Mounsey and Secretary, Department of Family and Community Service S
[2003] AATA 275
•26 March 2003
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2003] AATA 275
ADMINISTRATIVE APPEALS TRIBUNAL Nº V2002/673
GENERAL ADMINISTRATIVE DIVISION
Re: RONALD WALTER MOUNSEY
Applicant
And: SECRETARY TO THE
DEPARTMENT OF FAMILY ANDCOMMUNITY SERVICES
Respondent
DECISION
Tribunal: Mr W.G. McLean, Member
Date: 26 March 2003
Place: Melbourne
Decision:The decision under review is affirmed.
(sgd) W.G. McLean
Member
SOCIAL SECURITY — carer payment cancelled on 1 January 2002 due to introduction of amendments to the Act concerning the value placed on corporate assets in asset test assessment – designated private company – controlled private company – attributable stakeholder percentage – decision affirmed
Social Security Act 1991 ss.1207B, 1207C, 1207N, 1207Q, 1207X
REASONS FOR DECISION
26 March 2003 Mr W.G. McLean, Member
The Tribunal considered an application from Mr Ronald W. Mounsey (the applicant) for the review of a decision made by the Secretary to the Department of Family and Community Services (the respondent) on 10 December 2001 to cancel the applicant’s carer payment, effective from 1 January 2002.
The Tribunal received into evidence the documents lodged pursuant to s.37 of the Administrative Appeals Tribunal Act1975.
The applicant, who was self‑represented, appeared at the hearing and gave oral evidence. Mr B. Sparkes, an officer of the Department of Family and Community Services, (the DFCS) appeared for the respondent. Mr I. Joyce, acting director, Project Section of the Seniors and Means Test Branch of DFCS in Canberra, made comments by telephone concerning the background reason for the introduction of the relevant legislation. Mr Joyce said that as he had not read the documents before the Tribunal in relation to this matter, he had no evidence to present regarding the issues in dispute between the parties.
On 10 December 2001, the respondent notified the applicant by letter that his carer payment of $363.65 per fortnight had been cancelled. The respondent calculated the total value of the applicant’s assets as $386,346 which was greater than the benchmark limit of $381,000 permitted at that time. This decision was affirmed by the respondent's authorised review officer on 23 January 2002.
The matter was reviewed by the Social Security Appeals Tribunal (SSAT) on 4 February 2002 and the following decision was made:
…
On 10 May 2002 the Tribunal decided to set aside the decision under review and send the matter back to the Chief Executive Officer of Centrelink for reconsideration in accordance with the direction that Mr Mounsey's entitlement to carer payment be recalculated on the basis that the value of his assets is that set out at paragraph 30 hereof.
This means the appeal is successful.
The applicant gave evidence that he is not disputing the accuracy of the information recorded by the SSAT in its reasons for decision (T2, pp.3‑13) under the Headings History, Issues, Information provided at the hearing, Documents and Discussions of Evidence. The only corrections necessary to the SSAT reasons for decision are that the applicant is the holder of one class A share and one Class D share and not one Class A share and one Class C share in R. & J. Mounsey and Sons Pty Ltd and his brother, Norman, holds one Class C share and not one Class D share.
The applicant does not dispute the following Findings of Fact by the SSAT, except for the abovementioned description of the class of shares as "A" and "C" in lieu of "A" and "D", expressed in the following clause 30(i) of the SSAT reasons for decision and also the amount of $341,000 in clause 30(ii):
…
FINDINGS OF FACT
30.On the evidence presented to the Tribunal the following findings of fact are made:
(i)Mr Mounsey holds one "A" Class and one "C" Class share in R & J Mounsey Pty Ltd;
(ii)The value of the assets of R & J Mounsey Pty Ltd is $341,000;
(iii)Mr Mounsey's "other assets" comprise:
· 1980 trailer $500
· 1977 caravan $ 0
· household & personal effects $1000
· Life Assurance (AMP) $13,762
· 1998 Ford Courier $16,600
(iv)Mr Mounsey's financial assets
Comprise
· Shares and cash $6811*
_______
$38,673
_______
Total assets: $379,673
*This amount is the amount originally determined by Centrelink and is presumably the figure which applied at the date of the decision to terminate carer payment. It was calculated on the basis of Centrelink's assessment of the value of Mr Mounsey's 213 AMP shares at $4151 plus $2660 cash at bank.
The applicant is a shareholder in a company named R. & J. Mounsey & Sons Pty Ltd ("the company"). There is no dispute between the parties that the company has issued four shares that are owned by the following persons:
Ronald W. Mounsey – applicant – 2 shares, 1 A Class and 1 D Class share
Norman R. Mounsey – brother of applicant – 1 C Class share
Margaret Patten – sister of the applicant – 1 B Class share
The applicant contends that the three shareholders are all directors of the company, although there is no documentary evidence to support this contention. The applicant is also the secretary of the company.
There is no dispute between the parties concerning the following finding by the SSAT referred to in clause 26 of the SSAT reasons for decision:
…
26.We also accept that the Company has no assets other than land and buildings and that the nominal assets of the company, namely the plant and equipment, are in effect valueless. We accept that the value of the Company's real property is $341,000, and it appears that Centrelink does not dispute this figure.
The applicant said that he is seeking only a review by the Tribunal in respect of the decision of the respondent and the SSAT to attribute the entire accepted value of the company's real property of $341,000 as being his personal share of the company's assets, for the purposes of determining his abovementioned total asset position of $379,673. He contends that, as he owns only two shares in the company out of the four issued shares, he should only have one half of the $341,000 attributed by the respondent as his personal share of the company's assets.
The applicant gave evidence that the company's property, which is situated at 12 Milne Street, Thomastown, is no longer partly leased to his cousin and, accordingly, the company no longer derives any income to absorb the property costs such as rates, taxes and service costs. He said that the total of these costs amounts to approximately $3000 per annum and are shared personally between he and his brother Norman. He said that the company has not held meetings of directors or statutory annual general meetings for some time nor has it filed an income tax return recently, because, he contends that the company has not earned any income for some time. The applicant receives the customary completed form of annual return of a company from the Australian Securities and Investments Commission (ASIC) each year which he refers to his accountant for advice prior to signing and returning the form to ASIC with a cheque for the annual lodgement fee.
The applicant is aware that, if the company was to be voluntarily liquidated by its directors in the future and its property was realised and the proceeds were distributed to the three existing shareholders, he would receive one half of the net sale proceeds of the assets and his brother and sister would divide equally the remaining half. In other words, the net proceeds of the sale of the liquidated assets would be distributed to the shareholders in proportion to the number of shares held by each shareholder. He said that if the property was sold for around the $341,000 assessed by the respondent, his probable share of the cash net proceeds would be about $170,000. The respondent said that based upon this scenario, the applicant would be immediately able to have his carer payment entitlement reconsidered and almost fully reinstated to the amount he received prior to 1 January 2002.
At the date of the respondent's decision to cancel the applicant’s carer payment from 1 January 2002, the allowable limit for total asset was $381,000 which was slightly above the abovementioned assessment by the SSAT of total assets of the applicant of $379,673. Accordingly, the applicant’s carer payment of $363.65 per fortnight was reduced to $15.10 per fortnight from 1 January 2002. The allowable limit has since been increased by the respondent to $395,000 and the applicant’s carer payment has resultantly been raised to $62.55 per fortnight by the respondent which, the applicant contends, is still causing him economic hardship. The respondent has also given the applicant notice of intention to re‑assess the value of the company's land and buildings, which is possibly likely to lead to the further reduction or cancellation of the applicant’s carer payment.
The applicant resides with his father and provides care for him. In his letter dated 20 August 2001 (T27, p.132) the applicant stated:
…
Myself and my brother use company premises as common workshop. We share expenses of the company by paying 1/3 each with my cousin Nevel.
The applicant said that he had used the company property for commercial purpose to repair machinery however, he had not worked for the past 4 to 5 months due to an injury to his back. His cousin no longer uses the property and the applicant is not aware whether his brother still uses the property for business purposes or not. He said that his brother and co‑director Norman and he had discussed the possible sale of the company property but they had decided not to sell the property because the applicant may need to use it some time in the future to continue his machinery repair business. The feasibility of selling the property had never been discussed with their sister, the other director Ms Patten, and the applicant assumes that she knows that the company still owns the property. He said that Ms Patten has recently reached an age that enables her to transfer from receiving an invalid social security pension to the old age pension.
The Social Security and Veterans' Entitlements Legislation Amendment (Private Trust & Private Companies – Integrity of Means Testing) Act 2000 (the Amending Act) significantly amended Part 3.18 of the Social Security Act 1991 (the Act), with effect from 1 January 2002. This amendment provides the basis for the respondent's decision to cancel the applicant’s carer payment from 1 January 2002. The relevant legislation, which is set out hereunder, is found under Chapter 3 – General Provisions Relating to Payability and Rates, and Part 3.18 – Means Test Treatment of Private Companies and Private Trusts of the Act:
…
1207B(1) For the purposes of this Part, a relative, in relation to a person (the first person), means any of the following:
(a)the spouse of the first person;
(b)a parent, grandparent, brother, sister, uncle, aunt, nephew, niece, first cousin, second cousin or lineal descendant of the first person;
(c)the spouse of a person covered by paragraph (b);
(d)a parent, grandparent, brother, sister, uncle, aunt, nephew, niece, first cousin, second cousin or lineal descendant of the spouse of the first person;
(d)the spouse of a person covered by paragraph (d);
(e)a child of a person covered by any of the preceding paragraphs.
(2) For the purposes of this section, in determining who is a parent, grandparent, brother, sister, uncle, aunt, nephew, niece, first cousin, second cousin or lineal descendant of a person, treat each of the following relationships as if they were biological child‑parent relationships:
(a)the relationship between an adopted child and his or her adoptive parent;
(b)the relationship between a step‑child and his or her step‑parent;
(c)the relationship between a foster‑child and his or her foster‑parent;
…
1207C.(1) For the purposes of this Part, in determining:
(a)whether a trust is a designated private trust; or
(b)whether a company is a controlled private company in relation to an individual; or
(c) whether a trust is a controlled private trust in relation to an individual; or
(d)whether a trust is a concessional primary production trust in relation to an individual;
the following are associates of an individual:
(e)a relative of the individual;
…
1207N.(1) For the purposes of this Part, a company is a designated private company at a particular time if:
(a)the company satisfies at least 2 of the following conditions in relation to the last financial year that ended before that time:
(i)the consolidated gross operating revenue for the financial year of the company and its subsidiaries is less than $10 million;
(ii)the value of the consolidated gross assets at the end of the financial year of the company and its subsidiaries is less than $5 million;
(iii)the company and its subsidiaries have fewer than 50 employees at the end of the financial year; or
(b)the company came into existence after the end of the last financial year that ended before that time; or
(c) the company is a declared private company (see subsection (2));
and the company is not an excluded company (see subsection (5)).
…
1207Q.(1) For the purposes of this Part, a company is a controlled private company in relation to an individual if the company is a designated private company and:
(a)the individual passes the control test set out in subsection (2); or
(b)the individual passes the source test set out in subsection (3).
1207Q.(2) For the purposes of this section, an individual passes the control test in relation to a company if:
(a)the aggregate of:
(i)the direct voting interests in the company that the individual holds; and
(ii)the direct voting interests in the company held by associates of the individual;
is 50% or more; or
…
1207X.(1) For the purposes of this Part, if a company is a controlled private company in relation to an individual:
(a)the individual is an attributable stakeholder of the company unless the Secretary otherwise determines; and
(b)if the individual is an attributable stakeholder of the company—the individual’s asset attribution percentage in relation to the company is:
(i)100%; or
(ii)if the Secretary determines a lower percentage in relation to the individual and the company—that lower percentage; and
Section 1207X(1)(a), referred to above, deems an individual to be an attributable stakeholder of a company if a company is a controlled private company in relation to that individual. In this case, the applicant does not dispute the following and the Tribunal finds:
1.that the company is a designated private company pursuant to s.1207N of the Act because it satisfies all three of the conditions stipulated in s.1207N(1)(a)(i), (ii) and (iii);
2.that the company is a controlled private company pursuant to s.1207Q of the Act as the applicant passes the control test in relation to the company because the applicant has direct voting interests in the company of 50 per cent and the applicant and an associate (his brother) have voting interests in the company which aggregate more than 50 per cent;
3.that the applicant is an attributable stakeholder pursuant to s.1207X(1)(a) of the Act because the company is a controlled private company per (2) above;
4.that the applicant’s asset attribution percentage is 100 per cent pursuant to s.1207X(1)(b)(i) of the Act unless the respondent otherwise determines which he has not done in this case.
The Social Security (Attribution Stakeholders and Attribution Percentages) Principals 2000 provides the following relevant extracts:
…
Part 2 Determination that individual is not attributable stakeholder
5 Purpose
This Part sets out decision-making principles with which the Secretary must comply in making a determination, under paragraph 1207X(1)(a) or (2)(c) of the Act, that an individual is not an attributable stakeholder of a company or trust.
6 Application
(1) This Part applies if, but for a determination by the Secretary, the individual would be an attributable stakeholder of the company or trust.
(2) The Secretary must consider the relationship between the individual and the company or trust having regard to:
(a) the reason why, but for a determination, the individual would be an attributable stakeholder; and
(b) the circumstances mentioned in this Part.
(3) In particular, the Secretary must consider whether the effect of one or more of the circumstances mentioned in this Part, in relation to the individual and the company or trust, provides a sufficient basis on which to determine that the individual is not an attributable stakeholder of the company or trust.
7 Circumstances affecting relationship with company or trust
(1) The Secretary must consider whether there are relevant circumstances that make it inappropriate for the individual to be an attributable stakeholder of the company or trust.
(2) For subsection (I), relevant circumstances include the extent to which the relationship between the individual and the company or trust is affected by any of the following circumstances:
(a) circumstances arising from the legal structure of the company or trust;
(b) circumstances arising from the administrative arrangements of the company or trust;
(c) whether, having regard to the relationship between the individual and the company or trust, the individual can reasonably be expected to exercise effective control in relation to the company or trust.
8 Contribution to company or trust
If the individual has made a contribution to the company or trust, the Secretary must consider the circumstances in which the contribution was made and, in particular:
(a) the value of the contribution; and
(b) the proportion that the value of the contribution has to the total assets of the company or trust at the time of the contribution; and
(c) the effect of the contribution on the financial position of the company or trust; and
(d) if the individual received consideration for the contribution, the amount of consideration.
9 Past benefit from distributions by company or trust
(1) The Secretary must consider whether the individual has received a benefit from a distribution made by the company or trust.
(2) If an individual has received a benefit, the Secretary must also consider:
(a) the value of the benefit; and
(b) if the individual has received a benefit on more than I occasion, the frequency with which the individual has received benefits.
(3) For this section, a distribution includes distributions:
(a) in the case of a distribution by a company - of the capital or income, or both, of the company; and
(b) in the case of a distribution by a trust - of the corpus or income, or both, of the trust.
10 Future benefit from distributions by company or trust
(1) The Secretary must consider whether it is reasonably foreseeable that the individual may receive a benefit from a future distribution by the company or trust.
(2) If subsection (1) applies, the Secretary must also consider the likely value of the benefit.
(3) For this section, the Secretary must have regard to:
(a) the constituent documents of the company; or
(b) documents, if any, establishing the terms of the trust.
(4) For this section, a distribution includes distributions:
(a) in the case of a distribution by a company - of the capital or income, or both, of the company; and
(b) in the case of a distribution by a trust - of the corpus or income, or both, of the trust.
11 Benefit from assets and income of company or trust
(1) The Secretary must consider whether the individual receives or derives any kind of benefit (other than a benefit mentioned in section 9 or 10) from the assets or income, or both, of the company or trust.
(2) For this section, benefit:
(a) is not limited to a benefit to which the individual has a legal or equitable entitlement; and
(b) includes benefits received or derived in the form of property or services.
12 Existing attribution to individual
(1) The Secretary must consider whether the individual is:
(a) under the Act - an attributable stakeholder of any other company or trust; or
(b) under the Veterans' Entitlements Act 1986 - an attributable stakeholder of the company or trust, or of any other company or trust.
(2) If subsection (1) applies, the Secretary must also consider:
(a) the asset attribution percentage attributed to the individual, if any; and
(b) the income attribution percentage attributed to the individual, if any.
13 Other circumstances
The Secretary must consider any other circumstance that affects the involvement of the individual with the activities or the administration of the company or trust.
The Memorandum and Articles of Association of the Company (T13) dated 22 May 1973 indicates that the four original subscribers were Mr Raymond W. Mounsey (father of the applicant) one Class A share, Mrs Jean A. Mounsey (mother of the applicant) one B Class share, Mr Norman R. Mounsey (brother of the applicant) one C Class share and the applicant (one D Class share), who were all signatories to the document. The signatures were witnessed by their accountant, Mr B. Haywood, who is since deceased. The applicant’s letter to the respondent dated 20 August 2001 (T27) indicates as follows:
…
I received my father's A share in 1991 and Margaret (Mrs Margaret L. Patten – the applicant’s sister) received mother's B share after mother passed away in 1986.
Details of the company were provided by the applicant in a form entitled "Private Company" that he completed and filed with the respondent on 24 July 2001. The applicant declared in that form that the three directors of the company were himself, his brother Norman Mounsey and his sister Margaret Patten at that date. Strangely, Mrs Patten's accountant wrote to the respondent on 13 July 2001 stating that Mrs Patten was unaware of her involvement in the company until advised by the respondent via Centrelink. It would appear in that case to be highly probable that Mrs Patten may not have ever consented to act as a director of the company, nor may she be aware of her shareholder entitlements and rights.
On 26 November 1991, the late Mr B.E. Haywood, the abovementioned accountant, wrote the following letter to Mr R.W. Mounsey (the applicant’s father) who was, at that time, the chairman of the company:
…
26th November 1991
Mr. Raymond W. Mounsey,
44 Oxford Drive,THOMASTOWN. 3074.
Dear Ray,
(We enclose the following documents:
1.Agreement not to appoint an Auditor - to be signed by all Shareholders.
2.Statement of Directors - to be signed by two Directors. e.g. Yourself and Ron.
3.Minutes of Directors and Shareholders Meeting.
To be signed by Ron.
4.Directors Report - to be signed by two Directors.
5.Annual Return for 1991 - to be signed where indicated on the front page by Ron.
6.Standard Transfer form for the transfer of one "A" class share from yourself to Ron - to be signed by you as seller and Ron as buyer.
7.Share Certificate - to be signed by two Directors e.g. Yourself and Ron for the Directors and again by Ron as Secretary.
Kindly ensure that the above documents are signed and then returned to this office for lodgement as soon as possible, together with a cheque for $150.00 made payable to "Australian Securities Commission" being the prescribed lodgement fee.
Yours faithfully,
[signed B. Haywood]
It is obvious from Mr Haywood's letter in 1991, that at that time the company was holding meetings of its directors and that the applicant and his father were signing directors' reports, share certificates and had appointed an auditor of the company. It is also noted that the applicant was signing the annual return of the company.. The applicant gave evidence that he is the present Secretary of the company and that he still signs and lodges the company's annual return every year with ASIC, after he has checked the details with his accountant. It is noted from an extract of the database search of ASIC dated 19 July 2001 (T13), that the last annual return filed by the company to that date was on 25 January 2001 in respect of the year 2000. A copy of the 2000 annual return was not made available to the Tribunal.
It is the evidence of the applicant that the company does not now hold meetings of directors or the statutory annual general meeting of the shareholders of the company. On 16 July 2001 the applicant completed and filed with the Australian Taxation Office a 2001 non‑lodgement advice (T11) where he declares "Company not trading or earning income since pre 1990". On the other hand, it is the applicant’s evidence that the property of the company was partly rented for consideration to his cousin at least until his letter dated 20 August 2001 (T27), and that he and his brother still, or as late as five months ago, carried on a machinery repairing business from the company. The applicant also gave evidence that he and his brother, Norman, share the costs of the company such as rates, taxes and service costs. It can only be adduced that the property and assets of the company are being used by the applicant and his brother to earn income for their own personal benefit. Accordingly, it is not surprising that Mrs Patten's accountant advised the respondent on 13 July 2001 that Mrs Patten was unaware of her involvement in the company until advised by Centrelink.
The applicant said that he has not used the assets of the company for the past five months but plans to resume his work repairing machinery at the company premises some time in the future. The valuation of the company's premises of $341,000 accepted by the SSAT, was the estimate value of the current market value of the property made by the applicant from Council rate notices in July 2001, and the respondent is presently obtaining a revised commercial valuation of the property to be used for its future total asset appraisals of the applicant. It can only be reasonably assumed that the value of the property will have appreciated substantially since the July 2001 Council valuation of $341,000.
The Tribunal has already found that the applicant is an attributable stakeholder of a controlled private company, pursuant to s.1207X of the Act and now, based on the evidence and in cognisance of the Social Security (Attribution Stakeholders and Attribution Percentages) Principals 2000, also finds that the asset attribution percentage is 100 per cent pursuant to subsection 1207X(1)(b)(i) of the Act and there is no reason to determine a lower percentage pursuant to subsection 1207(1)(b)(ii) of the Act.
The decision under review is affirmed.
I certify that the twenty‑one [21] preceding paragraphs are a true copy of the reasons for the decision herein of
Mr W.G. McLean, Member
(sgd) Catherine Thomas
Clerk
Date of Hearing: 5 February 2003
Date of Decision: 26 March 2003
Advocate for the applicant: Self‑representedAdvocate for the respondent: Mr B. Sparkes, Centrelink
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