Major and Repatriation Commission

[2003] AATA 826

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2003] AATA 826

ADMINISTRATIVE APPEALS TRIBUNAL        Nº V2002/1044

VETERANS'      APPEALS      DIVISION

Re:         BOAZ MAJOR

Applicant

And:       REPATRIATION COMMISSION

Respondent

DECISION

Tribunal:       M.J. Carstairs, Member

Date:             22 August 2003

Place:            Melbourne

Decision:The Tribunal affirms the decision under review.

(sgd) M.J. Carstairs

Member

VETERANS' AFFAIRS - veterans' entitlements service pension – controlled private trust – attribution of assets ‑ whether beneficiaries attributable stakeholders

Veterans’ Entitlements Act 1986 ss52ZN, 52ZO, 52ZQ, 52ZZB, 52ZZH,

52ZZJ, 52ZZZQ, Schedule 6

Veterans' Entitlements (Attributable Stakeholders and Attribution Percentages) Principles

Re Costello and Secretary, Department of Transport (1979) 2 ALD 934

Television Corporation Ltd v The Commonwealth of Australia and Another

(1963) 109 CLR 59

Riddell v Secretary, Department of Social Security (1993) 30 ALD 31

Minister for Aboriginal Affairs and Another v Peko-WalIsend Limited and Another

(1986) 162 CLR 24

D. Pearce and S. Argument 1999, Delegated Legislation in Australia 2^nd edn,

Butterworths, Sydney

REASONS FOR DECISION

22 August 2003  M.J. Carstairs, Member

1.      This is an application by Boaz Major (the applicant) for review of a decision made by a delegate of the Repatriation Commission (the respondent) on 28 February 2002. This decision affirmed an earlier decision of the respondent that the service pensions of the applicant and his wife, Marjorie Major, were to be cancelled with effect from 1 January 2002, due to the operation of new provisions for the assessment of private trusts under the Veterans’ Entitlements Act 1986 (the Act).

2.      At the hearing the applicant was represented by Mr M Anstis of Leon Hyman and Associates, solicitors.  Mr R. Douglass, an advocate with the Department of Veterans' Affairs, represented the respondent.

3. The Tribunal had before it the documents lodged under s37 of the Administrative Appeals Tribunal Act 1975.  The Tribunal also had before it Statements of Facts and Contentions lodged by the respondent on  13 December 2002 and 5 March 2003, and by the applicant on 30 December 2002, 13 March and 7 May 2003.  The Deed of Settlement for the Bo Major Family Trust (the trust) was marked as Exhibit A1.

BACKGROUND

4.      The applicant was born on 29 September 1921 and his wife was born on 18 March 1920. They have received service pension payments since 3 August 1995. 

5.      In 1979 the trust was created.  The Trustee Company for the trust was Leebing Investments, later replaced by Boemm Pty Ltd (the trustee company).  The trustee company is a private company, the applicant and his wife being the sole shareholders and directors.  The trust is discretionary, and gives the trustee powers to hold the assets and income of the trust for the benefit of the beneficiaries, at the absolute and uncontrolled discretion of the trustee.

6.      On 15 March 2001 the respondent received two forms completed by the applicant Private trust and Private company in which the applicant provided the details of the trust and company arrangements.  As new legislative provisions dealing with trusts and companies were commencing on 1 January 2002, the respondent was seeking the information in these forms from people such as the applicant potentially affected by the changes.  Under the proposed changes to the legislation, the assets and/or income of private trusts and private companies could be attributed to individuals for purposes of means testing.  In the applicant’s responses he advised, amongst other things, that he and his wife exercised joint control as directors of the trustee company.

7.      The applicant’s assets and income were reassessed on the basis of this information and the service pensions that the applicant and his wife had been receiving were cancelled from 1 January 2002.  That decision, dated 22 December 2001, was addressed to the applicant and his wife.  The applicant sought internal review of the cancellation decision, and the review, dated 28 February 2002, was only in the name of the applicant although the delegate’s conclusion was that:

46.      …Mr and Mrs Major have an asset attribution percentage of 50% each which means that 100% of the assets of the trust will be held in their combined assessment for pension purposes. 

The applicant sought review by this Tribunal on 24 April 2002.  The application was withdrawn, but was reactivated on 8 October 2002.  The applicant’s wife did not seek review with the Tribunal of the decision to cancel her pension.

EVIDENCE

8.      The applicant relied on the documentary material before the Tribunal.  In a letter dated 13 March 2001 (T3) the applicant stated that the trust was set up for the primary purpose of providing the applicant and his wife with separate income during their retirement.  In notes accompanying the Private trust and Private company forms, the applicant said that although there were no formal loan agreements between the trust and various borrowers, at 30 June 2000 the trust had sundry loans to the value of $62,237.   Loans to the trust by beneficiaries totalled $29,355, being $12,407 owed to the applicant, $11,660 owed to his wife, and $5288 owed to Judith Marsland, the applicant’s daughter (the daughter).  The Private trust form stated that interest on those loans was paid only to the applicant and his wife. 

9.      In the letter dated 13 March 2001 the applicant stated  that

…

At each annual distribution of trust funds, in conjunction with my wife, I use my authority & influence to ensure that our combined benefits are always more than the sum total of all the benefits distributed to our extended family. 

It is our intention to continue this practice in the future.

10.     A Deed of Gift dated 20 June 1983 (T11) specified the applicant as donor  of the sum of $200,000 to the trustee company.  In the trust deed dated 20 June 1979 (Exhibit A1) the applicant was the sole guardian and appointer of the trust.  The applicant and his wife were general beneficiaries. The specified beneficiaries were the children of the marriage.  On the form Private trust the applicant set out that the beneficiaries of the trust were himself and his wife, their son and daughter and their spouses, and four grandchildren.

11.     The trust tax returns (T3 and T7) showed that the trust made the following distributions:

·   1999/2000:   $6928 (applicant), $4654(wife), $5288 (daughter)

·   2000/2001:   $12,287 (applicant), $8211 (wife), $7084 (daughter).

The balance sheet of the trust in 1999/2000 showed net assets of $231,772.  An internal minute prepared by the respondent, dated 4 October 2001 (T8), shows that the adjusted the net asset value was increased from $231,772 to $515,836.88, using the current market value of the trust’s share portfolio as the basis of valuation, rather than the cost price of the shares.  The minute noted that the asset value calculated by market value was in excess of the asset limit for service pension.

CONSIDERATION OF THE ISSUES

12.     The legislation introducing the changes that now affect the applicant and his wife’s service pensions was the Social Security and Veterans’ Entitlements Legislation Amendment (Private Trusts and Private Companies – Integrity of Means Testing) Act 2000 No. 132, 2000, which is now Division 11A of Part IIIB of the Veterans’ Entitlements Act 1986 (the Act).

13. Section 52ZN of Division 11A explains the key steps under which it is decided whether the assets and/or income of trusts and companies will be treated as those of an individual:

The following is a simplified outline of this Division:

·This Division sets up a system for the attribution to individuals of the assets and income of private companies and private trusts (sections 52ZZK and 52ZZR).

·Attribution starts on 1 January 2002.

·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).

·A company or trust will be a controlled private trust or a controlled private company if the individual passes a control test or a source test.

·An individual will not be an attributable stakeholder of a trust if the trust is a concessional primary production trust in relation to the individual.

·The asset deprivation rules and the income deprivation rules are modified if attribution happens.

14.     The Division then provides various sections that define key terms and concepts.  Several matters in regard to these key terms and concepts were not in dispute between the parties, including the following:

·that the trust is a designated private trust within the meaning of the legislation: s52ZZB

·that the applicant and his wife satisfy the control test, so that the trust is deemed to be a controlled private trust in relation to them: s52ZZH

·that all the beneficiaries satisfy the control test in s52ZZH, as they are relatives (s52ZP) and hence they are associates of the applicant: s52ZQ.

15.     Section 52ZZJ(2) of the Act, which is the essential point of dispute in this matter, provides:

…

(2)          For the purposes of this Division, 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 52ZZZF);

then:

(c)the individual is an attributable stakeholder of the trust unless the Commission otherwise determines; and

(d)if 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 Commission determines a lower percentage in relation to the individual and the trust—that lower percentage; and

(e)if the individual is an attributable stakeholder of the trust—the individual’s income attribution percentage in relation to the trust is:

(i)100%; or

(ii)if the Commission determines a lower percentage in relation to the individual and the trust—that lower percentage.

16.     Section 52ZZJ(5) of the Act states that in making determinations under s52ZZJ, the relevant decision‑making principles must be applied.  The reference to decision‑making principles means those that the respondent may formulate under s52ZZZQ, for the purpose of, amongst other things, making decisions under s52ZZJ.  The principles in issue in this case are the Veterans’ Entitlements (Attributable Stakeholders and Attribution Percentages) Principles (the Principles), which were gazetted on 14 February 2001.

17.     The Principles set out various factors to be taken into account by the decision‑maker in determining whether a person should not be held to be an attributable stakeholder (s52ZZJ(2)(c)) and for determining a lesser asset attribution percentage, than the 100% which is automatically applied under s52ZZJ(2)(d)(i), once it is decided that a person is an attributable stakeholder.  Paragraph 7(1) of the Principles states that the respondent must consider whether there are relevant circumstances that make it inappropriate for the individual to be an attributable stakeholder…. Paragraph 16 of the Principles states that the respondent must consider whether there are circumstances that make it inappropriate for the individual to have an assets attribution percentage of 100%.

18.     The factors to be taken into account under paragraphs 7 to 13 of the Principles (relating to deciding that it is inappropriate for an individual to be an attributable stakeholder) and paragraphs 16 to 22 (relating to the circumstances where it is inappropriate to attribute 100% of the assets to the individual) include the legal and administrative relationships between the individual and the trust; who exerts effective control; who has made contributions to the trust and in what proportion; who has received past benefits, their frequency and proportion; who is likely to receive future benefits; and any other circumstances affecting the involvement of the individual with the activities or administration of the company or trust.  Control is defined in s52ZO of the Act as including

…control as a result of, or by means of, trusts, agreements, arrangements, understandings and practices, whether or not having legal or equitable force and whether or not based on legal or equitable rights.

19.     Mr Anstis submitted that, it was agreed that all the beneficiaries of the trust met the definition of controllers of the trust, and this was a relevant matter to take into account in applying the Principles.  He submitted that once an individual satisfies the control test, he or she is an attributable stakeholder under s52ZZJ(2) unless the respondent, applying the Principles, determines otherwise.  He said that as the Principles fail to provide a method to determine percentages, the default position should be that as all the beneficiaries of the trust are attributable stakeholders, assets and income percentages should be equal.  He submitted that to do other than divide the relevant assets and income between all the individuals who met the test was arbitrary, inconsistent, and ignored the Principles. 

20.     Mr Anstis submitted that the respondent’s assessment process was deficient because no enquiry was made concerning whether the beneficiaries exert influence over the applicant.  He submitted that the applicant was elderly, he and his wife were in residential care and it would be possible in these circumstances to exert influence over them.  In the absence of full enquiry the respondent could not be satisfied that this was not so.  Nor, he said, were full enquiries made concerning whether the beneficiaries were attributable stakeholders of other trusts or companies, as required under paragraph 12 of the Principles.

21.     Mr Anstis submitted that the fact that Parliament has defined associates widely in the Act indicates an intention that their role should not be ignored by those administering the Act (Riddell v Secretary, Department of Social Security (1993) 30 ALD 31). He submitted that the likelihood that the daughter would be a recipient of future distributions by the trust, given the pattern of past distributions, should be taken into account under paragraph 9 of the Principles. He submitted that in the absence of a full enquiry by the respondent it was incorrect, and beyond the respondent’s power, to attribute 100% to the applicant and his wife: Minister for Aboriginal Affairs v Peko WalIsend Ltd (1986) 162 CLR 24. Mr Anstis also submitted that the Principles are void for uncertainty: Television Corporation Ltd v Commonwealth (1963) 109 CLR 59.

22.     Mr Douglass submitted that the issue in dispute involved calculating the assets reduced rate referred to in Schedule 6 of the Act.  He agreed that, due to the broad definition of terms such as relatives and entities in s 52ZO of the Act, the beneficiaries met the definition of being associates (s52ZQ) for the purposes of the control test, as also did the trustee company.

23.     Mr Douglass submitted that where an individual is an attributable stakeholder of a trust, ss52ZZJ(2)(d) and (e) of the Act deem the individual's asset attribution percentage and income attribution percentage to be 100%, unless the respondent determines a lower percentage under the Principles.  He submitted that the discretion to reduce the percentage should not be exercised in this case because the applicant and his spouse are the sole shareholders and directors of the trustee company; they control the appointment of the trustee; and, through the trustee company, determine the trust distributions.  He submitted it was inappropriate that the percentage should be less than 100% because the applicant and his spouse exercise effective control in relation to the trust within the meaning of paragraphs 7(2)(c) and 16(2)(c) of the Principles.  In terms of paragraphs 8 and 17 of the Principles, dealing with contributions to the trust and proportion to the overall assets, Mr Douglass submitted that the applicant provided the trust capital, and there was no evidence of other contribution.  The proportion of the applicant’s original contribution of $200,000 to the current trust capital, he said, pointed to the significance of the applicant’s contribution.

24.    Mr Douglass submitted that the applicant and his spouse were the recipients of the most significant distributions of trust income in 1999/2000 and 2000/2001.  This, along with the interest being paid only on their loan account balances, supported an attribution of 100%.  He said that in assessing the likely future benefits from trust distributions (paragraph 10 and 19 of the Principles), the pattern of past distributions, and the effective control that the applicant and his wife exercise over distributions, make it reasonably foreseeable that they will continue to be the significant future beneficiaries.

25.     Mr Douglass submitted that, while beneficiaries other than the applicant and his spouse satisfied the control test in section 52ZZH, they are not attributable stakeholders within the meaning of section 52ZZJ of the Act.  Subsection 52ZZJ(5) requires the Principles to be applied.  He emphasised that, apart from the applicant and his wife, only the daughter received distributions from the trust.   Under general legal principles and the terms of the trust deed, he said that the beneficiaries have no influence on the trustee's discretion to make payments to them. Mr Douglass submitted that the Tribunal should not accept the submission that other beneficiaries could control the trust due to the age and infirmity of the applicant and his wife as this was not consistent with the evidence.  The applicant’s statement in his letter at T3 was quite clear, that he and his spouse jointly control the trustee and that no other person has control.

26.     Mr Douglass submitted that the further inquiry by the respondent suggested by Mr Anstis was not required, as the focus must be on those claiming benefits under the Act.  He submitted that enquiries should not be unnecessarily wide-ranging and were not justified where the legal relationship between the trust and beneficiaries was quite clear. 

27.     The Tribunal reached its decision taking into account the documentary material and the submissions made at the hearing.  The Tribunal accepts the matters agreed by the parties, namely that the trust is a designated private trust under s52ZZB, as it does not fall within any of the trusts exempted by the section. The Tribunal accepts that the applicant and his wife satisfy the control test in s52ZZH(2), and because of the broad definition of the control test encompassing associates, the beneficiaries of the trust also satisfy the control test, as does the trustee company.

28.     Under s52ZZJ(2) of the Act, once the decision‑maker is satisfied that the trust is a controlled private trust in relation to an individual, which follows as a matter of course under s52ZZH if the individual satisfies the control test, the applicant will be an attributable stakeholder of the trust unless the respondent determines otherwise.  The Tribunal finds that the applicant is an attributable stakeholder and it follows within s52ZZJ that 100% of the assets is attributed to the applicant. 

29.     On the question of who is the individual that the respondent is required to address in Division 11A, it is notable that in other sections in the Act dealing with rates of service pension the term person is used.  For instance in s35A Before a person can be paid a service pension… or in Schedule 6,  SCH6-A1(2) The rate of service pension for a person….  The term individual is not defined in the Act; however in Division 11A entity is defined to include an individual, and a group may be an entity alone.  It follows that the term individual has the potential of bearing an extended meaning.  However, the long title of the Act states that it is …to provide for the payment of pensions and other benefits to…veterans.  The person making the claim under the Act provides the starting point for the enquiries that the respondent relevantly must undertake to establish eligibility for payment.  Therefore, the fact that others who are not seeking payment of service pension may meet the definitions in the Act, including that of eligible stakeholder in s52ZZJ, has no direct relevance to the primary enquiry.  This does not detract from the fact that information about other individuals, groups and entities may be taken into account in determining the claimant's eligibility. 

30.     Nothing in the Act requires the respondent to investigate exhaustively all aspects of the operations of companies, trusts, individuals and business entities related to them.  The level of enquiry that Mr Anstis suggested in submissions is administratively unworkable and may offend the Commonwealth’s privacy principles in relation to persons not seeking benefits under the Act.  Despite asserting that extensive enquiry was needed, Mr Anstis did not point to any issues that supported such further enquiry, for instance any evidence that others were exerting control in relation to the trust or the trustee company.  The Tribunal does not agree that the respondent cannot reach a state of satisfaction in regard to the applicant as an attributable stakeholder under s52ZZJ(2) without considering whether others may meet that definition.  If issues are raised that suggest that the applicant should not be held to be the attributable stakeholder, the Principles allow for consideration of those issues.

31.     Whether the Tribunal could make a binding decision on the question of the validity of the Principles, which are disallowable instruments under s52ZZZQ(2), (Re Costello and Secretary, Department of Transport (1979) 2 ALD 934), the applicant raised no ground to substantiate the submission that the Principles are invalid. No suggestion was made that there was any irregularity in their formulation, or that they were inconsistent with the Act (D. Pearce and S. Argument 1999, Delegated Legislation in Australia 2^nd edn, Butterworths, Sydney, pp98-99).  The Principles allow an area of discretionary decision-making.  Unlike the Ministerial determination considered by the Federal Court in Riddell, to which the Tribunal was referred, where the Court held the determination to be invalid because it fettered a wide discretion available under the relevant legislation, the Principles do not purport to limit a discretion.  Rather, the Principles provide discretion where otherwise there is none in s52ZZJ.  The principles set out that the decision-maker must consider relevant circumstances.

32.     The Tribunal rejects the applicant’s submission that the Principles are void for uncertainty in not providing a formula to arrive at a lesser percentage of asset or income attribution.  The Principles allow a broad-ranging enquiry, after which a decision-maker may fix percentages reflecting the facts that emerge.  For instance, the Principles have been used to decide that where family members have participated in a business operated by a trust, percentages may be allocated to reflect the proportions represented by wages drawn.  The Principles would allow for a husband and wife, to each of whom 100% may otherwise be attributed under s52ZZJ, to be attributed 50% each to avoid double counting that would otherwise occur by the application of s52ZZJ on its own.  Provided that there is a rational basis to the percentage attributed by a decision-maker, after taking into account relevant facts, the percentage arrived at will be a correct exercise of the discretion.

33.     In applying the Principles in this case, and the matters in paragraphs 7 to 13 of the Principles in particular, the Tribunal is satisfied that the applicant and his wife, exercising their influence in the trustee company, are the ones who exercise effective control (paragraph 7 of Principles).  The applicant has provided the capital  of the trust (paragraph  8 of the Principles) and he and his wife derive significant benefits from distributions and can expect to continue to do so, given that (effectively) they decide the distributions (paragraphs 9 and 10 of the Principles).  The evidence was that they exercise control jointly, intend to continue to do so, and set up the trust to ensure that they had income in retirement.  The Tribunal took into account that the daughter has received significant income through distributions (paragraph 9 of the Principles).  However, there is no evidence that as beneficiary she was exerting control over the applicant or the trustee company.  Even if the pattern of distribution continues to favour the daughter as in the past, the Tribunal did not consider that this was a factor that should outweigh the evidence that the applicant’s stated practice is to exercise control.  As a mere beneficiary of a discretionary trust the daughter is not in a position to exercise effective control.  For these reasons the Tribunal is satisfied that there are no relevant circumstances which make it inappropriate for the applicant to be an attributable stakeholder (paragraph 7 of the Principles).

34.     The same factors are to be taken into account in deciding whether there are relevant circumstances that make it inappropriate for the individual to have an asset attribution of 100%.  For the reasons given above, the Tribunal was satisfied that there was no reason to reduce the percentage attribution below 100%.  Because of the operation of Schedule 6 of the Act (particularly SCH6-A2 and SCH6-F2), the assets of the husband and wife are treated as pooled and shared on an equal basis.  As the level of assets held by the applicant and his wife are above that at which service pension can be paid, the decision to cancel the applicant’s service pension was correct.

DECISION

35.     The Tribunal affirms the decision under review.

I certify that the thirty‑five [35] preceding paragraphs are a true copy of the reasons for the decision of:

M.J. Carstairs, Member

(sgd)       Olympia Sarrinikolaou

Clerk

Date of hearing:  25 February 2003, 9 May 2003

Date of decision:  22 August 2003
Advocate for applicant:                Mr M. Anstis
Solicitor for applicant:                  Leon Hyman and Associates
Advocate for respondent:            Mr R. Douglass
Solicitor for respondent:              Department of Veterans' Affairs