Re Clayton and Secretary, Department of Family and Community Services

[2003] AATA 1225

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2003] AATA 1225

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No N2002/1206, N2002/1207

GENERAL ADMINISTRATIVE  DIVISION		)
Re		PETER CHARLES CLAYTON EILEEN CLAYTON

Applicants

And SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES

Respondent

DECISION

Tribunal Ms J A Shead, Member

Date4 December 2003 

PlaceSydney

Decision The decision under review is affirmed.

[Sgd] J A Shead
  Member

CATCHWORDS

SOCIAL SECURITY – income and assets - income test – whether financial assets - whether loans should be treated as assets - age pension - whether arrears payable – no application for hardship – age pension – assets disregarded as unrealisable assets - whether deemed income under section 1077

LEGISLATION

Social Security Act 1991 - sections 9(1), 11(12), 11(13), 1077(1), 1077(2), 1077(3), 1084 and 1122

REASONS FOR DECISION

4 December 2003 Ms JA Shead, Member      

1.      This is an application for review to the Administrative Appeals Tribunal (“the Tribunal”) by Peter Charles Clayton (Mr Clayton) & Eileen Clayton (Mrs Clayton) (collectively “the Claytons”) of decisions of the Social Security Appeals Tribunal ("the SSAT") dated 21 May 2002 and 30 May 2002 respectively. The SSAT affirmed decisions made by an Authorised Review Officer (“ARO”) of the Secretary of the Department of Family and Community Services (“the Respondent”) on 13 May 2002 & 13 June 2002 to no longer treat a loan as a financial asset from 18 February 2002.

2.      A hearing was held before the Tribunal on 9 April 2003.  Mr Clayton represented himself and his wife Mrs Clayton.  A departmental advocate, Mr John Kenny, represented the Department.   Mr Clayton gave oral evidence.

2. The Tribunal took into evidence documents submitted pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 ("the T documents”, and numbered T1 – T79). The following exhibits were also tendered to the Tribunal:

Exhibit	Description	Date
R1	Respondent’s Statement of Facts & Contentions	2 December 2000
A1	Applicant’s Submissions	23 October 2002
A2	Applicant’s Submissions	21 January 2002
A3	Applicant’s Submission	9 April 2003

3.      By way of background, the Tribunal finds the history of the matter from the T documents as follows:

(a)On 2 July 1998 Mr Clayton lodged a Claim for Pension, in particular an aged pension (T5).

(b)On 31 January 2001 a data match revealed the Claytons were shareholders in Pempete Pty Limited  (“Pempete”).

(c)In response to the Respondent’s request (T11), on 13 March 2001 the Claytons completed a Private Company form concerning Pempete (T12), and attached Pempete’s profit and loss and balance sheet for 1 July 1997 to 30 June 1998.

(d)On 15 August 2001, the Respondent’s Complex Assessment Officer reported a $31,106 loan (“the loan”) by the Claytons to Pampete for 1 July 1997 to 30 June 1998 (T22).

(e)On 4 September 2001, the Respondent’s letters to the Clayton’s notified them of the Respondent’s decision to reduce their respective pensions because of the loan (T26, T27).

(f)On 2 October 2001 Mr Clayton requested the Respondent review that decision and he stated that the loan had come about by Pempete’s accountants writing off goodwill (T28).

(g)On 11 December 2001 an ARO confirmed the decision to include the loans to Pampete in the Clayton’s total assets, relying on section 1122 of the Social Security Act 1991 (“the Act”).

(h)On 6 February 2002 the Clayton’s lodged an appeal with the SSAT.

(i)On 18 February 2002 Mr Clayton’s letter to the Respondent enclosed an undated instrument headed “Debt Foregiveness” and Pempete’s amended balance sheet for 1 July 1997 to 30 June 1998 (T56).

(j)On 27 February 2002 the Respondent’s letter advised the Claytons that the loan was no longer included in the assessment and resulted in an increase in their pension, effective 17 February 2002.

(k)On 6 March 2002 the Claytons sought arrears of pension (T62).

(l)On 28 March 2002 the Respondent’s letter advised Mr Clayton that until he formally forgave the loan to Pempete, the loan was regarded as a financial asset under section 9(1) of the Act (T65).

(m)On 6 May 2002, Mr Clayton’s telephone call requested an ARO review of that decision.

(n)On 7 May 2002 the Respondent’s letter advised Mr Clayton that the date of his letter advising the loan forgiveness was the effective date to cease assessing the loan to Pempete under section 110(1) of the Act (T70).

(o)On 13 May 2002 and 13 June 2002 ARO’s affirmed that the adjustment in the rate of the pension was correctly made from 18 February 2002 (T72, T77).

4.      The SSAT did not alter that decision, for the reason set out in paragraphs 8 to 16 of its decision:

“8.The Tribunal examined the above provisions. Section 1122 of the Act provides that the value of a person’s assets includes so much of that amount of a loan as remains unpaid.

9. In his letter of 2 October 2001 Mr Clayton submitted that the loan was really for only $1,106. The balance of the loan account was an accounting fiction of $30,000 caused by the writing off of an intangible asset, “Goodwill”.. Moreover, Mr Clayton submitted that the asset that was written off never existed, it was a fiction created at the commencement of the business and written off during the course of the business. The shareholder loan value, on the other hand, had been progressively inflated by the writing off of the “Goodwill”. In effect, Mr Clayton was arguing that the writing of a fictitious asset gave rise to an inflated non-existent loan.

10. On the Centrelink file, a balance sheet for the company as at 30 June 1998 shows that the company had borrowings of $31,106. Note 9 of the accounts show that the company’s borrowings were a loan from the shareholders of Peter and Eileen Clayton. This balance sheet was submitted to Centrelink as an attachment to a letter from Mr Clayton, as director of Pempete Pty Limited, dated 13 March 2000. In a second balance sheet for the company for the year ending 30 June 1998, which was an attachment to Mr Clayton’s letter of 6 February 2002, and apparently prepared after the debt forgiveness, the amount of the company’s borrowings are shown as nil.

11.In the view of the Tribunal, Centrelink was entitled to rely upon documents provided to it by Mr and Ms Clayton. Prior to 2002 Centrelink was given company accounts that showed a loan was in existence. During October 2001 Mr and Ms Clayton claimed that the loan did not exist. They provided no evidence, such as that of an accountant, which revealed that:

i.no loan existed;

ii.the asset “goodwill” was a fiction;

iii.the loan was as a result of a non-existent asset being written off; and,

iv.the balance sheet produced at 13 March 2000 was not reliable or   accurate prior to the loan being forgiven.

Asserting or submitting that a state of affairs exists is not sufficient to prove the same. Evidence of some probative value needs to be put forward so that a decision-maker can rely upon it. During October 2001 the only evidence before Centrelink was a balance sheet of the company disclosing that there was a loan owing to the company to Mr and Ms Clayton, and Centrelink was entitled to continue to treat the loan as being in existence and the amount unpaid being as set out in the accounts.

12.There being a loan in existence, until February 2002 that loan was a financial asset under the provisions of section 9 of the Act, as it was not repaid in full. Even if a loan cannot be repaid, the unpaid amount still is to be treated as an asset (Wright v SDSS 82 SSR 1196) even if this produces unjust results in some circumstances (Re Boyd and SDSS 83 SSR 1221). The effect of this is that pursuant to subsection 1077(2), there being a financial asset, it is taken, for the purposes of the Act, that Mr and Ms Clayton received a deemed return on those assets which affected their rate of pension.

13.While it was possible, for the purposes of the Act, for Centrelink to disregard the loan prior to February 2002 pursuant to section 11 of the Act and otherwise, it could only do so if cogent, probative evidence was provided that the loan did not exist. No such evidence was put before it prior to February 2002. The letter of October 2001 did not provide or amount to such evidence. The only such evidence was that provided on 18 February 2002 that caused Centrelink to disregard the loan from that day.

14.Mr Clayton submitted to the Tribunal that he should have been told by Centrelink that, if the debt was forgiven, it would not have been deemed to be making a return. While this is noted, such a submission is not one upon which the Tribunal can base an order to vary or set aside the decision under review. While it is reasonable to expect that Centrelink officers give advice to its clients that is to the clients’ advantage, whether in this case there was a duty to do so that may result in compensation for pension not paid as a result is not a matter that the Tribunal can lawfully investigate or make an order about, being outside the scope of Subdivision B, Division 3, Part 4 of the Social Security (Administration) Act, 1999.

15.Mr Clayton having informed Centrelink that the loan had been forgiven on 18 February 2002, then the decision to not treat the loan as a financial asset can only apply from that day pursuant to subsection 110(1) of the Social Security (Administration) Act, 1999.

16. Finally, the Tribunal notes that no determination pursuant to section 1084 relevant to this matter has been made.”(T2)

5.      In the Application for Review to the Tribunal for review of the SSAT decision, the reasons for the Application were (T1):

“I wish to have this decision reviewed, which denies me refund of pension deductions made erroneously by Centrelink…..”

ISSUE BEFORE THE TRIBUNAL

6.      It was agreed that the issue is whether the Clayton’s are entitled to 151 days arrears of pension.

LEGISLATION

The legislation relevant to the Tribunal’s determination of this matter is as follows:

“Social Security Act 1991:

Section 9                  Financial assets and income streams definitions

Section 9(1)              In this Act, unless the contrary intention appears:

approved deposit fund means a fund that is an approved deposit fund for the purposes of Subdivision AA of Division 2 of Part III of the Income Tax Assessment Act.

assessable growth component, in relation to an amount of superannuation benefit, means so much (if any) of the return as is attributable to the assessable period.

assessable period, in relation to a person, means any period during which the person received:

(a)       a social security or service pension; or

(b) a social security benefit or a youth training     allowance; or

(ba)      a job search allowance; or

(c)       a non-benefit PP (partnered); or

(d) a non-benefit parenting allowance; except any such period that occurs before a continuous period of at least 2 years during which the person did not receive that a pension, benefit, allowance or payment.

Note:   For social security pension see subsection          23(1).

asset-test exempt income stream has the meanings given by sections 9A and 9B.

asset-tested income stream (long term) means an income stream that:

(a) is not an asset-test exempt income stream; and

(b) has, on its commencement day:

(i)        a term of more than 5 years; or

(ii) if the person who has acquired the income stream has a life expectancy of 5 years or less – a term equal to or greater than the person’s life expectancy.

asset-tested income stream (short term) means an income stream that is neither:

(a)       an asset-test exempt income stream; nor;

(b)       an asset-tested income stream (long term).

ATO small superannuation account means an account kept in the name of an individual under the Small Superannuation Accounts Act 1995.

commencement day, in relation to an income stream, means the first day of the period to which the first payment under the income stream relates.

deductible amount in relation to an income stream, means the amount that would be the deductible amount in relation to the income stream under subsection 27H(2) of the Income Tax Assessment Act, if the references in that subsection to an annuity were references to an income stream.

deferred annuity means an annuity that is deferred annuity for the purposes of Subdivision AA of Division 2 of Part III of the Income Tax Assessment Act.

defined benefit income stream has the meaning given by subsection (1F).

deprived asset has the meaning given by subsection (4).

financial asset means:

(a)       a financial investment; or

(b)       a deprived asset.

Note:   For deprived asset see subsection 994).

financial Investment means:

(a)       available money; or

(b)       deposit money; or

(c)       a managed investment; or

(d)       a listed security; or

(e)       a loan that has not been repaid in full; or

(f)        an unlisted public security; or

(g)       gold, silver or platinum bullion; or

(h)       an asset-tested income stream (short term).

friendly society means:

(a) a society registered as a friendly society under a law in force in a State or Territory; or

(b)a society that had, before 13 December 1987, been approved for the purpose of the definition of friendly society in subsection 115(1) of the 1947 Act.

governing rules, in relation to an income stream, means any trust instrument, other document or legislation, or combination of them, governing the establishment and operation of the income stream.

income stream means:

(a)an income stream arising under arrangements that are regulated by the Superannuation Industry (Supervision) Act 1993; or

(b) an income stream arising under a public sector scheme (within the meaning of that Act); or

(c)an income stream arising under a retirement savings account; or

(d) an income stream provided by a life insurance business (within the meaning of the Life Insurance Act 1995); or

(e)an income stream provided by a friendly society (within the meaning of the Income Tax Assessment Act); or

(f)an income stream designated in writing by the Secretary for the purposes of this definition, having regard to the guidelines determined under subsection (1E);

but does not include any of the following:

(g)       available money;

(h)       deposit money:

(i)        a managed investment;

(j)        a listed security;

(k)       a loan that has not been repaid in full;

(l)        an unlisted public security;

(m)      gold, silver or platinum bullion.

investment:

(a)in relation to a superannuation fund, approved deposit fund or deferred annuity – has the meaning given by subsection (9); or

(b)in relation to an ATO small superannuation account –  has the meaning given by subsection 9(A).

investor, in relation to an ATO small superannuation account, means the person in whose name the account is kept.

life expectancy has the same meaning as life expectation factor has in section 27H of the Income Tax Assessment Act.

listed security means:

(a)       a share in a company; or

(b)       another security;

listed on a stock exchange.

managed investment has the meaning given by subsections (1A), (1B) and (1C).

pensioner couple means a couple, one or both of the members of which are receiving a social security pension, a service pension or a rehabilitation allowance.

public unit trust means a unit trust that:

(a)except where paragraph (b) applies – was, in relation to the unit trust’s last year of income, a public unit trust for the purposes of Division 6B of Part III of the Income Tax Assessment Act; or

(b)where the first year of income of the unit trust has not yet finished – has, at some time since the trust was established, satisfied at least one of the paragraphs of subsection 102G(1) of the Income Tax Assessment Act.

purchase price, in relation to an income stream, means the sum of the payments made to purchase the income stream (including amounts paid by way of employer and employee contributions) less any commuted amounts.

realise, in relation to an investment, has the meaning given by subsections (10) and (11).

relevant number, in relation to an income stream, means:

(a)if the income stream is payable for a fixed number of years – that number; or

(b)if the income stream is payable during the lifetime of a person and no longer – the number of years of the person’s life expectancy; or

(c)       if the income stream:

(i)is jointly owned by a person and his or her partner and is payable for the lifetime of the person or the partner; or

(ii)is payable during the lifetime of a person and then for the lifetime of a reversionary beneficiary;

the number of years of the longer of the relevant life expectancies; or

(d)in any other case – the number of the Secretary considers appropriate having regard to the number of years in the total period during which the income stream will be, or may reasonably be expected to be, payable.

residual capital value, in relation to an income stream, has the meaning that it has in Subdivision AA of Division 2 of Part III of the Income Tax Assessment Act.

retirement savings account has the meaning that it has in the Retirement Savings Account Act 1997.

return:

(a)in relation to an ATO small superannuation account – means so much of the balance of the account is attributable to interest; or

(b)in relation to any other investment in the nature of superannuation – means any increase, whether of a capital or income nature and whether or not distributed, in the value or amount of the investment.

superannuation benefit, in relation to a person, means:

(a)a benefit arising directly or indirectly from amounts contributed (whether by the person or by any other person) to a superannuation fund in respect of the person; or

(b)a payment under Part 7 of the Small Superannuation Accounts Act 1995, where the payment is in respect of an ATO small superannuation account kept in the name of the person.

superannuation contributions surcharge has the meaning that it has in the Superannuation Contributions Tax (Assessment and Collection) Act 1997.

superannuation fund means:

(a)a fund or scheme included in the definition of superannuation fund in subsection 27A(1) of the Income Tax Assessment Act, other than a fund covered by subparagraph (a)(ia) of that definition; or

(b)an eligible resident non-complying superannuation fund within the meaning of the Income Tax Assessment Act.

unlisted public security means:

(a)       a share in a public company; or

(b)       another security;

that is not listed on a stock exchange.

Section 11(12)          An asset of a person is an unrealisable asset if:

(a)the person cannot sell or realise the asset; and

(b)the person cannot use the asset as a security                    for borrowing.      

Section 11(13) For the purposes of the application of this Act to a social security pension (other than a pension PP (single)), an asset of a person is also an unrealisable asset if:

(a) the person could not reasonably be expected to sell or realise the asset; and

(b) the person could not reasonably be expected to use the asset as a security for borrowing.

Section 1077            Deemed income from financial assets – members of pensioner couples

Section 1077(1)        This section applies to the members of a pensioner couples.

Note:The whole of Division 1B does not apply when working out a person’s ordinary income to find whether the person satisfies the farmers’ income test for the purposes of Part 3.14A (see paragraphs 1185K(2)(a) and (3)(a)).

Section 1077(2)        If one or both of the members of a couple have financial assets, the members of the couple are taken, for the purposes of this Act, to receive together ordinary income on those assets in accordance with this section.

Section 1077(3)        If the total value of the couple’s financial assets is equal to or less than the couple’s deeming threshold, the ordinary income the couple is taken to receive per year on the financial assets is the amount worked out by multiplying the value of those assets by the below threshold rate.

Section 1084            Certain money and financial investments not taken into account

Section 1084(1)        The Minister may determine that:

(a)specified financial investments; or

(b)a specified class of financial investments;

are not to be regarded as financial assets for the purposes of section 1076, 1077 or 1078.

Section 1084(3)        A determination under subsection (1) must be in writing.

Section 1084(4)        A determination under subsection (1) takes effect on the day on which it is made or on such other day (whether earlier or later) as is specified in the determination

Section 1122            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.”

EVIDENCE 

7.      During his oral evidence, Mr Clayton confirmed that on the Income and Investments questionnaire (T5), he ticked “No” to the question whether he owned any shares. He also confirmed that when he claimed the pension he owned one share in Pempete.   Mr Kenny put to Mr Clayton that in answer to question 22 “Do you own any shares in a private company not listed on a stock exchange?”, Mr Clayton could have put “1”.  Mr Clayton stated:  “Yes” and stated words to the effect “I was not interested, I was only concerned with real assets.”

8.      Mr Kenny put to Mr Clayton: “You had no concept of unrealisable asset in terms of the Social Security Act at the time the pension was claimed?” and Mr Clayton stated “No”. 

9.      Concerning the amended balance sheet at T59 folio 169, Mr Kenny also asked Mr Clayton “That does not represent the circumstances as at 30 June 1998 but February 2002?” and Mr Clayton replied “As a result of the forgiveness of the loan that would be the result.” 

10.     Mr Kenny asked Mr Clayton “Is it right that you have never made a hardship application or applied to the Minister to disregard the asset ?”  Mr Clayton stated “Yes I never made those”.

SUBMISSIONS

11.     The parties submissions were contained in the exhibits.

12.     Mr Clayton’s submission dated 23 October 2002 was that sections 11(12) & 11(13) applied to him, and in particular he stated “Had Centrelink applied section 11(13) to the information provided on 13 March 2001, (refer to documents T3, T4, T12 and covering letter as Appendix 2 in letter dated 8 October 2002 to the AAT Tribunal) then from 20 September 2001 this financial asset complied fully with section 11(13) requirements as an unrealisable asset, and deeming of this asset must cease.” (Exhibit A1)  Mr Clayton’s submissions dated 21 January 2003 (Exhibit A2), re-phrased the Respondent’s Statement of Facts and Contentions (Exhibit R1). Mr Clayton’s submission dated 9 April 2003 reiterated that the loan “complied fully with the Social Security Act 1991 definition as an unrealisable asset and eligible for automatic exemption from deeming as from 20 September 2001” (Exhibit A3).

CONSIDERATION

13.     The Tribunal has reached a decision in this matter, taking into account the oral and documentary evidence, the submissions and the legislation.

14. The Tribunal’s findings are firstly that the loan was a financial asset for the purposes of the Act (section 9(1)), and the loan, valued in accordance with section 1122, the "value" of such asset to be regarded as a normal financial asset, and taken into account by calculating the deemed annual rate of ordinary income pursuant to section 1077 thereby liable for assessment in the Clayton’s pension entitlement.

15. Secondly, the Clayton’s made no application for hardship under the Act. Section 1129 of the Act requires that an application for hardship be lodged with the Secretary to activate the hardship provisions. The definitions of “unrealisable assets” in section 11(12) & 11(13) concern applications for hardship. Accordingly the definitions have no relevance to the Claytons’ matter.

16.     The Social Security & Veterans’ Entitlement  (Private Trusts & Private Companies – Integrity of Means Testing) Act 2000, No 132 of 2000, took effect on 1 January 2002.  From that date it become possible for the Claytons to forgive the loan without the amount being assessed as a deprived asset and liable to be included as deemed income of the Claytons for the following 5 years.

17.     Thirdly the Claytons forgave the loan on 18 February 2002 that being the date they “so informed the Department” (per section 110(1) being in the Social Security (Administration) Act 1999).

CONCLUSION

18.     The Respondent was entitled to reduce the Claytons pension during the closed period of 151 days because of the loan to Pampete. Accordingly, the adjustment  in the rate of the pension was correctly made. 

19. In all the circumstances and for the reasons set out above, pursuant to section 43 of the Administrative Appeals Tribunal Act1975, the Tribunal determines that the decision under review is affirmed.  This means that the decision under review is unchanged.

I certify that the 19 preceding paragraphs are a true copy of the reasons for the decision herein of Ms JA Shead, Member.

Signed:     Neil Glaser     
                   Associate

Date of Decision  4 December 2003

Representative for the Applicants  Mr P Clayton

Advocate for the Respondent        Mr John Kenny