Ractivand and Secretary, Department of Family and Community Services
[2004] AATA 1414
•31 December 2004
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2004] AATA 1414
ADMINISTRATIVE APPEALS TRIBUNAL
GENERAL ADMINISTRATIVE DIVISION N2004/903
Re: Theodore Demetrius Ractivand
Applicant
And:Secretary, Department of Family and Community Services
Respondent
DECISION
Tribunal: P.J. Lindsay, Senior Member
Date: 31 December 2004
Place: Sydney
Decision:The tribunal affirms the decision under review.
. . . . . . . . . . . . . . . . . . . . . . . .
P. J. Lindsay, Senior Member
© Commonwealth of Australia (2004)
CATCHWORDS
Social Security – age pension – whether asset subject to charge or encumbrance - designated private company – applicant an attributable stakeholder - appropriate asset and income attribution percentages – decision affirmed
Social Security Act 1991 s.1121, 1207C, 1207N, 1207Q, 1207X, 1209E
Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000
Re Samek and Secretary, Department of Social Security (1988) 16 ALD 295
Re Kirkman and Secretary, Department of Social Security (1990) 20 ALD 400
REASONS FOR DECISION
P.J. Lindsay, Senior Member
1. This is an application by Theodore Ractivand (the applicant) for review of a decision by the Social Security Appeals Tribunal (SSAT) made on 22 June 2004 affecting his age pension. The SSAT affirmed a decision by an authorised review officer at Centrelink who had looked into whether the assets test was being applied appropriately to Mr Ractivand and the officer confirmed that that 100 per cent of the income and assets of AA Property Pty Limited should be attributed to Mr Ractivand. The officer also found that a loan from the applicant’s father should not be offset against the value of a property that he owns in Noraville.
2. At the hearing the applicant was represented by Mr T Barber, solicitor, and the Secretary, Department of Family and Community Services (the respondent), by Mr J Kenny from Centrelink. The tribunal heard oral evidence only from Mr Ractivand and had before it the documents lodged under s.37 of the Administrative Appeals Tribunal Act 1975 (T documents) and the exhibits tendered during the hearing.
baqckground
3. Mr Ractivand receives a part age pension due to the operation of the assets test. The assets concerned are a property in Noraville and an interest in a company AA Property Pty Limited (AA Co).
4. Mr Ractivand was born in Greece on 14 February 1938 and came to Australia in 1966. He has three children from his first marriage, Ronald, Jane and Sonja. His youngest child, Nicholas is 15½ and was born to his second wife, Andrea, who is deceased. His father, now 103, lives in Greece. When the applicant left Greece to study engineering in England, his father (Mr Ractivand Snr) lent him funds to cover the cost of his education. This arrangement was originally recorded in a letter the father wrote to the applicant on 25 September 1956 (T3):
Since you are the eldest (and not an only child), you should also, in time, repay with interest the funds, that I am prepared to place at your disposal for this purpose, so that I may eventually reuse or distribute them as I see fit.
The time to start repayments will be when you have got a well paid position, or have established a profitable business of your own. …Your course should take 7 years to complete including Tutorial College, so the total cost should be in the order of £5,040, not to mention the cost of your travel to and from the UK. The interest rate we agreed to when we last discussed this matter was 6% compounding annually. Please sign this letter and return it to me to make formal our agreement regarding funds on loan to you for your technical education.
5. The applicant’s father wrote again on 28 July 1960 (T4) “ … to emphatically remind you of your obligation to repay all moneys spent on your further education, travel, and other smaller loans for other purposes, at the earliest possible time so that I may use or distribute them as I see fit. “ The letter noted that there had been another loan of £1,000 recently, and the total was now £5,256 and the interest rate remained 6 per cent compound per annum. Again he was requested to sign the letter and to leave it with the father’s lawyer as an acknowledgment of the debt and obligation to repay.
6. The next letter in the T documents from the father regarding the loan is dated 25 June 1990 (T5). It is necessary to set out its contents in a little detail:
From our recent telephone conversations I understand that you feel it is an opportune time to invest, due to the current depressed state of the Australian Real Estate market.
Though I do ultimately desire repayment of your educational loans, I also recognize the desirability of availing yourself of the current opportunity to invest when prices are favourable.
I wish to confirm to you in writing, that I am prepared to accept a further delay in the repayment of your old debt, and make the funds available to you for the purchase of Real Estate.
If trends in Western Countries can be a guide, you may well be able to repay your debt out of the appreciation of the land value, and still be left with some equity, for the ultimate benefit of your children, (my grandchildren).
7. The applicant purchased a property at Noraville in November 1990 for $114,000. He borrowed $80,000 from Westpac. He drew $38,000 from his term deposit to pay the balance of purchase money, stamp duty and legal fees (exhibit A3).
8. In 1995, AA Co was incorporated and the applicant was allotted one of the company’s 12 shares on issue. Each of his children, including Nicholas, at all relevant times a minor, held shares in the company. The applicant was also one of the company’s two directors until 30 June 2003, at which time he sold his only share to his daughter Jane. The shareholding was then held by the applicant’s children in equal shares. In 1995 AA Co purchased a half interest in a company title home unit at Leichhardt. The co-purchaser was his second wife, from whom he had then separated. The applicant’s father financed AA Co’s acquisition of its interest in the unit.
9. The applicant began receiving the sole parent payment in respect of Nicholas after his wife Andrea was diagnosed with schizophrenia and she eventually left their home. Nicholas still lives with him and his three older children have their own homes.
10. On 25 February 2004 the applicant asked Centrelink to review its decision of 30 December 2003 (T52). Mr Ractivand identified two matters in dispute. The first was that he had a large personal debt that “with the consent of the lender was used to purchase my principal asset (other than the family home)”, which Centrelink had failed to recognise as diminishing his total equity. In his view the debt should be taken into consideration. The next matter was the attribution to him of all of AA Co’s income and assets. He noted that changes to the company’s structure and his resignation as director meant that he no longer had a controlling interest in AA Co.
11. The authorised review officer affirmed the decision under review (T55). The unsecured loan from Mr Ractivand senior was for the applicant’s education and was not to be taken into account in reducing the value of his assets. As for AA Co, the review officer considered that the applicant had not satisfactorily relinquished control and he retained some informal control over the company.
12. On review of the authorised review officer’s decision, the SSAT affirmed the decision not to offset the loan from the father against the value of the Noraville house. The SSAT could see no reason why Mr Ractivand should not remain the sole attributable shareholder nor any reason to vary the percentage of attribution to him of AA Co’s income and assets.
issues
13. The issues before the tribunal are: i) whether the value of the applicant’s investment property at Noraville should be reduced by the amount of a loan from the his father? and ii) whether the assets and income of AA Co should be attributed to the applicant?
evidence and findings
Loan from applicant’s father
14. Mr Ractivand said it was not until 1990 that he had managed to accumulate a sum of money with which he could have repaid his father. But he said he discussed the local real estate market with his father and explained that if he bought real estate its rate of appreciation would enable him more quickly to repay the full amount owed. He said his father agreed and encouraged this because it was in their mutual best interest. It was only later that the applicant realised the need to have formalised the consent that was noted in his father’s letter of 25 June 1990 (T5). On 5 August 2004 a caveat was lodged on the title to the Noraville property. The applicant’s father was noted as the caveator. The caveatable interest was described as an equitable interest in the land by virtue of the “caveator lent the proprietor [the applicant] the sum of $75,000 at the time when the property was purchased and the said sum was used as settlement funds, the said loan was to be repayed [sic] within 10 years. The current debts including accruing interest as at the 28 July 2004 is $100,000.00” (T84).
15. In cross-examination the applicant agreed that he did not receive a fresh advance from his father in 1990 or any further remittance of funds. The applicant said he had not received any advances from his father since 1960 when he received the loan of £1,000 referred to in the letter from his father dated 28 July 1960 (T4). He also agreed that his father’s letter of 25 June 1990 (T5) contained no discussion of security. Mr Ractivand acknowledged that the money he put into the purchase of the Noraville property, apart from the money borrowed from Westpac, was money he had saved from his work. Further, he accepted that the $75,000 referred to in the caveat was the money that his father had originally lent him in 1956 and 1960, including accrued interest.
16. Section 1121 of the Social Security Act 1991 (the Act ) relevantly provides:
Effect of charge or encumbrance on value of assets
1121.(1) If there is a charge or encumbrance over a particular asset of the person, the value of the asset, for the purposes of calculating the value of the person's assets for the purposes of this Act, is to be reduced by the value of that charge or encumbrance.
Note: this section does not apply to an asset to which section 1121A (primary production assets) applies.
17. The applicant submitted that his father’s letter of 25 June 1990 establishes a new contractual agreement by which payment of the old debt may be delayed provided the amount is put towards the purchase of real estate. As a consequence of that agreement it should be accepted that the debt is now a new loan used exclusively for the purchase of real estate. In Mr Barber’s submission, the tribunal should regard the loan made by the father as relating specifically to the purchase of the Noraville property, and although the loan was not secured, on the authority of Re Samek and Secretary, Department of Social Security (1988) 16 ALD 295 it should be taken into account by reducing the value of that property. The Department appears to accept this interpretation of Re Samek given the inclusion of the following passage in its Guide to Social Security Law at 4.6.6.30 ‘Encumbrances & Loans against Assets’:
Unsecured Loans
If a customer has an unsecured loan AND provides evidence that the loan was specifically obtained to purchase the asset, the outstanding amount of the loan IS deducted from the value of the asset.
18. I find the terms of Mr Ractivand Snr’s loan of monies to the applicant between 1956 and 1960 are contained in his letters dated 25 September 1956 and 28 July 1960. I find that there was a loan by Mr Ractivand Snr to the applicant in the terms specified in the two letters. It was stated in the first letter, which was dated 25 September 1956 (T3), that “the time to start repayments will be when you have got a well paid position, or have established a profitable business of your own”. The second letter, written at a time of displeasure in his son’s actions, reminded the applicant of his obligation to repay the loan monies “at the earliest possible time so that I may use or distribute them as I see fit”. Following conversations with the applicant relating to the opportunities for investment in the Australian real estate market, Mr Ractivand Snr decided not to demand repayment of the loan. Notably, Mr Ractivand Snr did not make a request in the letter of 25 June 1990 for the applicant to sign that letter and return it to him. I infer that his letter was merely notification that he was not demanding repayment because he was going to wait for the applicant’s real estate investment to succeed and then he would receive repayment in full. By not having to repay the loan, the applicant was able to put his savings to investment in real estate.
19. It follows that the monies used by the applicant to fund the purchase of the Noraville property were his own monies, not funds advanced by the applicant’s father. This is further evidenced in a later letter from Mr Ractivand Snr to the applicant dated 15 July 1995 where there is no mention of a new loan. That letter states (T6):
From our contacts over the years, I have been aware that it has never, so far, been possible for you to repay, (with interest), the monies loaned to you for your professional studies and other purposes. However now that you have established a family company, given a few more years and suitable investments, you should finally be able to repay your debts to myself or my estate, so I may use or distribute them as I see fit.
As we established back in mid 1960, the original sums spent on your overseas education since mid 1956, including the other smaller loans, totalled £5256. This, with compound interest at the agreed 6% over 35 years, amounts to £40,398.-(Sterling).
Although it may yet take some time, please let me know when you are ready to make a full or partial repayment …
20. I discount the terms of a later letter from Mr ractivand Snr to the applicant’s solicitor dated 10 June 2004 (T82) which appears to have been created in the climate of these current proceedings. The applicant’s evidence about the timing of the creation of the letter and its authenticity was not convincing. Putting aside doubt as to authenticity of Mr Ractivand Snr’s signature on that letter, I find that it clearly contradicts the earlier letters in relation to facts such as “on the 25th June 1990, I lent [the applicant] the sum of $75,000 to purchase a property at 21 Reynolds Road Noraville NSW.” It is incorrect because as late as 1995, Mr Ractivand Snr acknowledged that his loans to the applicant were made in 1956 and 1960.
21. I find that the applicant used the monies advanced to him by his father between 1956 and 1960 for purposes completely unrelated to the purchase of the Noraville property. The monies the applicant applied to the purchase of the Noraville property, other than his bank borrowings, were from a source that was the applicant’s own savings from his personal exertion income.
22. The loan to the applicant from Mr Ractivand senior is not secured by way of encumbrance or charge over the property at Noraville. A caveat of itself does not create a right to payment out of a particular property and therefore is different to an encumbrance or charge. A caveat is a protective device holding the status quo and thus is merely a protective mechanism allowing the caveator an opportunity to take action to establish his interest (if any) in the property (Re Kirkman andSecretary, Department of Social Security (1990) 20 ALD 400). Accordingly, s.1121(1) of the Act does not apply and the value of the property at Noraville is not to be reduced in calculating Mr Ractivand’s assets for the purposes of the Act.
evidence and findings
Attribution of AA Co’s income and assets to the applicant
23. AA Co was incorporated in 1995 and there were 12 shares on issue. The applicant and his daughter Sonja became its directors. Nicholas, at all relevant times a minor, initially held 8 shares, the applicant held 1, and the three other children held a single share each. At various times the shareholdings have changed as set out below:
Shareholdings in AA Co
June 1995
June 2003
June 2004
Applicant
1
1
0
Ronald Ractivand
1
7
7
Jane Luckins
1
1
7
Sonja Ractivand
1
7
7
Nicholas Ractivand
8
8
7
Total number of issued shares
12
24
28
24. Initially, the applicant and Sonja Ractivand were the directors of AA Co. The applicant resigned from 30 June 2003 and the current directors are Sonja, Ronald Ractivand and Joan Clark (T86). AA Co’s main business activity is property rental (T23).
25. The applicant described AA Co as a means of managing assets that were intended by Mr Ractivand Snr for his grandchildren. The company was also perceived as becoming a source of income and employment for one or more of the applicant’s children. He said that when Nicholas needs to look for employment, it might be possible for him to work for AA Co managing real estate. The applicant stated AA Co’s assets also include some shares in IAG and Telstra and other assets such as plant and equipment, a computer, furniture and fittings and floor coverings.
26. In connection with his application for review by one of Centrelink’s review officers, the applicant was interviewed on 16 March 2004. The review officer noted that AA Co’s first major activity was to lend $50,000 to the applicant secured by second mortgage over the property at Noraville. The applicant used the funds to repay most of his loan from Westpac. AA Co’s next major endeavour occurred towards the end of 1995 when it purchased a share in the home unit at Leichhardt. It acquired an interest as co-owner with the applicant’s wife Andrea, in Elswick Court Pty Limited, the home unit company owning the property at Leichhardt. The unit’s total value was assessed at $200,000.
27. When the applicant appealed to the SSAT he forwarded the following submissions:
In the mid Nineties my then 94 y.o. Father, who still lives in Greece, decided that he wanted to prepare for the distribution of his estate to his grandchildren ‘according to their needs’.
… In a family council it was decided that the best way to provide for them, was to establish a company in which they were to be shareholders. The ultimate number of shares that each one of them should hold should be adjusted at a later date according to his wishes, and what, at that time, will be considered to be a fair distribution ‘according to their relative needs’. His funds would be made available to their Company as loans, thus allowing him or his executors to retain control over them, and receive interest to maintain their purchasing power despite inflation.
At the time this company was established, I was advised that if I wanted to help my children set-up their company, I had to be a director, and hold at least One Share in it. This I did, as it was entirely legal, and bore no penalty from Centrelink. It was however, not essential that I be involved in this company, and I certainly would not have done so if it was to disadvantage me.
…
The 50,000 – Mortgage that AA property gave me, was in the opinion of the Shareholders and Directors of the Company, a ‘safe’ investment in real estate, and returned a quite satisfactory interest rate of 10%. It is good when, satisfactory commercial outcomes can be had at the same time as serving other shareholder interests. In my case, preferring to owe money to my Children’s Company, rather than to a Bank.
In the case of the [Leichhardt] unit: AA property had insufficient funds to Purchase another investment outright, and was not in a position to service any substantial Bank loan. Therefore it seemed entirely reasonable to jointly purchase some real estate … It was also good to be able to help a family member at the same time as making a ‘Safe’ investment. Once again, the decision was reached after consultation between all shareholders and nobody was pressured to vote for something they considered ‘Unsafe’, or not giving a satisfactory return. The rental return on their $51,598.50 (Half Share) was $85-PW, or 8.57% Gross, or about 6% Net. For a Company owning and managing real estate this is quite a reasonable commercial return. (T61)
28. The applicant is AA Co’s sole employee. The employment agreement is not in writing. His evidence was that AA Co’s major decisions were made by the shareholders in consultation.
29. In 1995, Mr Ractivand Snr agreed to lend AA Co the sum of $50,000 (exhibit A3). AA Co lent the funds to the applicant, secured by mortgage over the Noraville property. The applicant said the original interest rate payable by him under the mortgage was 10 per cent per annum. He used the money to pay down his loan from Westpac. Subsequently, AA Co borrowed $100,000 from Mr Ractivand Snr. AA Co lent the $100,000 to the applicant and he “promptly sent the money to my father in Greece”.
30. Mr Ractivand Snr and the applicant’s sister, who also lives in Greece, opened an account at the Commonwealth Bank in late 1995. This account received funds from Mr Ractivand Snr.
31. On 10 April 2001 Mr Ractivand Snr and AA Co recorded an updated loan agreement (T17). The agreement noted that at the end of the 1999-2000 financial year, AA Co owed Mr Ractivand Snr approximately $124,000. The interest rate was 2 per cent a year, payable into his Commonwealth Bank account.
32. On 30 July 2003 Mr Ractivand Snr and AA Co recorded an updated loan agreement (T45). The agreement noted that at the end of the 2002-03 financial year, AA Co owed Mr Ractivand Snr approximately $125,340. The interest rate was set at 3 per cent a year.
33. The applicant wrote to AA Co on 15 September 2003 to request the company’s consent to varying the second mortgage over the Noraville property. He requested an increase in funds from $50,000 to $250,000, at an interest rate reduced from 10 per cent to 6 per cent per annum (T75). His then intention was to draw on these funds for an additional $100,000, at least initially. He noted that he would soon be discharging the first mortgage given to Westpac. He also requested AA Co give consideration to buying the applicant’s shares in Telstra and IAG. In cross-examination, he agreed that a reduction in interest rate from 10 to 6 per cent was not in the interest of AA Co. He maintained, however, that he was merely seeking a reduction to the prevailing commercial rate. To finance the applicant’s borrowing from the company of $100,000, AA Co itself had to borrow from Mr Ractivand Snr and pay interest at the rate of 4 per cent per annum. The applicant told the tribunal that he, not the directors of AA Co, approached his father for the loan of $100,000. There was another transaction in May 2004 involving a further advance of $100,000 by the company to the applicant (thereby completing a full draw down under the mortgage facility in place) using funds the company had again borrowed from the Mr Ractivand Snr. The applicant then used these funds to repay monies he owed his father. The applicant said the transaction had been organised in a series of phone calls between him and his father.
34. In December 1996, AA Co purchased its half share in the Leichhardt by borrowing $200,000 from Mr Ractivand Snr (exhibit A3). In oral evidence, the applicant said the company paid interest to his father of 2 or 3 per cent per annum. Since his former wife’s death on 24 January 2004, the unit at Leichhardt has been let, half of the rent being received by AA Co and the balance by her estate. He estimated that AA Co is receiving a 6 per cent return on the investment in the home unit.
35. The applicant said that AA Co has managed to purchase its assets – the debt owed by the applicant secured over Noraville and the Leichhardt unit - only through loans from Mr Ractivand Snr.
36. The applicant said that AA Co manages the letting of both properties, including his former wife’s estate interest in the unit. His employment duties include arranging any repairs required to the properties and this takes a few hours of his time every week. Although he consults with the shareholders and directors of AA CO, as the only employee he considers that the actual work of the company, including the work involved in borrowing funds from his father, falls to him.
37. Under amendments to the Social Security Act 1991 that took effect from 1 January 2002, entitlement to certain pensions, including the age pension, is subject to rules that take account of a person’s interest in a private company. I find that AA Co is a designated private company because it has fewer than 50 employees (s.1207N(1)(a)(iii) of the Act). The Act contains a control test in s.1207Q which reads:
Controlled private companies
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).
Control test
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
(b) the aggregate of:
(i) the direct control interests in the company that the individual holds; and
(ii) the direct control interests in the company held by associates of the individual;
is 15% or more; or
(c) the company is sufficiently influenced by:
(i) the individual; or
(ii) an associate of the individual; or
(iii) 2 or more entities covered by the preceding subparagraphs; or
(d) the individual (either alone or together with associates) is in a position to exercise control over the company.
38. On 30 June 2003 AA Co increased its issued capital by 12 ordinary shares, 6 each being issued to Ronald Ractivand and Sonja Ractivand (T47). Prior to that point, Nicholas held 8 of the 12 shares on issue. There was no evidence to the contrary that each ordinary share entitled the holder to one vote in general meeting. The applicant, a minority shareholder, would have been able to exercise control over the company together with Nicholas through their aggregate direct voting interests exceeding 50 per cent. The applicant, being his father and guardian, is an ‘associate’ of Nicholas per the definition of that term in s.1207C of the Act.
39. What then of the period since 30 June 2003? The applicant was no longer a director. A further four ordinary shares were issued. He would not be in a position to control AA Co with Nicholas. But the remaining shareholders, being the applicant’s children, are also his ‘associates’. I find, therefore, that the applicant through his own and his children’s voting interests in AA Co, passes the control test.
40. As AA Co is a controlled private company in relation to the applicant, he is an attributable stakeholder under s.1207X(1) of the Act. The applicant’s asset attribution percentage and income attribution percentage will be 100 per cent unless the respondent determines a lower percentage (s.1207X(1)(b)and (c) respectively). The respondent has not made such a determination. Indeed on 31 December 2003 the respondent made a determination (T51) that the applicant’s asset and income attribution percentages are 100 per cent. Subsection 1207X(5) provides that the respondent must comply with relevant decision-making principles if he makes a determination under s.1207X. The respondent may formulate written decision-making principles to be complied with in making such a determination (s.1209E(1)).
41. Mr Barber’s written submissions on 15 November 2004 expressly conceded that the applicant is the major attributable stakeholder in AA Co. In argument he conceded that the applicant now maintains control of the company because the applicant is the only person who has the experience, expertise and interest in controlling its affairs. I accept that submission and find that the applicant does continue to have control of the company’s decision-making. He has central role in the company’s affairs, whether investing in a home unit or buying shares from him, and arranging and negotiating the company’s borrowings from Mr Ractivand Snr. He is the only person on the company’s behalf who conducts the necessary discussions with his father about the amount to be lent and the interest rate payable. I am satisfied he has de facto control of AA Co’s affairs. Mr Barber submitted, however, that the applicant’s attribution percentage for income and assets of AA Co should be less than 100 per cent. His submission was that the shareholders in AA Co are benefiting from their father’s decision-making in that the company has acquired secured assets for the company.
42. The written principles formulated for the respondent’s decision-making in respect of ss.1207X(1)(b)(ii) and 1207X(1)(c)(ii) to determine a lower asset or income attribution percentage are contained in the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000 (T93). Clauses 15 (asset attribution percentage) and 24 (income attribution percentage) of the Principles state how the principles are to be applied. Clause 15 states:
15 Application
(1) This Part applies if, but for a determination by the Secretary, the asset attribution percentage of the attributable stakeholder, in relation to the company or trust, would be 100%.
(2) The Secretary must consider the relationship between the individual and the company or trust, having regard to 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 a percentage lower than 100% as the asset attribution percentage.
Clause 16 of the Principles refers to circumstances to be considered by the respondent:
16 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 have an asset attribution percentage of 100%.
(2) For subsection (1), 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 and, if so, the extent of that control.
Clause 25 similarly refers to circumstances to be considered in respect of the attributable stakeholder’s income attribution percentage that applies under clause 24.
43. Mr Kenny for the respondent submitted that the applicant has been and remains the guiding force of AA Co. He prepares all of its documents. His employment enables him to manage the company’s affairs. He has procured loans to enable the company to make loans to himself. He has arranged for the company to purchase shares in IAG and Telstra from him, presumably saving him a small brokerage fee. He receives most of the company’s net income through his remuneration and he is provided with the private use of the company’s assets including a computer, which is kept at his residence. He also has the use of the company’s motor vehicle. I accept the respondent’s submission.
44. Significantly, I note that despite the applicant’s no longer being a director or shareholder he managed to have AA Co reduce the interest rate on his borrowings from 10 per cent to 6 per cent with a further possible reduction to 4.8 per cent for timely interest payments (T76), although the company was under no obligation to do so. There was no facility for such variation under the terms of the original loan. The applicant reasoned that the interest reduction brought the applicable rate into line with what the banks were at that time charging and his borrowings had increased significantly. To lend these additional monies to the applicant, AA Co once again borrowed from the applicant’s father at an interest rate of 4 per cent. AA Co is still being managed for the convenience of the applicant.
45. Taking into account the evidence before me and considering the parties’ submissions, I am not satisfied that there are circumstances that make it inappropriate for the applicant’s asset and income attribution percentages to be 100 per cent.
46. The decision under review is affirmed.
I certify that the 46 preceding paragraphs are a true copy of the reasons for the decision herein of P.J.Lindsay, Senior Member
Signed: .....................................................................................
AssociateDate of Hearing 16 November 2004
Date of Decision 31 December 2004
Solicitor for the Applicant Mr T BarberRespondent’s Representative Centrelink
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