OLIVER and SECRETARY, DEPARTMENT OF EDUCATION, EMPLOYMENT AND WORKPLACE RELATIONS

[2010] AATA 736

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2010] AATA 736

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2010/2577

GENERAL ADMINISTRATIVE  DIVISION		)
Re		RICHARD OLIVER

Applicant

And SECRETARY, DEPARTMENT OF EDUCATION, EMPLOYMENT AND WORKPLACE RELATIONS

Respondent

DECISION

Tribunal Dr P McDermott, RFD, Senior Member

Date28 September 2010

PlaceBrisbane

Decision The Tribunal sets aside the decision under review and remits the matter to the Secretary to consider the application of Richard Oliver for newstart allowance in accordance with these reasons.

..................[Sgd]...................

Senior Member

CATCHWORDS

SOCIAL SECURITY – Newstart allowance – Whether assets of applicant exceed asset value limit – Should a loan to a trust be considered an asset – Loan may not be recognised as such under the Social Security Act 1991 (Cth) – Decision set aside and remitted to the Secretary for reconsideration of the application in accordance with reasons given.

Duties Act 2001 (Tas) s 225

Social Security Act 1991 (Cth) ss 9, 11, 611, 1084, 1118, 1122, 1129, 1131

Social Security and Veterans’ Affairs (Miscellaneous Amendments) Act 1986 (Cth)

Church of England Property Trust, Diocese of Goulburn v Rossi (1893) 10 WN (NSW) 1

Glenn v Federal Commissioner of Taxation (1915) 20 CLR 490

Re Williams [1897] 2 Ch 12 at 18

Secretary,Department ofEmployment and Workplace Relations v Vanderpluym [2007] FCA 876
Re Taylor and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2009] AATA 852

REASONS FOR DECISION

28 September 2010 Dr P McDermott, RFD, Senior Member  

INTRODUCTION

1.      In 2009, Richard Oliver (“the applicant”) claimed newstart allowance.  His claim was rejected on the grounds that his assets and attributable assets exceeded the asset value limit at which newstart allowance ceases to be payable.  I have to decide whether the assets of the applicant, in particular a loan to a trust, exceed the asset value limit.

HISTORY OF THE MATTER

2.      On 16 December 2009, Centrelink confirmed that the applicant had contacted it to make a claim for newstart allowance.  On 21 December 2009, the applicant lodged a claim for that benefit.  At that time, he disclosed that his marital status was separated and that he was a non-home owner.

3.      As the affairs of the applicant involved a trust and company, he was asked to complete questionnaires relating to the company and trust.  He completed a questionnaire in relation to the Richard Oliver Family Trust (“the trust”) as well as a questionnaire in relation to Lake River Dairy Pty Ltd (“the company”).  On 18 January 2010, he later arranged for a copy of the Trust deed to be provided to Centrelink.

4.      Overbrook Consulting Pty Ltd, in a letter dated 8 January 2010, advised Centrelink that the company was insolvent and had been placed into administration.  That letter also indicated that the applicant no longer had any control over the Company and that his interest in the Company through his shareholding was worthless[1].  That same letter also indicated that the Trust was effectively insolvent.

[1] T10/50.

5.      The applicant had provided Centrelink with the balance sheet for the Trust as at 30 June 2008, indicating the Trust’s liabilities exceeded its assets by $124,253.66.  That balance sheet included in the Non Current Liabilities a loan owed to the applicant of $3,740,897.65.

6.      On 18 January 2010, Mr Rod Lester of Overbrook Consulting Pty Ltd advised Centrelink in relation to the sale of farm property held by the Trust but indicated it was likely that there were still some debts that may not be able to be paid[2].

[2] T17/122-123.

7.      On 18 January 2010, a Centrelink Complex Assessment Officer (“the CAO”) completed reports in relation to the Company and the Trust.  Although it was noted that the Company was now in receivership, the CAO determined that an asset value of $167,291 was to be maintained against the applicant as this was the value of a director’s loan made by him to the Company.  In relation to the Trust, the CAO noted that according to the 2008 balance sheets, the primary production assets were $7,616,643 with liabilities of $7,440,897.  A liability listed on the Trust balance sheets was a loan from the applicant of $3,740,897.65 which had to be assessed as a personal financial asset of the applicant.

8.      On 12 April 2010, G A Crisp of RSM Bird Cameron Partners, wrote a letter indicating that he had completed his investigations into the affairs of the Company and that no dividend would be paid to the applicant.

9.      On 1 July 2010, the applicant was referred to a Centrelink social worker so that further options for assistance could be explored.  It was suggested to the applicant that he lodge a new application for newstart allowance and he subsequently did so.  On 5 July 2010, the applicant lodged the balance sheet of the Trust as at 30 June 2010 in support of his new claim for newstart allowance.  The most recent balance sheet indicated that there was no longer an outstanding loan owed to the applicant as at 30 June 2010 and his claim was assessed on that basis.

10.     On 8 July 2010, a CAO completed a new assessment report taking into account the information contained on the new balance sheet, and that there was no longer any outstanding loan.

11.     On 14 July 2010, Centrelink granted the applicant’s claim for newstart allowance with effect from 1 July 2010.

PRIOR DECISIONS 

12.     On 21 January 2010, Centrelink advised the applicant that his claim for newstart allowance had been rejected because his assets were above the allowable limit.  As at 16 December 2009, the asset test limit for a single non-homeowner was $307,000.[3]

[3] See ‘Guide to Australian Government Payments’ (20 September 2009 – 31 December 2009), Chart A at p24.

13.     On 3 February 2010, an authorised review officer advised the applicant that the original decision had been affirmed.  That officer decided that the loan listed in the accounts of the Trust had to be assessed as a personal asset subject to deeming.  That officer considered that the loan could not be considered irrecoverable because “... there are no other steps that have satisfied to be able to disregard this amount as an asset”.

14.     On 7 April 2010, the applicant had applied to the Social Security Appeals Tribunal (“the SSAT”) for further review.  On 20 May 2010, the SSAT affirmed the decision under review.

15.     On 24 June 2010, the applicant lodged an application for review of that decision to this Tribunal.

ISSUES

16.     The issues to be decided in this appeal are whether the assets of the applicant include the loan to the Trust and whether the loan is an unrealisable asset.

RELEVANT LEGISLATION

17.     The legislation relevant to this application is the Social Security Act1991 (Cth) (“the Act”).

18. Subsection 611(1) and (2) of the Act provides as follows:

(1) A newstart allowance is not payable to a person if the value of the person's assets is more than the person's assets value limit.

(2)A person’s assets value limit is worked out using the following table: work out which family situation applies to the person; the assets value limit is the corresponding amount in the assets value limit column.

ASSETS VALUE LIMIT TABLE
Column 1	Column 2	Column 3 Assets value limit
Item	Person's family situation	column 3A Either person or homeowner	column 3B Neither person nor partner homeowner
1.	Not member of a couple	$166,750	$287,750

…

Note 5:     the assets value limits of items 1 and 3 in column 3A and item 3 in column 3B are indexed annually in line with CPI increases (see sections 1191 to 1194).

19.     As at the date of the applicant’s claim for newstart allowance the “asset value limit” for a single person who is not a homeowner was $307,000.

20. Section 9 of the Act defines the term “financial asset” as being a financial investment or a deprived asset. A “financial asset” includes the amount of a loan that remains unpaid.

21. Section 11 of the Act states that an asset is property or money located either inside or outside of Australia.

22. Subsections 11(12) and 11(13) of the Act defines the term “unrealisable asset”.

23. Section 1118 of the Act lists assets that are exempt from being included in the value of a person’s assets. The value of a loan or property is not included in this list.

24. Section 1122 of the Act provides that the asset value of a loan is the outstanding amount of the loan.

25. Section 1131 of the Act allows for an unrealisable asset to be excluded from the value of a person’s assets if a social security benefit is not payable to a person because of the application of the assets test and the person is in severe financial hardship.

CONSIDERATION

26.     On 14 July 2010, Centrelink granted the applicant’s claim for newstart allowance with effect from 1 July 2010.  This application is concerned with his eligibility for newstart allowance when he claimed this benefit on 16 December 2009.

27.     This application is concerned with the asset value of what is disclosed in the accounts of the Trust as a loan owed to the applicant.  There are a number of balance sheets of the Trust which are in evidence.  Centrelink was originally provided with the balance sheet of the Trust as at 30 June 2008.  That balance sheet indicated as a liability a loan owed to the applicant of $3,740,897.65.  The applicant has since provided a copy of the balance sheets of the Trust as at 30 June 2009 and for 30 June 2010.  These balance sheets indicate that the outstanding loan owed by the Trust to him had reduced from $3,740,897.65 to $3,521,511.19 over those financial years.

28.     On 21 January 2010, Centrelink advised the applicant that his claim for newstart allowance had been rejected because his assets were above the allowable limit.

29. In determining this application, I have endeavoured to appreciate the circumstances whereby a loan of over three million dollars which is owing to the applicant appears on the books of the Trust. I have also had to bear in mind the terms of s 1122 which provides that if a person lends an amount after 27 October 1986, the value of the assets of the person for the purposes of the Act includes so much as remains unpaid but does not include any amount payable by way of interest under the loan. For a loan of this magnitude there would ordinarily be a loan agreement. This is certainly not the case here.

30.     The applicant in his evidence confirmed that he is the trustee of the Trust.  He became the trustee when the Trust was created on 15 September 2007.  A copy of the unexecuted trust deed of the Trust is in evidence before me[4].  This copy of the trust deed was provided by Mr Rod Lester of Overbrook Consulting Pty Ltd who has been the accountant for the applicant.  The applicant may possibly still be in possession of the original trust deed.  In any event, there is no issue that the Trust was created. 

[4] T16/107; Exhibit C (Page 17 of unexecuted trust deed).   

31.     Both the applicant and Mr Lester have given evidence as to how the sum of $3,740,897.65 appeared as a loan to the Trust.  The applicant has referred to this sum which appears in the accounts of the Trust as being his “equity” in the Tasmanian farm “Burlington” that he purchased from his parents.  The applicant stated that the farm was registered in his name (and not that of himself and his wife) to take advantage of the “father-son” provision.[5]  To purchase the farm the applicant was financed by a secured loan from NAB.  At the time when he acquired the farm, the property was valued at $7,000,000.  The purchase price was some $3,000,000.  The difference between these sums appears to have been regarded by the applicant as his “equity” in the farm.

[5] This appears to be a reference to the concessional duty exemption applicable in Tasmania for intergenerational rural transfers under s 225 of the Duties Act 2001 (Tas).

32.     The evidence of Mr Lester is that the applicant had not actually paid the sum of $3,740,897.65 into the funds of the Trust.  There is certainly no suggestion that the applicant ever had, at any time, that large sum of money.  Rather, the tenor of the evidence of Mr Lester is that the entry of the loan in the accounts of the Trust represented the “equity” of the applicant in the farm, above the existing mortgage for the acquisition of the farm.  The inclusion of this “equity” in the accounts had facilitated the Trust and Company being given financial accommodation by NAB which enabled the Company to carry on and expand the dairy business.

33.     There is, in my view, an issue of whether the Trust is actually in existence.  I appreciate that the applicant has not formally wound up the trust.  The respondent has quite rightly pointed out that the applicant has indicated to Centrelink that he does not want to wind up the Trust as he “... maintains for tax purposes it is worth more to him to keep it open”.  However, whether or not the Trust is in existence is really dependent upon whether the Trustee is in possession or control of property for the beneficiaries specified in the trust deed or for some purpose recognised by a court of equity.  As Lindley LJ remarked in Re Williams,[6] trusts are “equitable obligations to deal with property in a particular way”.  It has been long recognised that the essence of a trust is that a trustee is in possession or control of property in existence which is subject to an equitable obligation.[7]

[6] [1897] 2 Ch 12 at 18. See also Glenn v Federal Commissioner of Taxation (1915) 20 CLR 490 at 503.

[7] See for example: Church of England Property Trust, Diocese of Goulburn v Rossi (1893) 10 WN (NSW) 1 at p2 per Owen CJ in Eq.

34.     I should point out that the Secretary has referred to Instruction 4.6.5.65 of the Department’s Guide to the Social Security Law which lists the circumstances when a loan to a trust can be regarded as no longer existing even though the loan has not been repaid.  Of particular relevance is the circumstance where a loan can be forgiven as part of the process of an irreversible wind up.  There has been no formal winding up of the Trust in this case as where, for example, all of the assets of that trust have been distributed to beneficiaries.  However, I consider that a case where all of the assets of a trust have been dissipated is no different from one where there has been a deliberate winding up of a trust.  There are, of course, no formal requirements for the winding up of a trust, all that occurs is that the trustee is no longer in possession of property which is subject to an equitable obligation to administer that property subject to the terms of a trust.

35. On 21 January 2010, Centrelink made a decision to reject the claim by the applicant on the ground that his assets were above the allowable limit. That decision was based on the accounts of the Trust, which was the only evidence available to Centrelink. That decision was, in my view, the correct and preferable decision for Centrelink to make at the time. I might add that the fact that there have been consistent decisions of this Tribunal that s 1122 of the Act requires the face value of any loan to be included as an asset with no consideration of recoverability is also something that Centrelink would have considered. The terms of s 1122 in its present form originates from a 1986 amendment to social security law[8].  In the Explanatory Memorandum to that amendment it was simply stated that it was intended to simplify the valuation of such an asset, and avoid the need to obtain an actuarial assessment of value.[9]  However, in this case, it appears on the basis of new evidence from Mr Lester that no funds were actually advanced to the Trust.

[8] Social Security and Veterans’ Affairs (Miscellaneous Amendments) Act 1986 (Cth) (No. 106, 1986), s 73.  

[9] Taylor and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2009] AATA 852 at [5]

36. During the hearing of this application, I stated that if there had not been an advance of money by the applicant into the funds of the Trust there may not be a “loan” for the purposes of s 1122 of the Act as this would not be a case where “a person lends an amount” in terms of the section. Certainly in one recent case where the Federal Court of Australia considered s 1122, there were funds advanced and still unpaid by the applicant.[10]  One issue that was raised was the conceptual difficulty of the enforcement of a loan.  This would require the applicant as trustee being sued by the applicant themselves.  In the hearing, I raised for consideration that if there was not a transaction of a loan, the entry in the accounts of the Trust of the sum of $3,740,897.65 might nevertheless represent some other “asset” of the applicant such as the value of the equity of redemption of the applicant.

[10] Secretary,Department ofEmployment and Workplace Relations v Vanderpluym [2007] FCA 876

37.     In this case the Secretary “is willing to undertake an assessment of whether or not the loan is an unrealisable asset”.[11] This is, in my view, an appropriate course of action to take which would be fair to both parties and allow for the proper administration of ss 1084 and 1129 of the Act. In particular, under s 1129, an asset may be disregarded for the purposes of the asset test if that asset is unrealisable and the person would suffer severe financial hardship if it is not disregarded.

[11] Statement of Facts and Contentions, 19 August 2010, [49].

38. I appreciate that the applicant states that he has no assets. However, there is a need for the applicant to lodge an application in an approved form for this section to apply: see s 1129(1)(d). There is no evidence before me such as the usual forms that indicate the current state of the assets and liabilities of the applicant. Without such evidence, I would be unable to make a finding that the applicant is in financial hardship.

39. Having regard to the new evidence from Mr Lester that the applicant had not actually advanced money into the accounts of the Trust, there may not be a loan for the purposes of s 1122 of the Act. Consequently, I set aside the decision under review to enable the Secretary to undertake an investigation into whether there is a loan as well as an assessment of whether there is an unrealisable asset of the applicant.

DECISION

40.     I set aside the decision under review and remit the matter to the Secretary to consider the application of Richard Oliver for newstart allowance in accordance with these reasons.

I certify that the 40 preceding paragraphs are a true copy of the reasons for the decision herein of Dr P McDermott, RFD, Senior Member

Signed: ..............[Sgd]...........................................................
              Kate Slack, Research Associate

Date/s of Hearing  24 August 2010
Date of Decision  28 September 2010
Applicant was self-represented
Solicitor for the Respondent     Rick McQuinlan, departmental advocate