Morgan and Secretary, Department of Employment, Education and Youth Affairs

[2000] AATA 173

DECISION AND REASONS FOR DECISION [2000] AATA 173

ADMINISTRATIVE APPEALS TRIBUNAL      )

)     No Q1998/866,867

GENERAL ADMINISTRATIVE DIVISION          )          

Re      CLAE MORGAN AND GRANT MORGAN         

Applicant

And    SECRETARY, DEPARTMENT OF EMPLOYMENT, EDUCATION AND YOUTH AFFAIRS      

Respondent

DECISION

Tribunal       Mr. D.W. Muller, Senior Member  

Date7 March 2000

PlaceBrisbane

Decision      The Tribunal affirms the decisions to refuse Austudy for the 1997 year.      

............(Signed)..................................
  D.W. MULLER
  SENIOR MEMBER
CATCHWORDS
AUSTUDY - actual means of parent - parent operating a business - actual means test

Austudy Regulations 12J, 12K, 12L, 12M, 12N, 88

REASONS FOR DECISION

7 March 2000           Mr. D.W. Muller, Senior Member              

1. These applications for review relate to decisions to reject claims for Austudy by the applicants Clae Morgan and Grant Morgan, for the year 1997.

2. The rate of Austudy applicable to the applicants was subject to the "actual means" of their mother, Lesley Morgan.

3. The background to these reviews is as follows:

   (i)Clae Morgan was born on 6 May 1980.

   (ii)Grant Morgan was born on 28 September 1981.

   (iii)Clae Morgan lodged an application for Austudy for 1997 on 9 January 1997.

   (iv)Grant Morgan lodged an application for Austudy for 1997 on 20 November 1997.

   (v)Lesley Morgan is the mother of four children, Ashley Morgan, Aaron Morgan, Clae Morgan and Grant Morgan.

   (vi)At all relevant times Ashley, Aaron and Clae Morgan were over the age of 16 years.  Grant Morgan turned 16 on 28 September 1997.

   (vii)During 1997, Aaron Morgan was not a full-time student but Ashley, Clae and Grant were full-time students.

   (viii)At all relevant times, Lesley Morgan held an interest in a proprietary company, Morgan Machinery Pty Ltd., which had an interest in a farm and travel agencies. She was self employed in the business of running travel agencies. She was a "designated parent" within the meaning of that term in Regulations 12K and 12L of the Austudy Regulations.

   "12K Actual means test: parent
   12K. (1) The student ("the relevant student") is not entitled to receive living allowance for a period of eligibility in a year of study, unless the Secretary is satisfied that, for that period, the actual means of the designated parent are less than the after tax income of the notional parent.
   (2) For the purposes of subregulation (1), the notional parent, in relation to a particular relevant student, is a parent who:

   (a)receives income solely from a salary or wage source;  and

   (b)is the parent of a student who qualifies for living allowance at the same rate as the rate for which, apart from this Division, the relevant student would qualify;  and

   (c)has children of the same number and age as has the designated parent.

   12L  Who is a designated parent?
   12L. (1)  For the purposes of subregulation 12K (1), a parent is a designated parent if he or she:

   (a)holds, or has held, a permanent visa or entry permit, within the meaning of the Migration Act 1958, for the grant of which a criterion or requirement was that the person demonstrate skills in business; or

   (b)       has an interest in:

   (i)an asset located outside Australia (and its external territories);  or

   (ii)a proprietary company or an unlisted public company;  or

   (iii)a trust;  or

   (c)derives income from a source outside Australia and its external territories (other than income described in subparagraph (d) (ii);  or

   (d)for the financial year ending immediately before the year of

   study to which the student's AUSTUDY application relates:

   (i)derives income from a source in Norfolk Island that is exempt from tax under section 24G of the Income Tax Assessment Act 1936; or

   (ii)derives income that is exempt from tax under section 23AF or 23 AG of that Act (relating to income derived from approved overseas projects and foreign service, respectively);  or

   (iii)derives income from a salary or wage and has claimed, or will claim, a tax deduction for a business loss (whether current or carried forward) that does not consist only of a net rental property loss;  or

   (e)is a self-employed person (other than a self-employed person who is wholly or mainly engaged in the carrying on of a primary production business owned by the person);  or

   (f)is a partner in a partnership.

   (2)In paragraph (1)(e):

   "self-employed person" means a person who works for gain or reward otherwise than under a contract of employment or apprenticeship, whether or not that person employs one or more other persons."

   (ix)The calculation of the respective benchmarks was carried out pursuant to Regulation 12M.

   "12M What is the after tax income of a notional parent?
   12M.  For the purposes of subregulation 12k(1), the after tax income of a notional parent for the period of eligibility is calculated under the following formula:
   [(PI + DC) – T] = FP

   where:

   "PI" means the minimum income of the notional parent at which, on a notional application of the parental income test, a student becomes ineligible to receive living allowance;
   "DC" means the total amount of any deductions for children of the notional parent that, under regulation 87, would be applicable;
   "T" means the amount of income tax (including Medicare levy, but before rebates, if any) that would notionally be assessable on (PI + DC)
   "FP" means the total amount of any family payments (at the basic rate) that could be paid under Part 2.17 of the Social Security Act 1991 in respect of the children of the notional parent who are aged less than 16 years."

   Regulation 88 provided that a student could get the maximum living allowance only if parental income was not more than $23,350.  It was then reduced by one dollar for every four dollars by which parental income exceeded $23,350.
   The maximum living allowance was $2,781.  Hence PI = $34,474 ($23,350 + 4 x $2,781).
   Benchmarks:
   Clae Morgan 1 January 1997 to 27 September 1997 (the day before Grant Morgan's 16th birthday),  $29,782
   Clae Morgan 28 September to 31 December 1997,     $30,555
   Grant Morgan  $30,555

(x)Under Regulation 12J(a), which was applicable in the 1997 year, the "actual means test" applied to a student who had a parent who was a designated parent.

(xi)Regulation 12N defined a designated parent's "actual means".

"12N What are the actual means of a designated parent?
12N. (1)  For the purposes of subregulation 12K(1), the actual means of a designated parent for the period of eligibility are taken to be the amount that equates to total expenditure and savings made in that period by the parent and each member of his or her family.
1(A)  Despite subregulation (1), the actual means of a designated parent do not include:
…..

(f)expenditure by the parent, or a family member, of money borrowed by the parent or family member for the purchase price of:

(i)the sole or principal residence of the parent or family member;  or

(ii)an interest in land, or in a building not mentioned in subparagraph (I);  or

(iii)a motor vehicle, or a powered aircraft or watercraft;  or

(g)expenditure by the parent, or a family member, to repay the principal or interest in relation to money borrowed by the parent or family member for any other purpose;  or

……

(j)expenditure from the income from a business activity of the parent or a family member for the business activity;  or"

(xii)In the actual means test section accompanying the Austudy application of Clae Morgan, Lesley Morgan listed actual means totalling $189,000.

(xiii)On 6 February 1997 the respondent wrote to Clae Morgan advising him that he did not qualify for Austudy for 1997 (because the actual means of his designated parent ($189,000) exceeded the benchmark of $29,782).

(xiv)On 7 March 1997, Lesley Morgan applied to the respondent for a review of the decision on her actual means.  After some further negotiations, a decision was made on 25 August 1997, that the "actual means" in Clae Morgan's case were $112,879.

(xv)On 25 July 1997, Lesley Morgan lodged a review of assets form for the 1997 year, which revealed she had assets valued at $81,960.

(xvi)On 25 August 1997, the respondent advised Clae Morgan that he was ineligible for Austudy.

(xvii)In the case of Grant Morgan, the actual means were also taken to be $112,879.  His application for Austudy was also rejected.

(xviii)On 3 December 1997, both applicants sought a review of their case by the Social Security Appeals Tribunal (SSAT).

1. At the SSAT hearing on 2 July 1998 the following further facts emerged:

   (i)Lesley Morgan separated from her husband (the father of Clae and Grant) in May 1994.  Since that time she has been involved in a protracted dispute over property.  No property settlement had been made.

   (ii)In January 1997, Lesley Morgan sold her home to clear debts.  That home had been previously owned jointly by Lesley Morgan and her husband as a rental property.  She sold it for $132,000 and cleared debts of $128,000.  Since that time she has existed on bank loans, including the use of Bankcard.

   (iii)In the forms that she had previously filled out for Austudy purposes, Lesley Morgan had confused business expenditure with family expenditure and had combined the two expenses.

1. The SSAT deleted business expenses from the list of expenses and arrived at a figure of $48,309 as the total expenditure and savings for the family in 1997, made up as follows:

   Principal Home Expenditure  $21,489
   Other Real Estate   Nil
   Transport  $  2,000
   Education  $  6,920
   General Living Expenses  $10,400
   Other Family Expenditure  $  7,500
   Financial   Nil  

   $48,309

   This was still in excess of the benchmarks for both applicants.  The SSAT affirmed the decision to reject the claims for Austudy.

1. At the hearing before the Administrative Appeals Tribunal it was claimed on behalf of the applicants that during 1996 and 1997, Lesley Morgan has had no income, no maintenance assistance from her husband and that her sole source of support was by way of loans from her bank.  It was submitted that her actual means were, in effect, close to zero.

2. There was a time when the "means test" associated with the granting of Austudy was based on the combined taxable incomes of the parents of the students.  However, it became clear that parents who operated businesses, companies, partnerships, trusts and so on, were in a position where they could minimise their tax liability and thereby have a low taxable income, but at the same time enjoy a standard of living well above that of a wage earner with the same taxable income.  Thus the concept of the "actual means test" came into existence for parents who derived income from sources other than salary or wages.  The result was the legislation set out above.

3. The important factor in these cases is the spending capacity of the family, not the taxable income.  It is rarely relevant to enquire about the source of the funds.  If the family can get its hands on the money and spend it on general living expenses, it does not usually matter where the money came from.

4. The Tribunal has recognised that in some cases where a family business has had a very small or no income, where there has been no mingling of business funds with living expenses, where the family has had unavoidable financial obligations and has had to borrow money (from an "arm's length" lender) to survive, the amount so borrowed and spent should not be included in the "actual means".  The question arises in this case as to whether such an approach would be appropriate.

5. The material placed before the Tribunal revealed the following:

   (i)Mrs. Morgan and her husband purchased two travel agencies in 1990.

   (ii)Mrs. Morgan separated from her husband in 1994.

   (iii)After separation, Mrs. Morgan's husband became unco-operative as far as the travel business was concerned.  He refused to sign documents which needed his signature.  He refused to do other things which he needed to do for the business to run properly.  His overall behaviour was bad for business.

   (iv)Mrs. Morgan took control of the travel business in 1996.  She thereupon closed one of the agencies.

   (v)Throughout 1996/97, Mrs. Morgan borrowed money from a bank to keep the business going.

   (vi)Income from commission on travel tickets was:

   $261,774 in 1995/1996, and
   $220,196 in 1996/1997.

   (vii)There were other small amounts of income from the Gold Phone and rental income.

   (viii)Expenses for the travel business were:

   $239,011 for 1995/1996, and
   $216,806 for 1996/1997.

   (ix)Net assets of the travel business were:

   $336,788 at 30 June 1996
   $327,715 at 30 June 1997

(x)Taxable income of Lesley Morgan for the tax year ending 30 June 1996, was $8,795.

(xi)In the 1996/97 financial year:

(a)Lesley Morgan made a payment of $50,000 to the bank to repay an overdraft relating to the business.

(b)She repaid $18,200 in loans and made a Council rates payment of $759 in relation to an industrial shed which was owned in partnership with her husband and sub-let.

(c)She claimed expenses of $15,000 for travel to and from the airport to transport clients.

(xii)Mrs. Morgan's domestic and business expenditure were inextricably mixed.  It was unrealistic to suggest that certain bank loans were specifically for domestic expenditure and others were specifically for business expenditure.  In any event the travel business claimed a significant amount for bank charges in its profit and loss account for the tax years in question:

$5,643 for 1995/1996, and
$7,980 for 1996/97

1. The legislation set out above is clearly aimed at families like the Morgans.  It seems to me that the SSAT went as far as it could in the circumstances to separate business expenses from domestic expenditure.  It would not be appropriate to disregard any of the domestic expenditure for the purposes of calculating the "actual means" of Lesley Morgan.

2. The decisions of the SSAT are affirmed.

I certify that the 12 preceding paragraphs are a true copy of the reasons for the decision herein of Mr. D.W. Muller, Senior Member

Signed:         .....................................................................................
           R. Hayes, Associate

Date/s of Hearing  31 March 1999              
Date of Decision  7 March 2000

ApplicantMrs. Morgan, herself and

Mr. D. Wright, accountant

Solicitor for the Respondent    Mr. D. Kirchhubel, Australian Government Solciitor's office