Pannell and Department of Family and Community Services - [2000] AATA 885

DECISION AND REASONS FOR DECISION [2000] AATA 885

ADMINISTRATIVE APPEALS TRIBUNAL )

) No Q1999/928

GENERAL ADMINISTRATIVE DIVISION          )
           Re      JAMES EDWARD PANNELL
  First Applicant
  GILDA PANNELL
  Second Applicant

And SECRETARY, DEPARTMENT OF FAMILY & COMMUNITY SERVICES
Respondent
DECISION

Tribunal Mr K L Beddoe (Senior Member)

Date9 October 2000
PlaceBrisbane

Decision The Tribunal decides: (a) to set aside the decision under review; (b) the annualised income of the first applicant is $8,853 per annum; and (c) both matters are remitted to the respondent to give effect to the Tribunal's decision.

Decision No. 885/2000 (Sgd) K L Beddoe
Senior Member
CATCHWORDS
SOCIAL SECURITY : Assessment of pension – "Income amount earned, derived, or received" – Characterisation of payments made on applicants behalf by company

Social Security Act 1991 – s8, s1064-E1

Re Hill and Repatriation Commission (1996) 45 ALD 347
Re Gowans and Repatriation Commission (1988) 14 ALD 377

REASONS FOR DECISION

Mr K L Beddoe (Senior Member)

On 25 March 1999 an Authorised Review Officer notified a decision to affirm a previous decision to take income said to be derived from Players Sport International Pty Ltd into account for assessment of pensions under the Social Security Act 1991 ("the Act") for the period 27 July 1998 to 26 February 1999. The Social Security Appeals Tribunal subsequently set aside the decision under review and remitted the matter for recalculation in accordance with the Tribunal's findings. The applicants seek review of that Tribunal's decision. While the application for review was made by the first applicant it has been accepted thereafter that it was made on behalf of both applicants. However certain formal documents relating to the second applicant seem to be missing from the papers before the Tribunal.
At the hearing Mr Hill represented the applicants and Mr Letch represented the respondent. The Tribunal had before it the documents lodged pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 and sketch plans (Exhibit A). Oral evidence was given by the first applicant. Documents T4, T5, T6, T16, T28 and T30 are the subject of a section 35(2) order denying access to the applicants. Because of section 39 these documents have not been taken into account by me.
I make the following findings of fact:
(a)The applicants have been in receipt of an age pension and wife pension respectively since 1989.
(b)Until some time in 1995, the first applicant carried on business in his own right and using a business name "Tee Shot Gulf". He ceased to carry on that business in 1995 when he entered into a venture with Singapore interests. That venture was conducted by a company – Player Sport International Pty Ltd ("the company"). The first applicant transferred stock from his previous sole trader business to the company. It seems the first applicant provided no funds to the new venture – only the trading stock said to have been worth $6,200 which amount it seems was credited to the first applicant's loan account. The first applicant also represented that although he transferred the stock to the company the company paid the supplier. In his oral evidence the first applicant said the company had $100,000 in trading stock when it began trading of which $90,000 came from Singapore.
(c)The first applicant manages the business of the company which, I accept was conducted in part from the applicants' home and involved extensive use of the first applicant's car on company business.
(d)Document T3 is a copy of the company's loan account in relation to the applicants for the year ended 30 June 1998. I find that the loan account establishes that the applicants used the company as a banker by arranging for the company to pay amounts relating to their private and/or domestic expenditure. The loan account showed a credit balance of $5,025.65 at 1 July 1997, the expenditure out of the account for the year is shown as $23,041.06. Credits to the account during the year are shown as:
1.10.1997                 Loan  $ 1,000.00
4.12.1997                 Centrelink  $13,800.00
Balance day adjustments:
           30% of rent – business  $ 3,624.00
           Management fee  $ 2,600.00
Balance day adjustments were also made to treat the following portions of amounts paid by company as personal expenditure charged to the applicants' loan account:

Electricity      (70% personal)        $   495.63
Telephone     (20% personal)             545.33
Motor Vehicle          (20% personal)          2,111.55
  $3,152.51

(e)The business conducted by the company had two distinct aspects:
(i)sales of sporting equipment to golf clubs in particular which were made on a representational visit basis by the first applicant; and
(ii)sales of sporting equipment via a union/clubs shop system which were made in particular by telephone contact between the company and the union/clubs shop customer.

(f)For the year ended 30 June 1996 the company reported gross sales of $120,538, a gross trading profit of $49,516 but a net operating loss of $15,794 (T17). Outgoings included $6,321 for advertising and promotion, $6,708 for freight and cartage, $10,400 for management fees, $2,338 for printing and stationery, and $13,070 (T47) for overseas travelling expenses indicating that a substantial small business was being conducted by the company.
(g)In a letter dated 27 February 1997 the first applicant included statements acknowledging travel by him to USA, New Zealand, Singapore and within Australia.
(h)For the year ended 30 June 1997 the company reported sales of $71,533, a gross trading profit of $36,338, and a net loss of $24,106 (T32). Losses and outgoings included $13,472 for bad debts written off, $10,400 for management fees and $8,289 for overseas travel expenses.
(i)For the year ended 30 June 1998 the company reported sales of $72,507, a gross trading profit of $43,143 and a net trading profit of $2,587 (T51). Losses and outgoings included $6,129 for advertising and promotions, $2,600 for management fees and no overseas travel expenses. Motor vehicle expenses were shown as $8,446 being "80% Bus". Document T51 includes a breakdown of the advertising and promotions expense to reveal club and union type advertising. The breakdown of the motor vehicle repairs and maintenance accounts shows two registration payments and two RACQ subscriptions paid.
(j)It is clear from the material and the first applicant's evidence that trading stock was stored at the applicants' domestic premises. Exhibit A is a representation of the two relevant premises with an indication of the extent to which the premises were used to store trading stock. I accept the evidence that substantial (in the context of a small business) amounts of trading stock were stored (and displayed) at the applicants' home throughout the relevant period. The domestic premises were also used in part as an office for the company's business. (Documents T56 and T70 describe the premises as at 27 November 1997). The company reimbursed 30% of the rent paid on these premises by the applicants.
(k)In his income tax return for the year ended 30 June 1998 the first applicant described his occupation as Company Manager and disclosed income therefrom as $2,600. The second applicant described her occupation as "cleaner" in her income tax return for the year ended 30 June 1998. She disclosed relevant income of $3,450.
(l)I am satisfied that the first applicant was remunerated by the company on a fee basis. That remuneration was drawn down from time to time by the company paying private expenditure of the applicants as it was incurred by them. There is a lack of records in relation to these amounts but some private expenditure has been taken into account by charging it back to a shareholders loan account in the name of the first applicant. Entries in this account for the year of income ended 30 June 1998 are evidenced by T3. I am unable to be satisfied however that all private expenditure incurred by the applicants and paid by the company has been charged to the applicants' loan account.
(m)In February 1999 the first applicant represented to Centrelink that the business conducted by the company had ceased. In letters dated 17 and 19 February 1999 the applicants state that the first applicant had not traded since November 1998 (other than to sell stock on hand) but then refer to deregistering the company (T74). A copy of a completed form 6010, being application for voluntary deregistration of a company under the Corporations Law was submitted to Centrelink (T74).
(n)The claim that the company ceased business in November 1998 was not supported by the first applicant's evidence before the Tribunal. He said that although the selling by representation had ceased the company was still doing business under the union shopper branch of its business and was continuing to pay for the cars and other personal expense items including rental of the domestic premises.

The Applicants' Submissions

In so far as the applicants' made submissions about administrative defects in Centrelink administration I have found these submissions (T3 and T74) to be of no assistance in deciding the matters before this Tribunal.
In so far as the applicants' submit that the company ceased to carry on business in November 1998 that is contrary to the first applicant's oral evidence and is rejected on this basis.
The real issue, only indirectly adverted to for the applicants, is whether amounts of domestic expenses of an admittedly private nature, paid by the employer and, in some instances, recovered through a shareholders loan or drawing account are income derived or earned for the purposes of the Act.
The Respondent's Submissions
The respondent supports the dissection of expenditure undertaken by Centrelink and affirmed in principle by the Social Security Appeals Tribunal.
In particular the respondent relies on two Tribunal decisions – Re Hill and Repatriation Commission (1996) 45 ALD 347 and Re Gowans and Repatriation Commission (1988) 14 ALD 377. Those decisions are relied on to support a proposition that amounts paid by the company in relation to the applicants' private or domestic expenditure represent income earned or derived by the first applicant. I respectfully agree with those decisions and have followed them in this case in so far as they are relevant.
Consideration
The steps of the method statement in section 1064-E1 of the Act require, in relation to a claim for age pension a working out of the amount of a person's ordinary income on a yearly basis and application of the ordinary income test to that yearly income.
Section 8(1) of the Act defines "ordinary income" to mean income that is not maintenance income or an exempt lump sum.
"Income" is also defined in section 8(1). So far as is relevant the defined meaning is:
"income" in relation to a person means an income amount earned, derived or received by the person for the person's own use or benefit.
"Income Amount" is also defined in section 8(1) to mean:
          (a)       valuable consideration; or
          (b)       personal earnings; or
          (c)       moneys; or
          (d)       profits; (whether of a capital nature or not).
Section 8(2) of the Act provides that a reference in the Act to an income amount "earned, derived or received" is a reference to:
(a)an income amount earned, derived or received by any means;
(b)an income amount earned, derived or received from any source (whether within or outside Australia).
Notwithstanding the width of those provisions it seems to be arguable that payments by the company which would be expense payment benefits coming within section 20 of the Fringe Benefits Tax Assessment Act 1986 are not income amounts. That seems to be recognised in the Act in relation to other benefits (s1157B et seq) but similar provisions do not apply in relation to age pensions. However, having considered the matter I am satisfied, on the material, that the private expenditure paid for the applicants by the company was done so on the basis that the company is effectively reimbursed by remuneration derived by the first applicant. The quantum of that remuneration is ordinarily determined by the amounts credited to the applicants' loan account with the company. Such credits include all amounts credited except payments made by the applicants to the company for credit in their loan account. That would be the basis if I could be satisfied that the payments have been correctly characterised. In this case I am not so satisfied.
The effect of the arrangements between the applicants and the company was that the company would pay private and domestic expenditure incurred by the applicants, charge, such amounts to the shareholders' loan account in consideration of the first applicant performing the functions of manager of the company and on the basis that such amounts paid in that consideration were his remuneration as an employee of the company. Although there are documents suggesting that the first applicant was in some form of joint venture with the company he describes himself as manager and I accept that to be the correct position.
In so far as the applicants have sought to assert that the company has ceased to carry on business that assertion is contrary to the first applicant's own evidence. I accept that the company has reduced its business activity but continues to conduct the "union shop etc" business.
As to an ascertainment of the applicants' actual income during the relevant period I have found that to be impossible on the material before the Tribunal. It was for the applicants to satisfy me as to the first applicant's income, if any. I am satisfied that the first applicant derived income from his employment by the company but I have been unable to independently quantify the amount derived during the relevant period.
The question is whether I should agree with the Social Security Appeals Tribunal which was also unable to quantify the first applicant's income, whether I should agree with the Authorised Review Officer's decision or whether I should make some other decision.
The respondent relied on an assessed income of $14,351 p.a. for the relevant period. That figure was adjusted, following the decision of the Social Security Appeals Tribunal, to $12,055p.a. Subject to what follows I can see no reason to suggest that this is not the best estimate available. The applicants have not provided an alternative.
I would adjust the respondent's figures in one aspect. The company paid the hire purchase payments on the first applicant's Magna car. At all relevant times the car was the property of the first applicant vis a vis the company but it was extensively used in the company's business. The second applicant's car was not used in the company's business to any significant degree.
The respondent treated 80% of the interest payable on the hire purchase contract relating to the Magna as business expense and 20% as private expense. Notwithstanding that the car is not owned by the company it should be accepted that usage will determine the correct apportionment of both capital and interest components under the hire purchase contract. The respondent accepts 80% company business usage for the Magna. I would adopt that figure as being appropriate on the material before me but apply it to the whole of the monthly payments under the hire purchase contract. The calculation is $333.60 per month x 12 x 80% = 3,202. That means that the figure recalculated by the respondent at T86 should be reduced by $3,202 to $8,853. My reason for this adjustment is that the use of the Magna car by the company is accepted as 80% of total usage – that means the capital cost of the car should also be apportioned on an 80/20 basis – usage is the relevant basis for apportionment. Any issue as to residual value will have been dealt with in part in the hire purchase contract and should otherwise be ignored for present purposes. In coming to this conclusion I have accepted that the hire purchase agreement with Ford Credit was made at arms length.
For these reasons I will set aside the decision of the Social Security Appeals Tribunal and substitute a decision that during the period 27 July 1999 to 26 February 2000 the first applicant derived an income at the rate of $8,853 per annum from his employment as manager of the company.
Both matters will be remitted to the respondent to give effect to the Tribunal's decision.
I certify that the 22 preceding paragraphs are a true copy of the reasons for the decision herein of Mr K L Beddoe (Senior Member)
Signed:
  T G Lowther
   Associate
Date of Hearing  20 June 2000
Date of Decision  9 October 2000
Representative for the Applicant               Mr Hill
Representative for the Respondent         Mr Letch