Roger Pescott and Inspector-General in Bankruptcy
[2012] AATA 727
•23 October 2012
Administrative Appeals Tribunal
ADMINISTRATIVE APPEALS TRIBUNAL )
) No: 2011/1473
General Administrative Division )
Re: ROGER PESCOTT
Applicant
And: INSPECTOR-GENERAL IN BANKRUPTCY
RespondentCORRIGENDUM TO DECISION
TRIBUNAL: Dr Gordon Hughes, Member
DATE: 23 October 2012
PLACE: Melbourne
The Tribunal directs pursuant to subsection 43AA(1) of the Administrative Appeals Tribunal Act 1975, to alter the text on the final page of the decision as follows:
- delete Robyn Curnow, Australian Government Solicitor and replace with Catherine Gobbo; and
- add Solicitors for the Respondent and Robyn Curnow, Australian Government Solicitor.
...............................[sgd]...........................
Member
[2012] AATA 727
Division GENERAL ADMINISTRATIVE DIVISION File Number(s)
2011/1473
Re
Roger Pescott
APPLICANT
And
Inspector-General in Bankruptcy
RESPONDENT
Decision
Tribunal Dr Gordon Hughes, Member
Date of decision 23 October 2012 Place Melbourne The Tribunal affirms the decision under review.
.............[sgd]............................................
Dr Gordon Hughes, Member
CATCHWORDS
Compulsory income contribution assessment – value of fringe benefit – bankrupt residing in home provided by spouse – value of a rural property
LEGISLATION
Bankruptcy Act 1966 sections 139L, 139P, 139S, 139W, 139ZA(3)
Bankruptcy Regulations 1996 Item 30, Schedule 4
Fringe Benefits Tax Assessment Act 1986 sections 58ZC, 136REASONS FOR DECISION
Dr Gordon Hughes, Member
23 October 2012
Background
The applicant became bankrupt on 7 September 2010. Pursuant to section 139P of the Bankruptcy Act 1966 (the Act), the applicant was liable to pay the Trustee of his estate a contribution in respect of income he was likely to derive during the applicant's first contribution assessment period (CAP1) between 7 September 2010 and 6 September 2011.
The Trustee made an original assessment, pursuant to section 139W of the Act, that the applicant's actual income threshold amount applicable to the CAP1 was $57,357.39.
The Trustee determined that the applicant's assessed income applicable to CAP1 was $114,528.30. In determining the applicant’s assessed income under section 139L of the Act, the Trustee deemed that the applicant received a fringe benefit, within the meaning of the Fringe Benefits Tax Assessment Act 1986 (the Fringe Benefits Act). The fringe benefit was rental income received as a result of residing in a valuable country property in Trawalla (the Trawalla property) as a joint tenant with his wife.
For the purposes of calculating the applicant's fringe benefit as a joint tenant, an agent determined the value of the Trawalla property to be $25,000,000-30,000,000. It was registered in the name of a company, Traland Pty Ltd (Traland), of which one of the directors was the applicant's wife. The Trustee estimated the applicant's 50% share of the rental income from the property to be $1,166.67 per week (rounded down to $1,000 per week to take account of the fact that the applicant did not use the house in its entirety).
The applicant was liable to pay a contribution calculated in accordance with the formula set out in section 139S of the Act. Applying the formula, the applicant's estimated contribution liability was $28,585.45.
Under section 139ZA(3) of the Act, the applicant sought a review of the Trustee’s decision by Insolvency and Trustee Service Australia (ITSA), the agency which provides services for the respondent. After reviewing the decision, ITSA set aside the Trustee's decision and made a fresh assessment which determined the applicant's assessed income to be $100,028.29.
To calculate the applicant’s assessed income, ITSA deemed that the applicant was receiving a fringe benefit by way of rental income from the Trawalla property. However, it reduced the applicant’s share of the estimated rental income to be $37,000 per annum, or 721.15 per week. ITSA based its calculations on an assumption that the value of the Trawalla property was $3,000,000 (as the $25,000,000-30,000,000 figure included various farmlands and associated economic benefits generated from the land which the applicant did not profit from) with a rental yield of 2.5%. ITSA recalculated the applicant’s contribution liability to be $21,335.45 in accordance with section 139S of the Act.
The applicant's principal grievance centred upon the fact that he was deemed to be receiving a fringe benefit from the Trawalla property, which formed a significant component of the applicant’s assessed income. On 18 April 2011 the applicant lodged an application for review with this Tribunal seeking review of the compulsory income contribution assessment made by the respondent for an amount of $21,335.45 applicable to CAP1.
Legislation
Section 139S of the Act provides the following formula for calculating the bankrupt's contribution:
The contribution that a bankrupt is liable to pay in respect of a contribution assessment period is the amount worked out in accordance with the formula:
where:
Assessed income means the amount assessed by the trustee to be the income that the bankrupt is likely to derive, or derived, during the contribution assessment period.
Actual income threshold amount means the actual income threshold amount assessed by the trustee to be applicable in relation to the bankrupt when the assessment is made.
Section 136 of the Fringe Benefits Act contains the following relevant definitions:
arm's length transaction means a transaction where the parties to the transaction are dealing with each other at arm's length in relation to the transaction.
...
benefit includes any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under:
(a) an arrangement for or in relation to:
(i) the performance of work (including work of a professional nature), whether with or without the provision of property;
(ii) the provision of, or of the use of facilities for, entertainment, recreation or instruction; or
(iii) the conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction;
(b) a contract of insurance; or
(c) an arrangement for or in relation to the lending of money.
The Bankruptcy Regulations 1996 (the Regulations), Item 30, Schedule 4 defines a fringe benefit as follows:
fringe benefit, in relation to a bankrupt, in relation to a contribution assessment period, means a benefit provided at any time during the period by any person to the bankrupt, other than:
…
(g)support by way of one or both of the following:
(i)lodging (including any board); or
(ii)occasional use of a motor vehicle used for domestic purposes;
up to a value of $250 a week, if the support is provided by a person in the person's principal place of residence, and the person is:
(iii)a close relative; or
(iv)a brother or sister (including a half brother, half sister, adoptive brother or adoptive sister);
of the bankrupt.
Consideration of issues
The respondent called into question the applicant's veracity. This was, in part, based upon the cascading range of objections raised by the applicant to his assessment. The Tribunal does not share that view. The applicant struck the Tribunal as an honest and sincere individual who, as he explained to the Tribunal, periodically adjusted the basis of his objection as he grappled with a complex and unfamiliar area of law.
One consequence of this cascading approach was that numerous issues were raised by the applicant over time, which he did not seriously pursue before the Tribunal. The Tribunal does not propose to dwell upon those issues in this decision – for example, the applicant's previous assertions that he was entitled to the remote area housing objection, his assertion that he had a maintenance agreement with his wife and his assertion that he was entitled to off-set rental associated with a residence in Creswick.
The respondent told the Tribunal that the Trawalla property had a value in the vicinity of $25,000,000-30,000,000. The respondent referred to a Contract of Sale dated 1 July 2011 relating to the Trawalla property, which indicated that it was sold to Elizabeth Richmond (and or nominee) for $18,000,000. In the Tribunal's opinion, not much turns upon the value of the property in its entirety. The respondent did not seriously contest that it would be more appropriate to base a valuation, for the purposes of determining the applicant's fringe benefit, on the value of the home on the property rather than the property in its entirety.
The applicant maintained that the Contract of Sale dated 1 July 2011 did not give him the right to occupy the home after settlement, but rather it gave the right to a director of Traland, which his wife was. Again, this was an issue, which did not ultimately have great relevance to the matters under deliberation, given that the applicant's fringe benefit was based on the value of the home alone, and further given that the applicant abandoned his earlier contention that he resided in Creswick.
Another issue upon which the Tribunal has not dwelled in reaching its decision relates to the use of a motor vehicle by the applicant. The respondent observed that a nil assessment accorded to the applicant's use of the motor vehicle had been incorrectly categorised as a benefit provided by a close relative for the purposes of paragraphs (g)(ii) and (g)(iii) of Item 30, Schedule 4 of the Regulations. The respondent indicated that it was open to the Tribunal to reconsider this assessment given that the benefit had been provided by a corporate entity, Traland, and not a close relative. However, as the respondent further indicated that it did not propose to press the point, the Tribunal does not propose to give the matter further consideration.
Stripped of the issues, which the parties acknowledged were no longer relevant or which were otherwise not seriously pursued, the matter for determination by the Tribunal principally revolved around the value of the home on the property and the effect of that valuation on the calculation of the applicant's fringe benefit.
ITSA had previously determined that the home should be valued at $3,000,000. At the hearing, the respondent invited the Tribunal to consider increasing this valuation on the basis that the Transfer of Land relating to the sale of the property in its entirety, revealed nine separate lots. Each of the nine lots came with its own valuation for stamping purposes. Lot 1, on which the home was located, was valued at $6,755,268.
The applicant contested the valuation of $3,000,000 for the home. More significantly, the applicant rejected the argument that the home should be valued at $6,755,000 as Lot 1 included a church, summer house, sheering shed and other farm buildings.
The Tribunal accepts that the figure of $6,755,000 on the Transfer of Land is not a reliable guide to the value of the home and that it should be valued at a lesser figure. However, the Tribunal has no evidence upon which to justify a reduction in the valuation below $3,000,000, and accordingly considers $3,000,000 to be an appropriate figure.
Similarly, the Tribunal has no evidence before it which would justify revisiting the application of a rental yield of 2.5% to the estimated value of the home. Accordingly, the Tribunal considers the deemed rental of $37,500 per annum appropriate.
The other issue warranting determination by the Tribunal relates to the value of the support provided by the applicant's wife.
The applicant asserted that he was provided with support from his spouse up to a value of $250.00 per week, whilst paying his spouse $500.00 per week in cash for board and lodging during the same period. He argued that the cost of board and lodging in a remote country area is lower than in other areas, taking into account isolation and lack of facilities. He referred specifically to the absence of public transport, the absence of rubbish collection and the presence of vermin.
In this context, the applicant sought to invoke paragraph (g) of Item 30, of Schedule 4 of the Regulations.
The respondent contended that there was no evidence to support the applicant's claim in this regard. There was an undated invoice, purportedly signed by the applicant's wife, acknowledging payment but no evidence of when this was created or by whom, or any evidence that the invoice had been paid.
The respondent further contended that the weekly support had been provided by a corporate entity, Traland, and not by a relative. Accordingly, the exemption of $250 per week under the Regulations was not available in any event. The respondent acknowledged that it would have been open to the applicant's wife to enter into a tenancy arrangement with the proprietor of the Trawalla property, Traland, and to then sublet the residence, or part thereof, to the applicant. However, there was no evidence that this had occurred. Furthermore, if money had been paid by the applicant or his wife to Traland, then it should have declared this as income. However, there was no record that this was the case.
The applicant expressed particular concern over the fact that the Trawalla property had been in his wife's family for four generations and whoever my wife married were always going to receive her support for board and lodging at Trawalla House. It appeared incongruous to the applicant that the benefit the father has given the daughter is something that the bankrupt must pay for. The notion that he was renting the home was a fiction in his view, observing that I could not rent the house because it was already occupied and because the farming business which owned the house had never rented it and never would.
None of this impacts, however, on the fact that the applicant received support in the form of a fringe benefit, as defined in the legislation. The applicant's lay perspective is that there has been absolutely no evidence presented that my wife and I have been renters of Trawalla House…This is quite a simple case of my wife living in a family house on a farm. This, however, is not the relevant consideration from a legal perspective. The applicant has received a fringe benefit, within the plain meaning of that term in the Regulations. The Tribunal appreciates that the applicant may hold strong views about the fairness of the law as applied to his personal circumstances but that is a different issue.
To the extent that the parties have had different perceptions of the facts, these perceptions have been addressed initially through ITSA’s review of the Trustee's contribution assessment, and subsequently in proceedings before the Tribunal.
Finally, the applicant raised various concerns about the fact that the respondent had proceeded upon incorrect facts and assumptions. He made broad allegations of an abuse of process, largely based upon what he perceived to be an inadequate gathering of information by the Trustee and the respondent. The Tribunal finds that there is no evidence to support an assertion that either the Trustee or the respondent has acted inappropriately at any time.
Decision
The Tribunal upholds the decision under review. Specifically, the Tribunal is of the opinion that a valuation of $3,000,000, in respect of the home in which the applicant resides, is a reasonable figure. Furthermore, the Tribunal finds that an estimate of rental income using a rental yield of 2.5% is appropriate. It follows that the prospective rent for the house is $75,000 per annum, of which the applicant's 50% share is $37,500 in CAP1.
It further follows that the Tribunal agrees with the previous determination by the respondent that the applicant's assessed income in CAP1, between 7 September 2010 and 6 September 2011, was $100,028.29. Furthermore, applying the formula set out in section 139S of the Act, the applicant's compulsory income contribution assessment for CAP1 was $21,335.45.
For the above reasons, the Tribunal affirms the decision under review.
I certify that the preceding 33 (thirty -three) paragraphs are a true copy of the reasons for the decision herein of Dr Gordon Hughes, Member.
.........[sgd].................................................
Shivanthi Herath, Associate
Dated 23 October 2012
Date(s) of hearing 26 September 2012 Applicant In person Counsel for the Respondent Robyn Curnow, Australian Government Solicitor
0
0
0