Raeth and Secretary, Department of Social Services (Social services second review)

[2016] AATA 235

Raeth and Secretary, Department of Social Services (Social services second review) [2016] AATA 235 (14 April 2016)

Division	GENERAL DIVISION
File Number(s)	2015/4676
Re	Daniela Raeth
APPLICANT
And	Secretary, Department of Social Services
RESPONDENT

DECISION

Tribunal	Senior Member A C Cotter
Date	14 April 2016
Place	Brisbane

The decision under review is affirmed

....................[sgd].................................

Senior Member A C Cotter

CATCHWORDS

Parenting Payment – assets value limit – whether loan to company included in assets value – whether loan could be deemed to no longer exist – where loan deemed to be recoverable – assets value limit exceeded – decision affirmed. 

LEGISLATION

Administrative Appeals Tribunal Act 1975 (Cth) s 34J
Social Security Act 1991 (Cth) ss 11, 500Q, 1122, 1129
Social Security (Administration) Act 1999 (Cth) ss 192, 196

CASES

Re Dolling and Secretary, Department of Social Security (1986) 11 ALN N129
Re Gibbons and Secretary, Department of Social Security (1986) 11 ALN N133

SECONDARY MATERIALS

Guide to Social Security Law

REASONS FOR DECISION

Senior Member A C Cotter

1. In October 2014, the Applicant, Mrs Daniela Raeth,[1] made a claim for Parenting Payment (Partnered).[2]

   [1] In this Decision and Reasons for Decision, the terms “Applicant” and “Mrs Raeth” are used interchangeably.

   [2] T Documents, T 10, page 75, electronic file note dated 22 October 2014.

2. Later that month, Mrs Raeth’s claim was rejected on the basis that the value of her and her husband’s assets was above the allowable limit to receive that payment.[3] Relevantly, their assessable assets included the amount of a loan that Mrs Raeth’s husband, Tobias, was said to have made to an associated company, Prager & Raeth Agriculture Pty Ltd (“Company”), of which he was the sole director and majority shareholder. That loan is central to this application.

   [3] T Documents, T 18 pages 123-124, letter from Centrelink to Mrs Daniela Raeth dated 28 October 2014.

3. A review by an Authorised Review Officer (“ARO”),[4] and a subsequent review by the Social Services & Child Support Division of this Tribunal (“SSCSD”),[5] affirmed the decision to reject the claim.

   [4] T Documents, T 20, pages 126-129, letter from ARO to Mrs Daniela Raeth dated 4 March 2015.

   [5] T Documents, T 2, pages 3-6, decision and reasons for decision of the Social Services & Child Support Division dated 5 August 2015.

4. Dissatisfied with the decision of the SSCSD, Mrs Raeth has applied to the General Division of this Tribunal for a review.

5. Both Mrs Raeth and the Secretary provided written consent for the Tribunal to review the decision on the papers provided to it, without holding a hearing. Being satisfied that the issues for determination on review could be determined in the absence of the parties, I was content to proceed on that basis.[6]

   [6] See Administrative Appeals Tribunal Act 1975 (Cth) s 34J.

6. Before I address the issues for consideration, I outline the key legislative provisions below.

   THE LEGISLATIVE FRAMEWORK

7. The starting point is s 500Q(1) of the Social Security Act 1991 (Cth) (“Act”), which provides that Parenting Payment is not payable to a person if the value of their assets exceeds their assets value limit. Subsection (3) contains a table of the assets value limits for a person who is a member of a couple; those limits are indexed annually. Relevantly, sub-s (4) goes on to provide that, for the purposes of sub-s (3), the value of the person’s assets includes the value of their partner’s assets.

8. At the date of the claim, the relevant assets value limit for a member of a couple (non-homeowner), such as Mrs Raeth, was $433,000.00.[7]

   [7] See A guide to Australian Government payments (20 September 2014 – 31 December 2014), 35/44: Attachment A to Secretary’s Statement of Facts and Contentions dated 28 January 2016.

9. “Asset” is defined in s 11(1) of the Act as meaning property or money (including property or money outside Australia). I consider that an outstanding loan made by a person is a chose in action and hence, is “property” for the purpose of that section.[8]

   [8] See, for example, Re Dolling and Secretary, Department of Social Security (1986) 11 ALN N129; Re Gibbons and Secretary, Department of Social Security (1986) 11 ALN N133.

10. Section 1122 of the Act specifically deals with loans:

    If a person lends an amount after 27 October 1986, the value of the assets of the person for the purposes of this Act includes so much of that amount as remains unpaid but does not include any amount payable by way of interest under the loan.

    ISSUES FOR THE TRIBUNAL

11. The issues which fall for my determination are as follows:

    (a)whether, as at the date of the claim, Mrs Raeth’s husband had an outstanding loan to the Company;

    (b)what amount of the loan remained unpaid at that date;

    (c)whether the loan to the Company is to be included in the assessed value of Mrs Raeth’s assets at the date of the claim; and

    (d)whether, at the date of the claim, the value of Mrs Raeth’s assessable assets exceeded the allowable assets limit.

    I deal with these issues below.

    CONSIDERATION

    Did Mr Raeth have an outstanding loan to the Company at the date of the claim?

12. Although the material before me contains a number of inconsistencies, I am satisfied, after considering the entirety of the evidence, that Mr Raeth did have an outstanding loan to the Company at the time that his wife made the claim for Parenting Payment.

13. An earlier claim was made by Mrs Raeth in September 2014, but was subsequently withdrawn before the current claim was lodged. In the “Mod iA-Income and Assets” form completed by both Mr and Mrs Raeth in support of that earlier claim, the question was asked whether Mrs Raeth and/or her partner “have money on loan to another person or organisation”. The question went on to direct applicants to “include all loans, whether they are made to family members, other people or organisations, or trusts”. Mr and Mrs Raeth responded “no” to the question by marking the appropriate box.[9]

    [9] T Documents, T 12, page 84, Mod iA –Income and Assets form dated 28 September 2014.

14. A “Mod PC- Private Company” form in respect of the Company, completed on the same date, asked if it owed money to anyone, including associates (which included directors and shareholders who were listed in the form, such as Mr Raeth). The question went on to highlight that the expression “money owed by the company” included “loans made to the company”. Again, the “no” box was marked in response.[10]

    [10] T Documents, T 14, page 105, Mod PC- Private Company form dated 28 September 2014.

15. A Complex Assessment Officer of the Department who examined the relevant documents noted that the Company’s 2013 financial statements showed that Mr Raeth had a loan to the Company of $798,378.00, which would be assessed as a financial asset of Mrs Raeth[11].

    [11] T Documents, T 10, page 76, electronic file note dated 8 October 2014.

16. Later in October 2014, when Mrs Raeth submitted the claim which is the subject of the current application, she disclosed  total savings by her and her husband of $800,178.00 (including the $798,378.00 investment/account styled “Prager & Raeth/Trust and Company”), as well as household and personal effects of $25,000.00.[12] 

    [12] T Documents, T 16, page 120, online claim for Parenting Payment dated 22 October 2014.

17. That form was presumably relied upon by the original decision maker in rejecting Mrs Raeth’s claim on the basis that her assessable assets were valued at $825,178.00.[13]

    [13] See Centrelink letter to Mrs Daniela Raeth dated 28 October 2014: T Documents, T 18, page 123.

18. Following the ARO’s decision in March 2015, Mrs Raeth wrote to the Department, inquiring about a reconsideration of that review decision based on fresh information. In her letter, Mrs Raeth confirmed that while there was a total loan of $798,378.00 to the Company, the lenders were in fact Mr Raeth and his mother, Ingrid Raeth.[14] The Company’s 2014 financial statements were attached, showing that, compared with the previous year, her husband had lent $281,349.00 to the Company, while his mother had lent the balance of $509,000.00, giving a total amount lent to the Company by them of $790,349.00 (or some $8,000.00 less than the total loan disclosed for the previous year).[15]

    [14] T Documents, T 21, pages 131-132, letter from Mrs Daniela Raeth to the Department of Human Services dated 27 April 2015.

    [15] T Documents, T 22, page 141, Prager & Raeth Agriculture Pty Ltd, financial statements for year ended 30 June 2014.

19. Following a request made by the presiding member at the SSCSD hearing, Mrs Raeth provided further material in August 2015. That revealed loans from Mr Raeth and his mother over the years totalling $787,200.00.  Of that amount, $506,000.00 was described as having been lent by Ingrid Raeth, with the balance of $281,200.00 contributed by Mr Raeth.[16]

    [16] T Documents, T 23, pages 150-229, email from Mrs Daniela Raeth to Brisbane Registry of the Social Services & Child Support Division dated 3 August 2015, with attachments.

20. In view of the inconsistencies in the evidence, the Secretary issued an Information Notice to the Company’s accountant in October 2015.[17] Mr Gaetano Astone, the principal of La Faro Accountants and Advisers, responded by facsimile in November 2015. He stated that he had taken over as the Company’s accountant in the 2009 financial year. The loan balance had always been shown in the accounts as a loan from Mr Raeth. Mr Astone did not expressly seek to confirm the origins of the loan funds over time, and assumed that they were a continuation of Mr Raeth’s loan. Nor did he seek to confirm the financial resources that Mr Raeth was drawing on to support the Company financially.

    [17] See Social Security (Administration) Act 1999 (Cth) ss 192, 196.

21. It was during a discussion that Mr Astone had with Mr Raeth concerning the 2014 accounts that he was informed that the description of the loan in the financial statements was incorrect, and that in fact, not all the funds lent to the Company had been provided by Mr Raeth. Rather, the funds had been loaned by Mr Raeth and his mother. On the information provided to Mr Astone, $509,000.00 was originally loaned by Ingrid Raeth. The loan account was therefore split to reflect the various sources of funding.[18]

    [18] Facsimile, Mr Gaetano Astone to Mr Joe Guthrie dated 10 November 2015: Attachment C to Secretary’s Statement of Facts and Contentions dated 28 January 2016.

22. Mr Astone also produced an email from Mr Raeth which attached a list of funds paid by his mother into the Company. Relevantly, it noted:

    (t)he top part was a [sic.] initial $100,000 for purchase of the farm. Then there is a further $50k from 2007 to 2009. These fund [sic.] are all called donations or gifts. The lower part with the $359k is titled as an investment.[19]

    [19] Email Mr Tobias Raeth to Mr Gaetano Astone dated 22 March 2015: see Attachment C to Secretary’s Statement of Facts and Contentions dated 28 January 2016 (emphasis added).

23. The email attached an unsigned document written in German that purported to be an agreement between Mr Raeth and his mother on 5 December 2014. Based on that document, it appears that Ingrid Raeth lent $359,000.00 to the Company, with the balance of $150,000.00 having been gifted or donated to her son.

24. In November 2015, the Secretary’s lawyer wrote to the Applicant and specifically referred her to Mr Raeth’s March 2015 email to Mr Astone, pointing out that only $359,000.00 of the $509,000.00 appeared to be an investment, with the balance being a donation. While it appears that Mrs Raeth did not respond directly to that assertion, I note that what purports to be a statutory declaration by Ingrid Raeth was lodged with the Tribunal a few days later. It was dated the same day as the purported German agreement was entered into, but curiously stated that Ingrid had provided the Company “with a loan of AU$509,000.00 with intention of repayment”.[20]

    [20] Document titled “statutory declaration” of Ingrid Doris Luise Raeth dated 5 December 2014.

25. That is to be contrasted with the Applicant’s letter to the Tribunal of 12 January 2016, in which she made reference to the fact that before the Company could be wound up, various liabilities would have to be repaid, including the $359,000.00 loan from Ingrid.[21]

    [21] Letter, Mrs Daniela Raeth to Tribunal dated 12 January 2016.

26. As I mentioned earlier, there are significant inconsistencies in the evidence. A number of them are difficult, if not impossible, to reconcile. However, what can be said with confidence is that Mr Raeth had, at the time of his wife’s claim, a significant outstanding loan to the Company. The question next arises as to the amount of that loan at the relevant date.

    What amount of Mr Raeth’s loan remained unpaid at the date of claim?

27. As I have noted already, the inconsistency in the evidence extends not only to the  amount loaned to the Company by each of Mr Raeth and Ingrid Raeth, but also to the total amount said to have been lent by them.

28. The material provided to the SSCSD put the total loan at $787,200.00. In the Company’s 2014 financial statements, that figure was shown as totalling $790,349.00, whereas in the financial statements of the preceding year, the total was shown as $798,378.00. Without undertaking an exhaustive financial analysis, it is impossible to reconcile those figures. However, for present purposes, it can be said with some confidence that the total loans made by Mr Raeth and his mother to the Company were in the vicinity, in round terms, of approximately $790,000.00. That equates with the most recent financial statements produced by the accountant after the agreement between Mr Raeth and his mother was apparently reached. Using that “midway” figure also affords the Raeths the benefit of any doubt.

29. What can also be said with some confidence is that as at the time of the claim, Ingrid Raeth had lent an amount of at least $359,000.00 to the Company. That figure was nominated by Mr Raeth to the accountant as the “investment” reflected in the agreement which he apparently entered into with his mother on 5 December 2014. It is also the amount most recently described by the Applicant as the amount of the loan to be repaid to her mother-in-law.

30. It can also be confidently said that Mr Raeth’s loan to the Company was at least $281,200.00.[22] That is the amount identified in the material provided in the context of the SSCSD’s review and repeated by the Applicant in her most recent correspondence to the Tribunal. With those amounts accepted, it remains to consider the characterisation of the balance of the loan, $150,000.00 (in round terms). 

    [22] There are some slight discrepancies in the evidence concerning this amount, with another reference being to an amount of $281,349.00. That discrepancy is not material for present purposes.

31. Mr Raeth’s email of 22 March 2015 to the accountant, Mr Astone, describes that amount as “donations or gifts”, as distinct from an “investment”. From the purported German agreement attached to that email, a distinction also appears to be drawn between the former amounts, deposited to Mr Raeth’s account, as opposed to the latter, paid to the Company’s account.

32. Based on that explanation, the Secretary’s lawyers wrote to the Applicant on 23 November 2015, contending that only $359,000.00 of the $509,000.00 received from Ingrid Raeth was an investment in the Company, with the remaining $150,000.00 being a donation or gift to Mr Raeth. The Applicant does not appear to have made a direct response to that contention.[23]

    [23] See Secretary’s Statement of Facts and Contentions dated 28 January 2016, [49].

33. The only evidence which suggests the contrary is what purports to be a statutory declaration by Ingrid Raeth made on 5 December 2014 (the date of the purported German agreement referred to earlier) but lodged with the Tribunal on 27 November 2015. That states that she provided the Company “with a loan of AU$509,000.00 with intention of repayment.” However, it does not refer to the basis of that assertion or seek to explain the discrepancy between that statement and the purported agreement of the same date. Nor does it attach any supporting material which corroborates the statement. The document was not witnessed or notarised, and no substantive reference has otherwise been made to it by or on behalf the Applicant. On the contrary, in her letter to the Tribunal of 12 January 2016, the Applicant contradicted her mother-in-law, making the following observation:

    For a better understanding of the fact that my husband will never get his loan back from the company I want to show you a little calculation. The company Prager & Raeth Agriculture Pty Ltd doesn’t have any other current assets than the macadamia farm…except for a motor vehicle which still has to be paid off to NAB and a 2 year old laptop. If we can sell the macadamia farm to the people interested for the price agreed on, the company still has the following liabilities before we can wind it up:

    NAB mortgage  $160,000.00

    NAB account overdraft               $50,000.00

    Repayment loan Ingrid Raeth    $359,000.00

    TOTAL  $569,000.00

34. In view of the contradictions with other evidence, the lack of detail and corroborating material, and the fact that the document is unwitnessed and not notarised, I am unwilling to attach any significant weight to it.

35. Having considered the evidence before me, I do not consider that the $150,000.00 amount in question was a loan made by Ingrid Raeth to the Company. Rather, it appears that amount was provided as a gift to her son, without any intention that it be repaid. While he may have in turn used those funds to make additional loans to the Company, that was a matter for him. Any such loan would have been made by him, regardless of from where he originally derived the funds.

36. In any event, for present purposes, I do not think it is necessary to undertake a detailed forensic examination of the source of the funds and the use to which they were put. Giving the Applicant the benefit of any doubt, I have accepted that a total of at least $790,000.00 was lent to the Company by Mr Raeth and Ingrid Raeth. Of that amount, $359,000.00 (in round terms) was lent by the latter, leaving an amount of $431,000.00 (in round terms) lent by Mr Raeth.

37. I am therefore satisfied that at the relevant time, Mr Raeth was owed an amount of at least $431,000.00 by the Company.

    Was Mr Raeth’s loan to be included in the assessed value of Mrs Raeth’s assets?

38. It was contended by the Applicant that her husband’s loan to the Company could not be considered an asset as that money “has been used over the years to operate the business and is gone (since 2012 by the way).”[24] On that basis, she submitted that, in accordance with the Guide to Social Security Law (“Guide”),[25] the loan should be treated as no longer existing and therefore, its amount should be disregarded and not taken into account in considering the value of her assets.

    [24] Letter, Mrs Daniela Raeth to Administrative Appeals Tribunal dated 12 January 2016, second page.

    [25] See 4.6.5.65 Loans that No Longer Exist.

39. The Guide notes that for social security purposes, there are some situations where a loan is treated as no longer existing, essentially because they are irrecoverable. Examples given in the Guide include: where the borrower is bankrupt or enters into some debt agreement under the bankruptcy legislation; where the borrower is a company and is wound up and the lender has no recourse to enforce the loan contract against the directors; where the corporate borrower is in the process of irreversible winding up; where the corporate borrower is in administration and subsequently placed in liquidation; and where the relevant limitation period has expired.

40. Having considered the Guide, I am not satisfied that any of the examples are applicable in this instance. Further, I agree with the Secretary’s submission[26] that the common thread linking the examples is that they all require a permanent inability to recover the loan. Until the Company is wound up, the debt remains recoverable and it would be open for Mr Raeth to demand repayment. It is irrelevant that the Company has fully utilised the monies lent to it; its obligation to repay the loan remains. For those reasons, I do not believe that the loan could be considered to have ceased to exist.

    [26] See Secretary’s Statement of Facts and Contentions dated 28 January 2016, [30].

1. In this context, I also note that the Applicant did not apply for consideration under s 1129 of the Act.[27] As there was no application made, the financial hardship provisions could not apply.

   [27] Ibid, [32].

2. It follows from what I have said that Mr Raeth’s loan should not be disregarded when determining the value of his wife’s assets at the relevant time.

   Did the value of Mrs Raeth’s assessable assets exceed the allowable assets limit?

3. I have already concluded that the value of Mr Raeth’s loan to the Company was an asset and that its value was at least $431,000.00.

4. In addition to that asset, the online claim detailed that at the time Mr and Mrs Raeth had other savings totalling $1,800.00, as well as household and personal effects valued at $25,000.00.

5. On that basis, I calculate that, at the relevant time, the value of Mrs Raeth’s assets was at least $457,800.00.

6. The value of Mrs Raeth’s assets therefore exceeded the allowable assets limit at the time, namely $433,000.00

   CONCLUSION

7. To summarise, I find that at the relevant time, Mr Raeth had an outstanding loan to the Company of at least $431,000.00. I do not believe that the loan could be considered to no longer exist under the Guide. In those circumstances, and having regard to the value of Mr and Mrs Raeth’s other assets at the time, I consider that the value of Mrs Raeth’s assets exceeded the allowable limit for assets. As a consequence, Parenting Payment was not payable to Mrs Raeth at the relevant time.

8. The decision under review is affirmed.

I certify that the preceding 48 (forty -eight) paragraphs are a true copy of the reasons for the decision herein of Senior Member A C Cotter

..........................[sgd].......................................

Associate

Dated 14 April 2016

Date(s) of hearing

Hearing on the papers

03/03/2016