McLaren and Secretary, Department of Education, Science and Training

[2008] AATA 341

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2008] AATA 341

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2007/3054

GENERAL ADMINISTRATIVE DIVISION		)
Re		JENNA  McLAREN

Applicant

And SECRETARY, DEPARTMENT OF EDUCATION, SCIENCE  AND TRAINING

Respondent

DECISION

Tribunal Ms N Bell, Senior Member

Date  29 April 2008

PlaceSydney

Decision The decision under review is affirmed.

................sgd..............................

Ms N Bell
  Senior Member 

CATCHWORDS

SOCIAL SECURITY – Youth Allowance payments - actual means test - actual means exceed after-tax income – family spending and savings – ineligibility – decision under review affirmed.

Social Security Act 1991; Sections: 1067G-G2;1067G-G13(1);1067G-G13(2);1067G-G9;1067G-F19;1067G-F11(4);1067-G7(2);1067-G9(3)(a);1067G-G9(2)(j);1067G-F19A(1) and section 23(15).

REASONS FOR DECISION

29 April 2008 Ms N Bell, Senior Member

1.      Early in 2007 Jenna McLaren lodged a claim for Youth Allowance.  In support of her claim her mother, Mrs Lisa McLaren, lodged information on family spending and savings together with various financial and business documents.

2.      On the basis of this and other information, Centrelink rejected Jenna’s claim for Youth Allowance because it considered that her parents’ actual means in the 2005/2006 tax year exceeded the relevant limit for payment of Youth Allowance.  This decision was affirmed on internal review and affirmed by the Social Security Appeals Tribunal.

3. Mrs McLaren, on Jenna’s behalf, disputes Centrelink’s application of the Family Actual Means Test (FAMT) – the formula provided for by the Social Security Act 1991 in the assessment of the rate of payment of Youth Allowance.

issues

4.      Section 1067G-G2 of the Act provides that a person’s rate of Youth Allowance is to be calculated in accordance with the rate calculator in Module A of that section.  The Module includes the FAMT – the formula which must be applied to those claimants who are dependant children of parents who, in the previous tax year, were members of a partnership.

5.      There is no dispute that in the 2005/2006 tax year, Mr and Mrs McLaren were members of a partnership named JA and LG McLaren First Aid Consultants.  It follows that the FAMT must be applied to the assessment of Jenna’s claim for Youth Allowance.

6.      Section 1067G-G13 (1) of the Act provides that the formula for determining a family’s actual means is as follows:

Actual means of family of claimant/recipient

1067G‑G13(1)   The actual means of the family of a claimant/recipient for the appropriate tax year is the amount worked out using the formula:

(2)   In this section:

after‑tax income, in relation to a parent of the claimant/recipient for the appropriate tax year, means the gross income of the parent for that year less any income tax or medicare levy payable in respect of the parent’s taxable income for that year.

GAM (gross actual means), in relation to the claimant/recipient’s family for the appropriate tax year, means the total of the amounts of the actual means, for that year, of the claimant/recipient and of each of the family members of the claimant/recipient.

NITML (notional income tax/medicare levy), in relation to a parent of the claimant/recipient for the appropriate tax year, means the sum of:

(a)       the amount of income tax, before any rebates that would be notionally payable by the parent for that year; and

(b) the amount of medicare levy that would be notionally payable by the parent for that year if none of the parent’s children who are children referred to in paragraph 23(15)(b) had a separate net income within the meaning of section 159J of the Income Tax Assessment Act 1936 in that year;

that would result in the after‑tax income of the parent for that year being an amount equal to one‑half of GAM of the claimant/recipient’s family for that year.

NPBL (net passive business loss) means the sum of the net passive business losses (if any) of each of the parents of the claimant/recipient in the appropriate tax year.

TNITML (total notional income tax/medicare levy) means the total of the amounts of NITML in relation to each of the parents of the claimant/recipient for the appropriate tax year.

7.      Mrs McLaren disputes Centrelink’s calculation of GAM and NPBL.  In particular, in relation to GAM, Mrs McLaren contends that the amount of a loan that was paid out from proceeds of the sale of one of the McLarens’ rental properties should be deducted from the amount of the GAM.  She contends that this deduction would produce a negative figure.  She also contends that certain other amounts relating to income received by members of the family should also be deducted in the calculation of the GAM.

8.      In relation to NPBL, Mrs McLaren contends that, beyond an agreed amount of net passive business loss from rental properties, there is no further NPBL to be included in the calculation.  This is so notwithstanding that the tax returns of Mr McLaren, who suffers a disability that prevents him from working in the partnership, show a loss substantially in excess of the loss from rental properties.

9.      There are two essential issues to be considered:

·What amounts may be deducted when calculating the McLarens’ gross actual means (GAM)?

·What is the amount of the McLarens’ net passive business loss (NPBL)?

10.     It will then remain to consider whether the resulting amount (the family’s actual means) is within the allowable range for payment of Youth Allowance.

what amounts may be deducted when calculating the mclarens’ gross actual means (GAM)?

11.     There is no dispute that, on the basis of the spending and savings information submitted by Mrs McLaren to Centrelink, the total amount spent and saved by the family in the 2005/2006 tax year was $100,364.50.

12.     The next step in determining the amount of the family’s GAM is to see whether there are any spending or savings in that total amount that, according to section 1067G-G9 of the Act, may be not included.  In the McLarens’ case there is no dispute that these are spending and savings in the 2005/2006 tax year that were funded by ‘arms length loans’ – a loan of $51,000 from Jacali Pty Ltd and credit card loans amounting to $16,980.

13.     This leaves a GAM of $32,384.50 (that is, $100,364.50 - $51,100 - $16,980).

14.     Mrs McLaren sought to have some additional spending from other sources deducted from the total amount of spending and savings.  The first of these deductions was the proceeds of sale of one of the McLarens’ rental properties in the sum of $140,000.  Mrs McLaren said that these proceeds were applied to the discharge of overdraft facilities which had been used to fund spending through the 2005/2006 tax year.  She contended this was an ‘arms length loan’ and that she had available records to establish that the moneys were applied in this way.  She contended that the total amount of $140,000 should be applied to produce a negative GAM.

15.     Mrs McLaren also sought to deduct the tax free amount of $6,000 in respect of each Jenna, Mrs McLaren and Mr McLaren for the 2005/2006 tax year.

16.     Finally, Mrs McLaren sought to have deducted the amount of the losses of the partnership in 2005/2006 and sought to do so under section 1067G-G9(3)(a).

17.     Section 1067G-G9(2)(j) provides that a person’s (or, by section 1067G-G7(2), a claimant or a family member of the claimant) exempt income up to $6,000 is not included in  the relevant person’s actual means.  Section 23(15) of the Act, defines “family member” for these purposes to mean a parent of the claimant or a sibling of the claimant.

18.     There is no evidence of any siblings’ earnings.  Mr and Mrs McLaren each made losses and no income in 2005/2006.  Consequently, they had no exempt income under this section.  In 2005/2006, Jenna was under 16 years.  It follows that, there is no exempt income available to be considered under section1067G-G9 (2)(j).

19.     As to Mrs McLaren’s contention that the business losses of the partnership should be deducted from the family’s actual means, the relevant provisions are directed to what spending should not be included in a family’s actual means rather than to amounts that may be deducted from the amount of the spending and savings.  Section 1067G-G9, specifically excludes business spending from the spending and savings included in the assessment of actual means.  It does not allow for its deduction from actual means.

20.     In relation to Mrs McLaren’s contention that the amount of $140,000 should be applied to produce a negative GAM, there is currently no evidence before the Tribunal to show that the overdraft facilities to which the proceeds of sale of the rental property ($140,000) were applied were used to fund the family’s spending in the 2005/2006 tax year.  However, Mrs McLaren was confident that she could produce such evidence.  On the assumption that she could do so and that it could be shown that the remaining spending and savings of $32,384.50 could be accounted for by at least some of the proceeds of the sale of the asset, via the use of the overdrafts, then this would bring the GAM to nil. 

21.     However, even if I were to reach this conclusion, I would still have to consider the amount of any NPBL.

what is the amount of the mclarens’ net passive business loss (NPBL)?

22.     There is no dispute between Mrs McLaren and the Secretary that the family’s NPBL from rental properties is $18,852.  This figure is the sum of losses associated with three rental properties owned by Mr and Mrs McLaren together (two properties) and Mr McLaren alone.  I agree with the calculation of this figure on the basis of 2005/2006 financial statements.

23.     However, the partnership also owns a business called FAIM (First Aid Industrial Medical).  While Mrs McLaren is an active participant in that business, and also an employee, Mr McLaren does no work in the business due to his incapacity.   Section 1067G-F19A(1) provides that a business in relation to which a person is engaged for less than 17.5 hours per week is a “passive business”.  “Net passive business loss” is defined in section 1067G-F11(4) as the difference between the total of a person’s deductible losses or outgoings in a year in a passive business and the gross income from that business in that year.  Mr McLaren’s Income Tax return for 2005/2006 shows a total business loss of $91,258.  When Mr McLaren’s share of the loss from the rental properties ( approx $11,225, based on the fact that he is sole owner of one of the properties and joint owner of two) is deducted this leaves an additional NPBL of $80,033 – to which must be added the $18,852 that represents the total NPBL from the rental properties.  This brings the family’s NPBL to $98, 885.

24.     Mrs McLaren contended that, because Mr McLaren was not involved in the business at all given his incapacity, it is unfair for him to attract this NPBL figure.  She also pointed to her own very active involvement in the business and her losses of a similar amount.  She contended that her losses as a person actively engaged in the business should be applied to cancel out Mr McLaren’s passive loss.  While I sympathise with Mrs McLaren’s view and with her very difficult circumstances in recent years, there is no provision that allows me to treat their respective losses in this way.

conclusion

25.     With a NPBL of over $90,000, even leaving aside any amount of GAM that may remain, and even before taking into account the addition of a sum for income tax and Medicare levy, the family’s actual means are significantly beyond the amount at which Youth Allowance is not payable.

26.     For the reasons above, I affirm the decision under review.

I certify that the 26 preceding paragraphs are a true copy of the reasons for the decision herein of Ms N Bell, Senior Member

Signed:         ..............................................................................
  Associate: Felicia Daniele

Date/s of Hearing   29 February 2008
Date of Decision   29 April 2008
Representative for the Applicant        Mrs Lisa McLaren
Representative for the Respondent Ms Andrea Garcia, Legal Services Branch, Sydney