Murphy and Secretary, Department of Employment and Workplace Relations

[2007] AATA 1521

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2007] AATA 1521

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No Q 2006/675

GENERAL ADMINISTRATIVE DIVISION		)
Re		FREDERICK MURPHY

Applicant

And SECRETARY, DEPARTMENT OF EMPLOYMENT AND WORKPLACE RELATIONS

Respondent

DECISION

Tribunal Ms M J Carstairs, Senior Member

Date6 July 2007

PlaceBrisbane

Decision

The Tribunal affirms the decision under review.

  ..……[Sgd]………

   M J Carstairs

Member

CATCHWORDS

SOCIAL SECURITY – disability support pension – trustee of private trust – applicant’s interest in trust assessed at 50% – attributable stakeholder – consideration of factors in Principles – waiver of debt – no administrative error – no special circumstances – decision under review affirmed.

Social Security Act 1991 ss 1207C, 1207P,1207V,1207X

Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000

Social Security (Attribution of Income) Principles 2002

Re Beadle and Director-General of Social Security (1984) 6 ALD 1

Groth v Department of Social Security (1995) 40 ALD 541

REASONS FOR DECISION

6 July 2007     Ms M J Carstairs, Senior Member

1.      Frederick Murphy is a trustee and one of two unit holders in a unit trust called the “69 Bear Unit Trust” (the trust).  Because of his involvement with this trust, Centrelink assesses Mr Murphy’s rate of disability support pension by taking into account his 50% interest in the trust, applying provisions in the Social Security Act 1999 that allow the assets and income of private trusts and companies to be attributed to individuals. 

2.      Since the trust arrangements came to Centrelink’s attention, Mr Murphy has incurred a series of social security debts.  He accepts one that related to the 2001/2002 tax year.  However, the debt before me, (totalling $9,929.44), relates to Mr Murphy’s social security payments for the period June 2004 - June 2005, which Centrelink has reassessed using information derived from the trust return for the 2003/2004 tax year. Mr Murphy maintains that there should be no debt because he obtained no benefit from the trust in that tax year.

THE ISSUES

3.      I must first consider whether the income of the trust is to be treated as Mr Murphy’s income.  This question involves the application of Part 3.18 of the Act, which defines attributable stakeholders, and deals with asset attribution percentages and income attribution percentages; as well as the application of the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000 (the Principles) and the Social Security (Attribution of Income) Principles 2002. 

4.      The second issue is whether, if the income of the trust must be treated as Mr Murphy’s income, any resultant overpayment of disability support pension should be recovered from him? 

BACKGROUND

5.      The trust was created by Trust Deed dated 24 July 2000,[1] as varied by a further deed executed on 27 March 2001[2]  which resulted in the removal of a third trustee, leaving Mr Murphy and Mr Ross Jarvis as the sole trustees.  The trust mainly buys and sells real estate. 

[1]        T41, p 222.

[2]        T40.

6.      Mr Murphy updated Centrelink with information about the trust on 19 May 2004 using a Centrelink form titled “Mod PT - Private Trust”.[3]  He nominated Butler’s Chartered Accountants as the contact for information about the trust, and Butler’s subsequently provided other financial details including the trust profit and loss statements and relevant tax returns.  The Private Trust form confirmed that the trustees were Mr Jarvis and Mr Murphy and that they each held one ordinary unit and were the beneficiaries of the trust. 

[3]         T5.

7.      At that time there were two trust properties: one at Everton Park valued at $210,000 (rented at that time but it seems later sold on 1 July 2005); and a unit at Runaway Bay valued at $460,000 and then undergoing refurbishment.  The estimated total value of trust property at January 2006 was $750,000.

8.      Butler’s Accountants later provided the further information that no distributions had been made to Mr Murphy in the tax years ending 2000, 2001 or 2002.  The taxable income for the trust was nil in the tax year ended 2003[4] but a management fee of $50,000 was paid to Mr Jarvis that year. 

[4]         T9.

9.      The net profit declared in the 2003/2004 trust tax return was $105,618 (made up of $5,522 and a capital gain of $164,726 – less expenses).  Centrelink attributed 50% of this to Mr Murphy.  That attributed income disentitled him to disability support pension and led to the decision that the disability support pension Centrelink paid in 2004/5 be repaid by Mr Murphy.

10.     The trust deed provides that:[5]

§  The trustees will stand possessed of the trust fund and income in accordance with the Deed – Clause 6.1.

§  The beneficial interest in the trust fund will be vested in the unit holders – Clause 7.1.  Each unit will entitle the holder to an interest in the trust fund but not to any particular property of the trust.

§  The trustees shall pay or apply the net income of the trust fund for the benefit of unit holders in proportion to the number of units they hold – clause 24.1.

[5]        T41.

THE LEGISLATION AND APPLICATION OF THE PRINCIPLES

11.     Section 1207 of the Act, the Simplified Outline to Part 3.18 of the Act, explains the key steps when deciding whether the assets/income of trusts and companies will be treated as those of an individual.  Those steps in relation to trusts are: 

§  Is the trust a controlled private trust in relation to the individual as provided for in s 1207V of the Act?   This must be answered yes in relation to 39 Bear Unit Trust because Mr Murphy passes the control test by being a trustee; by being a unit holder who has the power to appoint and remove trustees; and under the trust deed he has a beneficial interest in the trust property of 50% or more.[6]

§  Is the individual an attributable stakeholder of the trust? – s 1207X.  This simply follows under the Act as a result of a trust being a controlled private trust in relation to an individual.

[6]         Section 1207V(2)(a),(b) and (d).

12.     Section 1207X(2) of the Act provides that where a trust is a controlled private trust in relation to an individual, then the individual is an attributable stakeholder of the trust unless the Secretary determines otherwise (by applying the Principles).[7]  It also follows under the legislation that they will have, in relation to the trust, an asset attribution percentage and an income attribution percentage of 100%, unless the Secretary determines otherwise (by applying the Principles).

[7]        Section 1207X(5) of the Act.

13.     It can be seen from this that the central issue in this case is whether Mr Murphy should be held to be an attributable stakeholder of 50% of the assets and income of the trust.  The question is confined in a practical sense to considering the discretions available under the Principles either to not regard him as an attributable stakeholder or to reduce the percentage of assets or income attributed to him.

APPLICATION OF THE PRINCIPLES

14.     The Principles set out various factors or circumstances to be taken into account by decision‑makers in determining whether a person should not be held to be an attributable stakeholder and for determining a lesser asset or income attribution percentage than the 100%. That is, the principles provide some discretionary relief from an otherwise arbitrary regime in the legislation.  Paragraph 7(1) of the Principles states that the respondent must consider whether there are relevant circumstances that make it inappropriate for the individual to be an attributable stakeholder.  Part 3 and Part 4 of the Principles deal with attribution percentages for assets and income and require the decision maker to consider any circumstances that make it inappropriate for the individual to have an assets or income attribution percentage of 100%.  In applying the Principles a decision-maker may have regard to one or more factors (paragraphs 6(3), 15(3) and 24(3)) though it would be expected that most cases would involve weighing up several factors.

15.     The Principles establish that relevant circumstances can include those arising from the legal structure and/or the administrative arrangements of the trust; whether the individual can be expected to exercise effective control in relation to the trust; whether the individual has made past contributions to the trust; whether the individual has received past benefits from distributions and whether there is any foreseeable future benefit of capital or income (or both); whether the individual derives any other benefit from the trust; whether the individual is an attributable stakeholder of any other trust or company; and any other circumstances affecting the person’s involvement with the activities or administration of the trust.

16.     Referring to the factors that I see as being relevant in Mr Murphy’s case it was apparent, in terms of the legal structure of the trust, that Mr Murphy is entitled to half of the trust assets and income.  He and Mr Jarvis as the sole trustees have all the powers under the trust deed.  The fact that no distribution of income was made to Mr Murphy in this particular tax year is not determinative.  The clear terms of the trust require the two trustees to act together.  Mr Murphy has the legal capacity to exercise control in the trust and exercised those powers in relation to removing the third unit holder and trustee in 2001.  He and Mr Jarvis are equally entitled at law to the benefits of the trust. There is no reason why he would not participate in distributions in the future.  Mr Murphy has the legal entitlement to 50% of the assets in the case of winding up.  There may not have been distributions of income to Mr Murphy recently however there is no reason to think that he will not be entitled in the future.  That is plainly the intention of the terms of the trust. 

17.     I take into account that Mr Murphy gave evidence of his limited financial contribution to the trust, stating that apart from the $1 unit purchase price, he has made no other contribution.  I accept that his contribution has been minimal (although I prefer the evidence from the trust records that at one time Mr Murphy’s beneficiary loan account stood at $7,876).  There is no question that this is a small amount compared with Mr Jarvis’ financial contributions.  Mr Murphy told the Social Security Appeals Tribunal that Mr Jarvis makes all decisions about, and signs all documents relating to, real estate purchased by the trust.  In that regard I accept that Mr Jarvis funds all the trust real estate purchases.

18.     Nevertheless Mr Murphy is not inactive.  He told the Social Security Appeals Tribunal that he researched suitable properties for purchase by the trust.  He is also involved as signatory to trust documents.[8]

[8]        T33, T37.

19.     I accept that Mr Murphy has not received any recent distributions from the trust.  The evidence from Butler’s Accountants confirms that the arrangements have largely been to direct the earnings of the trust to Mr Jarvis and not to Mr Murphy.  They stated that even when nil taxable income was declared in 2003 return, this was put in Mr Jarvis’ name only.[9]  When a management fee was paid in the 2003/2004 tax year that was paid solely to Mr Jarvis, in consideration of the extra work he carried out in relation to trust activities. 

[9]         T9.

20.     I note however that there was a reference in a previous Social Security Appeals Tribunal decision to the trust tax return for 2001/2002 distributing income on a 50/50 basis to Mr Murphy and Mr Jarvis.  In the past Mr Murphy has lived in one of the trust properties, so there are other benefits that Mr Murphy’s has derived as a result of the trust’s activities.

21.     The imbalance of contributions and control in regard to activities of the trust might suggest that a lesser income attribution percentage should be applied to Mr Murphy.  However I do not consider that it is appropriate to exercise the discretion here.  In the absence of evidence from Mr Jarvis I was not confident about the real arrangements within the trust.  Mr Murphy declined to call Mr Jarvis to give evidence before either the Social Security Appeals Tribunal or before me, stating only that there was “no need to involve Mr Jarvis in his problems”.  It is difficult to fully understand what Mr Murphy gains from his participation in the trust.   He said however that there are problems in winding up the trust, for capital gains reasons.  In the absence of any evidence from Mr Jarvis, I can form no conclusions about what the problems are. 

22.     It seems unfortunate that Mr Murphy is potentially caught in a cycle where Centrelink pays him disability support pension in one year and then recovers it from him in the next (depending on trust income).  However this follows from the way that trust income is assessed and Mr Murphy might be well advised to discuss his trust arrangements with Centrelink’s financial information service.

23.     Applying the legislation, Centrelink was correct to attribute 50% of trust income to Mr Murphy.  This being so, and because that income in the 2003/2004 tax year was not taken into account in working out his rate of disability support pension, Mr Murphy has a debt, pursuant to s 1223 of the Act, because he was paid disability support pension at a rate to which he was not entitled.

WAIVER OF DEBT

24.     This debt did not arise on the basis of Commonwealth administrative error.  Mr Murphy said in evidence that he had made some enquiry with Centrelink about entering into the trust arrangement but he acknowledged that it was only a general enquiry, many years ago, and that enquiry does not have any relevance to the circumstances of the current debt.  No question of administrative error arises and so the debt cannot be waived on those grounds.

25.     It remains for me to consider whether the debt should be waived on the grounds of special circumstances.  The case law acknowledges that the expression special circumstances is incapable of precise or exhaustive definition.[10]The discretion addresses any circumstances that distinguish a particular case from the usual, which might justify a departure from the rule by which overpayments should be recovered from the person who received it.  The discretion has also been described as one to avoid unfairness, …that something unfair, unintended or unjust had occurred...there must be some feature out of the ordinary.[11] 

[10]        Re Beadle and Director-General of Social Security (1984) 6 ALD 1 at 3.

[11]        Groth v Department of Social Security (1995) 40 ALD 541 at 545.

26.     Mr Murphy relies, for the favourable exercise of the discretion, on factors such as his considerable ill health and the mental strain placed upon him by his Centrelink debts.  At the hearing he did not refer to any particular financial difficulties and said that he was managing his Centrelink debt repayments - these are taken out of ongoing payments of disability support pension.  Mr Murphy assured me that apart from medical expenses of $10-$15 per week he otherwise had only the normal bills, no credit card debt and he was not behind with any payments. However he later submitted in writing that he has a loan that he is not currently required to repay until he has resolved his debts to Centrelink.   Mr Murphy did not reveal the nature of this loan or to whom it is owed.  I note that Murphy said at an earlier Social Security Appeals Tribunal that he lives in a house which Mr Jarvis bought, under an arrangement whereby the house will be left to Mr Jarvis in Mr Murphy’s will.  There may have been a change to that arrangement, which might account for the loan to which Mr Murphy now refers.  However there was no suggestion of any demand for repayment at present.  Thus there were no pressing or immediate financial issues identified. 

27.     I was concerned that Mr Murphy raised the issue of the effects of the debt on his health and his mental well being.  I requested the respondent to provide any available medical evidence about the severity of Mr Murphy’s health problems from his disability support pension file.  This material revealed that he has sustained trauma to his lumbar spine after a motor vehicle accident in 1995 with disc protrusion and it does appear that he suffers chronic pain.  However, on its own these circumstances relating to his medical conditions do not set Mr Murphy’s case apart from the usual circumstances where a disability support pensioner incurs a debt.   

28.     Should any discretion be exercised in Mr Murphy’s favour?  I was not satisfied that Mr Murphy‘s circumstances justified exercising the discretion. Centrelink should continue to recover the debt by withholding part of Mr Murphy’s disability support pension payments.   

DECISION

29.     The Tribunal affirms the decision under review.

I certify that the 29 preceding paragraphs are a true copy of the reasons for the decision herein of M J Carstairs, Senior Member

Signed           Ms M J Brazier
  Associate

Dates of Hearing  18 January 2007
Date of final submissions         24 January 2007
  9 February 2007
Date of Decision  6 July 2007
The Applicant was self represented
For the Respondent                  Mr C Keim, Departmental Advocate