Mary and Octavio Carapeta and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs
[2013] AATA 285
•10 May 2013
[2013] AATA 285
Division GENERAL ADMINISTRATIVE DIVISION File Number(s)
2012/3593
Re
Mary and Octavio Carapeta
APPLICANT
And
Secretary, Department of Families, Housing, Community Services and Indigenous Affairs
RESPONDENT
DECISION
Tribunal Ms A F Cunningham, Senior Member
10 May 2013
Date Place Hobart DecisionThe decision under review be set aside and the matter remitted to the Secretary for a recalculation of the applicants’ assets in accordance with the Tribunal’s findings.
........................................................................
Ms A F Cunningham, Senior Member
CATCHWORDS
Social Security - age pension - overseas applicants - value of assets - loan to controlled private company - applicants 100% attributed controllers - shareholder loan attributed to applicants as an asset - source of loan from bank and personal loans remain repayable - attributable assets to be reduced by loans outstanding - decision under review set aside
LEGISLATION
Administrative Appeals Tribunal Act 1975
Social Security Act 1991
Social Security (Administration) Act 1999
Social Security (International Agreements) Act 1999CASES
Eimbert and Repatriation Commission (1988) 16 ALD 19
Melbourne and SDSS (1988) 20 FCR 496
Cowling and SDSS (1986) 12 ALD 169
Fawthrop and Repatriation Commission (1993) AATA 359;REASONS FOR DECISION
Ms A F Cunningham, Senior Member
The applicants, Octavio and Mary Carapeta seek the review by the AAT of a decision to pay their age pension at a reduced rate on the basis that their assets include a loan made to a business company, Teles Martins & Carapeta, LDA of which they are the sole shareholders. The original decision was affirmed by an Authorised Review Officer (ARO) on 23 January 2012 and affirmed by the Social Security Appeals Tribunal (SSAT) on 10 July 2012.
As the applicants reside in Portugal, both parties agreed and the Tribunal determined that it was appropriate to determine the matter on the basis of the written material submitted in evidence and the submissions made by the parties. The material includes the T documents which were lodged pursuant to section 37 of the Administrative AppealsTribunal Act 1975, the Secretary’s Statement of Facts and Contentions with attachments, and the parties’ written submissions.
Following perusal of the material contained on the file, the Tribunal caused a letter to be forwarded to the applicants and a copy to Mr Brian Sparkes, who represented the respondent Secretary, inviting the applicants to provide supporting documentation within 21 days with respect to their contention that the amount of 436,225 Euro comprises moneys borrowed by them from a bank and loaned to the company, Tele Martins & Carapeta, LDA.
In anticipation of the applicants’ response, Mr Sparkes submitted that the " loan should be assessed at face value regardless of the ability of the borrower (in this case the company) to repay the loan and that the source of the funds lent is an irrelevant consideration other than in the context of section 1121 of the Social Security Act 1991 which allows the value of an asset to be reduced by the value of any charge or encumbrance over that asset. It would be irrelevant if the charge or encumbrance for the loan was in respect of other assets e.g. real property." In addition Mr Sparkes asked for the opportunity to put more detailed submissions in the event the Tribunal did not accept his submission.
The applicants subsequently forwarded copies of a number of documents together with further written submissions. In his response dated 22 March 2013, Mr Sparkes submitted that the documents forwarded by the applicants are largely irrelevant to the matter before the Tribunal and do not assist the case. He noted that the documents indicate that the value of the loan to the company is well in excess of the 436,225.70 Euro taken into account by Centrelink in determining the rate of age pension payable to the applicants. He contended that as a consequence the rate of age pension payable to the applicants may well be significantly lower than the rate referred to in the Secretary’s Statement of Facts and Contentions and that there may be potential overpayments. In his submission Mr Sparkes responded to all of the documents contained in the 44 pages submitted by the applicants, and suggested that the assets appear to be higher than originally assessed. Mr Sparkes concluded by stating that the applicants appear to be running an unsuccessful company which should not be supported by the receipt of an Australian social security payment.
ISSUES
The issues to be determined are :
1. The correct value of the applicants’ assets.
2. Whether the value of the applicants assets exceeds the allowable limit for full rate age pension
3. If not, the correct rate of age pension payable.
BACKGROUND FACTS
The following background facts do not appear to be in contention and the Tribunal finds accordingly.
Since 23 June 2010 the applicants have been paid age pension under the terms of the International Agreement between Australia and Portugal (International Agreement).
In their claims for age pension under the International Agreement, the applicants declared that the household contents were valued at 15,000 Euro, bank deposits of 18,116.19 Euro and that they were involved in a business, Teles Martins and Carapeta, LDA -Torres Vedras (the company) (T6/29, 31, 44 and 48). The applicants are the “owners” of the company. (T6/44 and 47).
In the Complex Assessment Officers Report dated 16 August 2011 (T19), the applicants were assessed as having other assets with a net value of 15,893 Euro (A $20,173). This amount was calculated by deducting the company’s liabilities which totalled 622,697 Euro from its gross assets of 638,591 Euro. The Complex Assessment Officers Report noted that his assessments mirrored the company's own balance sheet and what had been reported to the authorities in Portugal. The Officer referred to the item titled "finance obtained" in the sum of 436,225 Euro in the company’s balance sheet which had been clearly identified as a company liability and not part of the equity. As Mr and Mrs Carapeta are 100% attributed controllers, he recognised their shareholder loan but noted that it should be treated as an assessable, personal and deemable financial asset in accordance with section 9 (1) and Guide 4.12.5.10 and Guide 4.4.1.30
On the basis of this Report the applicants’ respective rates of age pension were assessed having regard to the value of their assets and paid at a reduced rate. Their rates of age pension were also assessed under the terms of the International Agreement Act and on the basis of the applicants Australian working life residence (AWLR) of 103 months and paid at the International Agreement portability rate.
The reduced rate of pension was assessed at $97.70 per fortnight for each applicant. The applicants subsequently sought a review of the decision to pay them at a reduced rate and the decision was affirmed by an ARO. The ARO decided that the applicants’ assets had a value of $600,834 (485,284 Euro) and that this figure was above the figure at which full rate age pension was paid. On the basis of the evidence, the ARO decided that the applicants had loaned $436,225.70 Euro to their company and that the value of this loan was an asset of the applicants. The ARO concluded that the value of the loan was correctly taken into account as it had not been extinguished or forgiven.
The ARO further decided that the value of the applicants’ home contents was 15,000 Euro, the balance of their savings account was 18,116 Euro and that the net asset value of the applicants’ attributable value in the company was 15,893 Euro. Using an exchange rate of A$1= .8076 Euro, the ARO decided that the total asset value of the applicants was A $600,834.00. On the basis of an allowable asset value of $132,500 before a reduction in the rate of age pension, using the reduction formula of $9.75 for each $250 in excess of $132,500, the ARO concluded that the reduction in the annual rate of age pension for each applicant was $6542.25.
The applicants do not dispute the method used by the ARO in calculating their rate of age pension. What is in dispute is the attribution of 436,225.70 Euro as an asset of the applicants when they contend it comprises moneys borrowed by them from the bank and other sources and loaned to their company, Teles Martins and Carapeta to keep it afloat.
Mr Sparkes submits that the available evidence supports the decision under review which found that the sum of 436,225 Euro was loaned by the applicants to the company for which they were the sole shareholders and should therefore be treated as an assessable asset in their hands.
THE LEGISLATION
The applicants’ age pensions are payable pursuant to the provisions of the Social SecurityAct 1991 (the Act). Other relevant legislation is the Social Security (Administration) Act1999 (the Administration Act) and the Social Security (International Agreements) Act1999 (the Agreements Act).
Section 29 of the Administration Act provides that, subject to certain exceptions that are not applicable here, a person must be an Australian resident and in Australia to make a claim for a social security payment. At the time of the lodgement of their claims Mr and Mrs Carapeta resided in the Republic of Portugal (Portugal). Section 6 of the Agreements Act provides that the provisions of the Scheduled International Social Security Agreement have effect despite anything in the Social Security law. Schedule 9 of the Agreements Act contains the Agreement between Australia and the Republic of Portugal and Social Security (the Portuguese Agreement). Pursuant to article 14, the applicants were deemed to be Australian residents and in Australia on the date of lodgement of their claim for age pension.
The qualification provisions for age pension are set out in section 43 of the Act. There is no question that the applicants meet the entitlement provisions for age pension, the issue being whether they are being paid age pension at the correct rate. Article 17 of the Portuguese Agreement provides that the rate of age pension shall be determined by the legislation of Australia. The Agreements Act provides that a person’s rate of age pension is to be proportioned in accordance with the person’s AWLR. As stated above, apart from the inclusion of the company liability of 436,225 .70 Euro as an asset of the applicants, the method used to calculate the rate of age pension in accordance with the legislation was not disputed.
Section 55 of the Act provides that a person’s age pension is worked out (if the person is not permanently blind), using pension rate calculator as at the end of section 1064. The Module refers to the assets test in Module G to work out the effect of the person’s assets on the maximum payment rate. Section 11 of the Act contains the assets test definitions. Specifically "asset" means “property or money (including property or money outside Australia)”. Although property is not defined in the Act, it has been widely interpreted by the Courts and the Tribunal to include all real or personal property as well as legal and beneficial rights and interests whether of a real or personal nature (Re Eimbert and Repatriation Commission (1988) 16 ALD 19, Melbourne and SDSS (1988) 20 FCR 496; Re Cowling and SDSS (1986)12 ALD 169.) In re Eimbert the Tribunal said that:
"It is clear that Parliament intended property to be considered in its most comprehensive sense to include real and personal property. By itself, property must be taken to include all debts, shares and other things of a personal nature as well as the rights normally associated with ownership of such things."
Section 1118 of the Act lists a number of assets that are to be disregarded in calculating the value of a person’s assets. Loans are not included within the list and are specifically referred to in section 1122 as follows:
"If a person lends an amount after 27 October 1986, the value of the assets of the person for the purposes of this Act includes so much of that amount as remains unpaid but does not include any amount payable by way of interest under the loan."
Part 3.18 of the Act contains provisions for the means test treatment of private companies and private trusts. Division 8 sets out the provisions relating to the attribution of assets of controlled private companies and controlled private trusts. Section 1208G (1) states:
“Effect of charge or encumbrance on value of assets
Charge or encumbrance relating to a single asset
(1)For the purposes of the application of this Division (other than this section) to a particular individual and a particular company or trust, if:
(a)There is a charge or encumbrance over a particular asset of the company or trust; and
(b)The charge or encumbrance relates exclusively to that asset;
The value of the asset is to be reduced by the value of the charge or encumbrance”.
CONSIDERATION
As previously stated, there is no dispute regarding the findings with respect to the treatment of the applicants’ assets for the purposes of determining their entitlement to age pension apart from the 436,225.70 Euro identified in the company balance sheet as at 31 December 2010 as "financing obtained". The Complex Assessment Officer in his Report referred to note 9 of the company’s financial statements which identifies the figure as a “shareholder loan”. The Officer concluded that this sum was a company liability and not part of equity. As Mr and Mrs Carapeta are 100% attributed controllers, he recognised the shareholder loan but treated it as an assessable asset in their hands in accordance with section 9 (1) of the Act.
It appears that there was little if any information or evidence presented to the Complex Assessment Officer or the ARO as to the source of these funds. Indeed the decision states that the applicants have not identified a third party who is owed the 436,225 Euro by the company. In their response the applicants originally confused this sum with the 436,225 Euro attributed to the value of the inventory of the company and contended that the items were not saleable and were of little value.
In their application for review to the AAT, the applicants contend that they had not lent money to the company but had "signed bank papers many times in the past few years to borrow money from the banks for our firm/company. Teles Martins and Carapeta, LDA it is us Mary and Octavio and we are Teles Martins and Carapeta, LDA. Only the two of us. No-one else". Following the Tribunal‘s request, the applicants provided documentary evidence of bank statements in support of their contention that these monies were sourced as loans from the bank and did not originate from funds that they had held.
In response, Mr Sparkes contends that the loan is to be assessed at its face value regardless of the ability of the borrower, in this case the company, to repay the loan. He contends that the ability of the borrower to repay the loan is not a relevant consideration and refers the Tribunal to section 1122 and a number of authorities that support this view. Mr Sparkes further states that the source of the funds lent is in a relevant consideration other than in the context of section 1121 of the Act which allows the value of an asset to be reduced by the value of any charge or encumbrance over that asset. He does not elaborate in his submission however, as to how this provision may be applied in this case.
The decisions referred to by Mr Sparkes with which the Tribunal agrees, all similarly concluded that section 1122 of the Act dictates that where a person lends money to a company and the loan remains payable, regardless of the company’s ability to repay the loan, the amount of the loan that remains payable is to be attributed to the person in accordance with their controlling interest in the company.
However the facts in this case differ from those in the authorities referred to by Mr Sparkes in that the source of the loan is a bank rather than funds held or owned by the person. In this context the provisions of section 1121 relevantly provide for an adjustment of the value of the asset by including the value of the charge or encumbrance.
The words "charge" and "encumbrance" were considered in Re Fawthrop and Repatriation Commission (1993) AATA359; (1994) 36 ALD 140 in the context of the Veterans Entitlements Act 1986 where it was stated at page 145:
"… Given the context in which the word "security" is used in S 52c and particularly in the juxtaposition with the words "charge" and encumbrance”, we have concluded that the word “security” must be understood to connote a debt or claim the payment of which is in some way secured. For the same reasons, the word “charge” must also be given its narrower meaning to denote a liability, the performance of which is secured and the word “encumbrance” to mean a claim, lien or burden attached to a property…”
A loan is not included in the list of disregarded assets in section 1118 and in accordance with the provisions of section 1122, the amount that remains unpaid should be included in the value of assets. It is clear that as Mr and Mrs Carapeta are the sole controllers of the company, the 436,225.70 Euro identified as a shareholder loan should be attributed to them and included as an asset in their hands.
The Tribunal is satisfied on the basis of the further documentary evidence provided by the applicants, that the "financing obtained" by the company in the sum of 436,220.70 Euro is subject to "charges" in the hands of the applicants as that term has been defined. It constitutes monies borrowed by the applicants from the banks identified in the documents and the other parties to whom personal loans remain outstanding and the monies are repayable to those banks and those other parties. The further documentary evidence indicates that the total monies currently outstanding by way of bank loans, fees and personal loans exceeds the 436,225 Euro that appeared in the company balance sheet as at 31 December 2010.
Whilst the Tribunal agrees that this non-current liability identified as "financing obtained" was correctly attributed to the applicants as an asset in their hands in accordance with the provisions of section 1122, on the basis of the further evidence provided by the applicants in support of their contention that this sum was never an asset in their hands but comprised monies borrowed by them from the banks and other sources and loaned to the company, the Tribunal determines that the value of the parties’ assets should be reduced by the full amount of 436,225.70 Euro in accordance with the provisions of section 1121 of the Act. Further support for a reduction in the value of assets attributed to persons of controlled private companies is found in the provisions of section 1208G.
DETERMINATION
In accordance with the above reasoning, the Tribunal determines that the decision under review be set aside and the matter remitted to the Secretary for a recalculation of the applicants’ assets in accordance with the Tribunal's findings.
I certify that the preceding 32 (thirty-two) paragraphs are a true copy of the reasons for the decision herein of ........................................................................
Administrative Assistant
Dated
Date of Hearing Decided on the papers
Applicant In person Solicitors for the Respondent Mr B Sparkes, Program Litigation and Review Branch
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