Mason and Secretary, Department of Family and Community Services
[2004] AATA 629
•21 June 2004
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2004] AATA 629
ADMINISTRATIVE APPEALS TRIBUNAL N° V2003/757
GENERAL ADMINISTRATIVE DIVISION
Re: ZANE MASON
Applicant
And:SECRETARY,
DEPARTMENT OF FAMILY AND COMMUNITY SERVICES
Respondent
DECISION
Tribunal: Mr W.G. McLean, Member
Date: 21 June 2004
Place: Melbourne
Decision:The Tribunal sets aside the decision under review and remits the matter to the respondent with the direction that the applicant’s entitlement to age pension as at 1 January 2002 and 18 September 2002 is to be recalculated and reassessed in accordance with the agreed facts and the Tribunal’s findings set out in the Tribunal’s reasons for decision.
(sgd) Mr W.G. McLean
Member
SOCIAL SECURITY – age pension – decision to cancel pension due to controlled private trust – assets attributed to applicant – assets test – decision set aside
Social Security Act 1991 s1208G
REASONS FOR DECISION
21 June 2004 Mr W.G. McLean, Member
The Tribunal considered an application from Mr Zane Mason (“the applicant”) for the review of a decision made by the Social Security Appeals Tribunal (“SSAT”) on 19 June 2003. The SSAT reviewed a decision made by an officer of Centrelink on 17 December 2001 on behalf of the Secretary, Department of Family and Community Services (“the respondent”) to cancel the applicant’s age pension with effect from 1 January 2002, and a decision made by the respondent on 1 October 2002 to reject the applicant’s claim for Age Pension. The SSAT decided to set aside the decisions and to send the matter back to the Chief Executive Officer of Centrelink with directions that the applicant’s entitlement to Age Pension be recalculated and reassessed on the following basis:
| 1 JANUARY 2002 | 18 SEPTEMBER 2002 | |
| TRUST ASSETS | ||
| ANZ V2 Account | $62,674 | $15,972 |
| ANZ Account | $4,563 | $2,913 |
| Bought share option positions | $0 | $0 |
| Plant and equipment | $2,078 | $1,247 |
| Shares | $262,794 | Value of 5000 WMC, 1000 ANZ and 6000 TLS to be determined as at 18 September 2002 |
| Salomon Smith Barney current account | $18 | $180,963 less the unrealised loss (exposure on open option positions) as calculated* |
| NON TRUST ASSETS | ||
| Bank of Melbourne | $3,976 | $7,564 |
| Household/personal | $5,000 | $5,000 |
| Vehicle | $2,755 | $2,755 |
| TOTAL | $343,858 | TO BE CALCULATED |
The Tribunal received into evidence the documents lodged pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 (the AAT Act) and Exhibits A1 to A4 tendered by the applicant and Exhibits R1 to R5 tendered by the respondent.
The applicant was represented by his accountant Mr S. Burstin, who also gave sworn oral evidence. The respondent was represented by Ms J. Davies of counsel on 7 April 2004 and Mr R. Niall of counsel on 4 June 2004.
The applicant lodged an application for Age Pension at the Cheltenham branch of Centrelink on 6 March 2000, in which he indicated that he had an interest in a trust named Mason Family Trust (“the trust”). The applicant subsequently completed an income and assets review form which he lodged with Centrelink on 4 April 2001 in which he indicated that he had loaned $39,767 to the trust, and that he owned two shares in L and Z Mason Nominees Pty Ltd, the trustee of the trust.
The Social Security Act 1991 (the Act) was amended by the Social Security and Veterans’ Entitlements Legislation Amendment (Private Trusts and Private Companies – Integrity of Means Testing) Act 2000. Part 3.18 of the Act – “Means Test Treatment of Private Companies and Private Trusts” – Division 1 provides the following simplified outline:
Simplified outline
1207. The following is a simplified outline of this Part:
·This Part sets up a system for the attribution to individuals of the assets and income of private companies and private trusts (sections 1207Y and 1208E).
·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 1207N and 1207P); 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 1207Q and 1207V); and
(c)‘the individual must be an attributable stakeholder of the company or trust (section 1207X).
·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.
The applicant is a director of the trustee company, L and Z Nominees Pty Ltd and holds all of the shares issued by the company. He also has the power to replace the trustee. It is not in dispute that the trust is a “controlled private trust” and that the applicant is an “attributable stakeholder” of the trust. It is agreed that the assets of the trust are to be attributed to the applicant.
In the matter of N°V2003/779 Re Secretary, Department of Family and Community Services and Zane Mason, the parties reached written agreement pursuant to s 42C(1) of the AAT Act and the Tribunal decided in accordance with s 42C(2) of the AAT Act, that under s 1122 of the Act, as at 1 January 2002:
(a)the liability of the Mason Family Trust to repay Mr Mason the loan should be allowed to reduce the value of the Trust's assets in the sum of $220,795.01; and
(b)the outstanding amount under the loan should be included in the value of Mr Mason's personal assets in the sum of $220,795.01, and
as at 18 September 2002,
(a)the liability of the Mason Family Trust to replay Mr Mason the loan should be allowed to reduce the value of the trust's assets in the sum of $201,854.64; and
(b)the outstanding amount under the loan should be included in the value of Mr Mason's personal assets in the sum of $201,854.64.
The parties are in agreement that the asset values determined by the SSAT for the following assets as at both 1 January 2002 and 18 September 2002 are correct and should not be varied by the Tribunal:
TRUST ASSETS
ANZ V2 Account
ANZ Account
Bought share options position
Plant and equipment
NON TRUST ASSETS
Bank of Melbourne
Household personal
Vehicle
The parties are also in agreement that the trust asset value for shares is $200,120 as at 1 January 2002 and $140,920 as at 18 September 2002 (Exhibit R1).
The trust is a trader in options. The respondent tendered a booklet issued by the Australian Stock Exchange (“ASX”) in May 2003 entitled “Options ‑ Understanding Options Trading” (Exhibit R3). The following relevant extracts are taken from this ASX booklet:
What is an option?
An option is a contract between two parties giving the taker (buyer) the right, but not the obligation, to buy or sell a parcel of shares at a predetermined price on or before a predetermined date. To acquire this right the taker pays a premium to the writer (seller) of the contract.
There are two types of options available: call options and put options.
Call options
Call options give the taker the right, but not the obligation, to buy the underlying shares at a predetermined price, on or before a predetermined date.
Put options
Put options give the taker the right but not the obligation to sell the underlying shares at a predetermined price on or before a predetermined date. The taker of a put is only required to deliver the underlying shares if they exercise the option.
The option writer
The writing of an option offers you the opportunity to earn premium income. However if your market view proves incorrect you will lose money. The put option writer’s market view would be for prices to remain steady or to rise, whereas the call option writer expects the underlying share to remain steady or to fall.
How margins are met
Your broker will require you to provide cash or collateral to cover your margin obligations. Note that minimum margin requirements are set by OCH, but higher margin requirements may be imposed by brokers.
The above extracts taken from the ASX booklet indicate that the option trading broker used by the trust, Salomon Smith Barney Private Clients Pty Ltd (“Salomon”), has the right to require the trustee of the trust to provide cash or collateral to cover margin obligations.
The applicant tendered the following form of agreement entitled “Addendum to Options Client Agreement” (“the agreement”) entered into between Salomon and the trustee of the trust on 22 November 2002 (Exhibit A3):
Addendum to Options Client Agreement Form
This consent applies to the following accounts:
Account no 1: # 9124757…
1. I/We, L & Z Mason Nominees P/L
of unit 2 /113 Thomas Street East Brighton Vic 3187
authorise Salomon Smith Barney Private Clients Pty Limited
to reserve (or withdraw) CHESS securities (“the collateral”) registered in the name of the Client in the OCH Subposition, as collateral cover for obligations in respect of options registered in the client accounts nominated above.
2. The client acknowledges that the OCH may, in OCH’s absolute discretion, decline to accept any particular client account nominated in the Options – Client Agreement Form for the purposes of accepting paperless lodgements.
3. On behalf of the Client, the Clearing Participant will reserve (or withdraw) collateral in the OCH Subposition by sending the appropriate CHESS collateral lodgement message so that the collateral lodged comes under the control of OCH, or collateral withdrawn leaves the control of OCH, in accordance with the SCH Business Rules and Procedures and the ASX Business Rules and Procedures (as amended from time to time).
4. In doing so, the Client acknowledges that those CHESS securities will be subject to a fixed charge (the “Charge”) in favour of OCH from the time they are reserved to the OCH Subposition in the manner referred to above, and will remain subject to the Charge until OCH permits it to be withdrawn from the OCH Subposition.
5. The Client acknowledges that the Charge secures all amounts and obligations owing by the Clearing Participant to OCH in connection with the client accounts nominated in the Options – Client Agreement Form opened by the Clearing Participant in accordance with the ASX Business Rules and Procedures (as amended from time to time).
6. The Client acknowledges that they have read and understood ASX Business Rules 10.9.2 (Cover) and 10.10 (Default), in so far as those rules relate to the Collateral and the Charge, including;
a.OCH’s power to deal with the Collateral on default by the Clearing Participant in respect of the client accounts nominated above; and
b.In particular, OCH’s power of sale in relation to the Collateral without any notice to the Client.
7. The Client agrees that unless OCH otherwise agrees in writing, the Collateral is not subject to any other security interest.
8. Defined terms have the same meaning as defined in the SCH Business Rules and Procedures and/or ASX Business Rules and Procedures (as amended from time to time).
…
The Tribunal noted that the agreement date of 22 November 2002 follows the SSAT asset review dates of 1 January 2002 and 18 September 2002 (“the relevant dates”).
The applicant contends that the agreement provides a fixed charge over the trust assets’ ANZ V2 bank account and shares. The respondent submitted that whilst it concurs that the agreement provides Salomon with a fixed charge over the trust asset “Shares” (ie the trust share portfolio which is not subject to the option trading business conducted by the trust), the respondent does not agree that the agreement provides Salomon with a fixed charge over the trust asset “ANZ V2 account.”
The applicant tendered a copy of a letter dated 20 November 2002 from Salomon to the trustee of the trust (Exhibit A4) which states the following:
RE: OPTION TRADING ACCOUNT # 9124757
We are writing to in relation to your above account and to express our concern at the manner in which your account is conducted.
A review of our records show that whilst you trade on a regular basis, you consistently fail to meet your obligation in respect of the options settlement requirements of T+1.
Salomon Smith Barney Private Clients Pty Ltd’s policy mandates that in order for clients to trade, clients need to ensure they have sufficient funds or stock lodged to cover any margin requirements.
A copy of your statement of account and open positions is attached which shows a current deficit of $8,710.80. We require immediate settlement of this outstanding position.
Should we not receive immediate payment in full we will take steps to close out all open positions on your account.
Furthermore, we require that any future trades are settled promptly and that you have sufficient collateral at all times to meet any possible margin requirements.
…
The Tribunal notes that the date of the letter of 20 November 2002 also follows the relevant dates.
The applicant tendered a facsimile dated 7 February 2002 from Salomon to Mr Burstin, who is the accountant representing the applicant (Exhibit A1). The facsimile states:
…
Please find attached a copy of the current open positions for L & Z Mason Nominees Pty Ltd.
…
Mr Burstin contended out that the current open positions referred to by Salomon, was the total of the market value of the listed securities amounting to $57,004.24 at 31 January 2002. Mr Burstin contends that the total of the open positions of securities is a liability of the trust as at any given date, and is covered by the fixed charge referred to in clause 4 of the agreement (Exhibit A3). The applicant also contends that the above letter from Salomon to the trustee of the trust dated 20 November 2002 (Exhibit A4) clearly demonstrates that Salomon requires the trust to ensure that it has sufficient funds or stock lodged with them as charged collateral, to cover any margin or shortfall between the open positions and the value of the trust asset or assets subject to the fixed charge. The letter also demonstrates that any margin deficit, which may occur from time to time, requires “immediate settlement.”
In order to establish that Salomon had a charge over particular trust assets at the relevant dates, the applicant must to provide the respondent with the following documentary evidence:
(a)Option Client Agreements between Salomon and the trustee of the trust that were entered into at or prior to the relevant dates, which provide that “securities will be subject to a fixed charge”;
(b)A letter from Salomon to the trustee of the trust certifying:
(i)a description of all of the assets of the trust (“securities”) that were subject to the fixed charge referred to in (a) above, at the relevant dates;
(ii)the total amount of the liability of the trust to Salomon at the relevant dates, emanating from all open positions;
(iii)the total amount of the liability of the trust to Salomon at the relevant dates arising from (ii) above, which is covered by the fixed charge at the relevant dates referred to in (a) above.
Section 1208G of the Act refers to the effect of a charge or encumbrance on the value of the assets and provides that for the purposes of Division 7 – Attribution of Income of Controlled Private Trusts of Part 3.18 – Means Test Treatment of Private Trusts, if there is a charge or encumbrance over a particular asset of the trust the value of the asset is to be reduced by the value of the charge or encumbrance.
Subject to the applicant providing the respondent with the documentary evidence from Salomon, as required in paragraph 15 (a), (b)(i), (ii) and (iii) above, the Tribunal finds that the total amount of the liability of the trust to Salomon at the relevant dates referred to in (b)(ii) above, is a liability of the trust at the relevant dates. The Tribunal also finds that the value of the assets of the trust at the relevant dates referred to in (b)(i), is to be reduced by the amount of the liability of the trust to Salomon at the relevant dates referred to in (b)(iii) above; pursuant to s 1208G of the Act.
The applicant concurs that the value of the balance of the Salomon current account at 1 January 2002, amounting to $18.27 is an asset of the trust at that date, as found by the SSAT. A Current Account Statement provided by Salomon (T49 p389) records a balance at 31 December 2001 of $18.27. However, the applicant does not accept that the balance shown on the Salomon current account as at 18 September 2002 of $155,962.42 (T49 p433) is an asset of the trust at that date.
The Tribunal finds that the balance standing in the Salomon current account in favour of the trust at 18 September 2002 is an asset of the trust at that date. As there remains a dispute between the parties concerning the amount of the balance standing in the current account at 18 September 2002, the applicant shall request Salomon to provide a letter certifying the amount standing as an asset of the trust in its current account at 18 September 2002. The Tribunal finds that the trust asset at 18 September 2002 in respect of the Salomon current account is $155,962.42, unless Salomon certifies in writing that this figure is incorrect and nominates an alternative current account balance for 18 September 2002 with an explanation of any variation from the $155,962.42.
The respondent drew the Tribunal’s attention to a financial transaction statement prepared by Salomon (T49 p431) which indicates a balance of $21,090.91 at 18 September 2002. The respondent contends that the $21,090.91 is a creditor amount that should be deducted from the trust assets (Exhibit R1). Notwithstanding the respondent’s concessions, the Tribunal is of the view that a written explanation is warranted from Salomon regarding the $21,090.91 balance, prior to determining whether it is legally appropriate for the amount of $21,090.91 to be deducted from the total value of the assets of the trust as at 18 September 2002.
As at 1 January 2002, the asset limit for payment of the Age Pension for a single home owner was $141,000 for full pension, with total assets amounting to less than $280,000 in order to receive a part pension. As at 18 September 2002 the asset limits were $145,250 and $288,000 respectively.
The Tribunal concluded the hearing of this matter on 4 June 2004. Mr Burstin subsequently wrote a letter to the Tribunal with a copy to the respondent on 15 June 2004 and his letter attached the following documents:
(A)A schedule, presumably prepared by Salomon, entitled “Open Positions ‑ 31 December 2001;”
(B)A schedule, presumably prepared by Salomon, entitled “Open Positions ‑ 18 September 2002;”
(C)A copy of an Option Client agreement entered into by Salomon and the trustee of the trust on 22 November 2002. This document was previously taken as evidence by the Tribunal and marked Exhibit A3, and is discussed in these reasons for decision;
(D)A letter from Smith Barney to the applicant dated 11 June 2004 which states the following:
I wish to advise that to operate an Exchange Traded option account you would be obligated to sign the Standard Option Agreement form before any instruction or transaction could be taken or completed.
Unless these documents were obtained it would be impossible to transact business. Collateral would need to be provided and taken charge over where any margin was applicable.
The Schedule referred to in (A) above, records that at 31 December 2001 the trustee of the trust had total open positions based upon the market value of certain listed securities totalling $66,200. The schedule referred to in (B) above, records that at 18 September 2002 the trustee of the trust had total open positions based upon the market value of certain listed securities totalling $196,470. This information may be of assistance to Salomon in providing the trust with the documentary evidence required in accordance with paragraph 15 (b)(ii) and (iii) of these reasons for decision. It is not noted that the letter referred to in (D) above is addressed to the applicant and not to the trust and that the date of the letter is after the relevant dates.
The respondent provided further written submissions in response to the abovementioned letter dated 15 June 2004 and attachments from Mr Burstin. The following extracts from the respondent’s written submission indicate the respondent’s views and concerns regarding the applicant’s case:
FURTHER SUBMISSIONS OF THE RESPONDENT
1.These submissions are filed in response to the documents filed with the Tribunal on behalf of the applicant under cover of letter from Mr Burstin dated 15 June 2004.
2.Out of fairness to the applicant, who is not legally represented, the respondent isolated the key issue in dispute namely whether or not any of the particular assets of the applicant or the associated trust are subject to a charge or encumbrance so as to attract the operation of s 1208G. On the first day of the hearing the Tribunal went to great lengths to impress on the applicant the importance of adducing evidence to support his case. Notwithstanding these matters, the way that the applicant has conducted his case has significantly prejudiced the respondent in that:
·Documents have not been produced in a timely fashion or at all;
·The applicant has not given evidence;
·No evidence was called from Solomon Smith Barney;
·Mr Burstin made repeated assertions from the bar table after the conclusion of evidence that altered the way in which the applicant put his case.
3.To the extent that there was any evidence to assist the Tribunal in the operation and meaning of options it has come from the respondent. The evidence of Mr Burstin ought be treated with caution in that it did not reflect the documentary evidence and in certain respects was plainly wrong. For example, his evidence that the SSB current account represented the value of the collateral rather than a credit balance of a free standing account was patently implausible.
4.It is in that context that the AAT should view the new documents produced.
The Tribunal sets aside the decision under review and remits the matter to the respondent with the direction that the applicant’s entitlement to age pension as at 1 January 2002 and 18 September 2002 is to be recalculated and reassessed in accordance with the agreed facts and Tribunal findings set out in the Tribunal’s reasons for decision.
I certify that the twenty‑five [25] preceding paragraphs are a true copy of the reasons for the decision herein of
Mr W.G. McLean, Member
(sgd) Olympia Sarrinikolaou
Clerk
Dates of Hearing: 28 November 2003; 7 April 2004 and 4 June 2004
Date of Decision: 21 June 2004
Advocate for the applicant: Mr S. Burstin, accountant
Counsel for the applicant: Ms J. Davies and Mr R. Niall
Solicitor for the applicant: Minter Ellison Lawyers
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