In this case we are looking at income attribution so the relevant provision is Part 4 of the Principles. Paragraph 25 sets out what the Secretary may consider as being relevant circumstances when determining whether an income attribution percentage should be less than 100 percent.
40. Paragraph 25(2) as set out refers the decision maker to the structure of the trust, the administrative arrangement within the trust and whether an individual can reasonably expect to exercise control with respect to the trust.
41. With respect to paragraph 25 of the Principles, the Tribunal makes the following findings.
42. The structure of both the Company and the Trust is such that the applicants jointly, or either of them, in association with their associate, ie the other applicant, or as a group control both the Company and the Trust. They therefore control the distribution of income from the Trust. The history of the matter supports a finding that historically the applicant and his wife have always controlled the flow of income received by the Trust and their children abide their parents’ decision.
43. The applicants’ children worked long and hard to assist their parents to build up the modest asset that is now represented by a 10 percent interest in Rosehill. The children have received some reward for their endeavours, including assistance in the purchase of real estate and vehicles. That was still a modest return for the substantial effort that the children put in to helping their parents with this venture.
44. Although the children have a sense of what is going on with respect to the Trust, they are in reality distanced from it and rely on their parents to make the financial decisions. They see the Trust asset as an asset in which they have an interest in that one day it will be theirs. Their perception is that it is their parents’ asset during their lifetimes and they will ultimately as a family benefit from the asset. They are not involved in the day-to-day administration of the Trust.
45. The applicants control the Trust. To some degree they have advised their children of what they are doing. The children accept their parents’ decisions. There is no interference by the children in their parents’ decisions as to how to deal with the Trust assets. The applicants continue to maintain effective control of the Trust, its assets and income.
46. The children have a sense of ownership of the Trust and certainly the children would see this as their future inheritance, but none of the children interfere in any way with their parents’ control of the assets and income of the Trust during the parents’ lifetime. It is a family asset that they hope to maintain in the family long term.
47. The Tribunal cannot see that there is anything in paragraph 25(2) of the Principles that alters the position of control the applicants have in this instance.
48. Paragraph 31 of the Principles is in more general terms. The Secretary can consider any other circumstances that affect the involvement of an individual with the activities or the administration of a company or trust.
49. Can the circumstances of the way in which the assets held by the trust came about be a relevant circumstance here?
50. The policy behind this legislation is clear and is summarised well in the matter of Edstein and Secretary, Department of Family and Community Services [2004] AATA 68 in which Senior Member McCabe commented at paragraph 15:
“15. I think the answer lies in the policy underlying the Act. That policy was explained in the second reading speech of the Minister when the amendments to the Act incorporating the provisions dealing with trusts were introduced to parliament (Commonwealth, Hansard, House of Representatives, 17 August 2000, at p. 19226). The Act and the extrinsic material make it clear the social security system is intended to provide relief to those genuinely in need. If one does not need help - if one is able to look after one's self out of one's own resources - one must not look to the taxpayer for assistance. One should provide for one's self as far as possible. The system is designed to assist the hungry, not provide everyone with a free lunch.”
51. It may seem unfair to the applicants given their intention that this asset be ultimately preserved for their children to then attribute the income to the applicants. However the Tribunal cannot find anything in the day-to-day running of the Trust, in its administrative structure or in the facts as presented that would permit the Tribunal to find that an attribution percentage of less than 50 percent should be attributed to each party. In reality the applicants do completely control the Company and the Trust with their adult children now having little to do with the Trust as they are now all leading their own lives.
52. The applicants’ sons have benefited from various advances from their parents over the years, including deposits for houses, which Mr Lymberopoulos acknowledged were in some way compensation to the boys for the time they spent at the service station. In addition, the children received a living out of the business, even though it would appear at times no formal wages were paid. They entered into a venture for the good of the entire family when the children were still dependant and then working for the parents. This is not an uncommon occurrence within families. The children are now independent, and the Trust remains there to benefit the applicants during their lifetimes. There is no legal requirement that they distribute income to their children. The adult children have made no formal claims to any of the profits or income. This is underlined by the evidence of Dennis Lymberopoulos who indicated that when recently applying for a loan he did not declare any interest in the vineyard or in the Trust or in Trust income.
53. The applicants have put themselves in a position where they are not using funds that might otherwise be available for their own upkeep as those funds are being used to reduce a loan and thereby increase their asset base. They need to consider negotiating a position with Rosehill such that they receive the benefit of some of the income of the Trust in order to reduce the gap between what they lose in Social Security benefits because of their decision to re-invest income that they would otherwise receive.
54. The Tribunal could not find any authority that suggested that a sense of moral in the trustee is an obligation that is a relevant circumstance for the Secretary to consider in such a case. If a real legal or equitable interest could be established in the children that would be a different matter. No one can realistically assert such an interest exists. A great deal was made of the fact that the children all own shares in the Company. That Company is the trustee of its assets only, and the discretionary nature of the Trust means that no one has an interest in the corpus of the Trust until such time as the Trust is wound up. At this stage the Trust is a discretionary trust as to both assets and income with there being a broad range of beneficiaries.
55. In practice, the applicants could have chosen to receive the income from the Trust had they not entered into an agreement with the Commonwealth Bank that the excess income would be paid back into the loan raised to fund the Rosehill venture. This payment is a principal payment. They are choosing to accumulate an asset at this point in their lives. This will undoubtedly benefit their children in the future. The asset is of little assistance to them now if they have agreed to pay all income derived from that asset to the bank. It is in the hands of the applicants to consider either liquidating the interest in Rosehill to free capital and income, or they need to reach some arrangement with other partners to ensure that they receive some of their income in each year.
56. The Tribunal finds that an attribution percentage of 50 percent of the income of the Trust to each applicant is appropriate. There is nothing in the facts that persuades the Tribunal to alter the Department’s decision.
57. In the circumstances the Tribunal affirms the decisions under review. This means that the application is not successful.
I certify that the 62 preceding paragraphs are a
true copy of the reasons for the decision
herein of Senior Member L HastwellSigned: .....................................................................................
B Bills AssistantDate/s of Hearing 7 July 2005
Date of Decision 19 August 2005
Advocate for the Applicant Ms M Riley
Solicitor for the Applicant Welfare Rights Centre
Advocate for the Respondent Mr Kilderry
Solicitor for the Respondent Centrelink Legal Services Branch
1
1
0