Rosenthal and Repatriation Commission
[2002] AATA 906
•9 October 2002
DECISION AND REASONS FOR DECISION [2002] AATA 906
ADMINISTRATIVE APPEALS TRIBUNAL )
) No N 2000/378
VETERANS' APPEALS DIVISION )
Re Hans Walter Rosenthal
Applicant
And Repatriation Commission
Respondent
DECISION
Tribunal Ms S M Bullock, Senior Member Dr J Campbell, Member Mr M A Griffin, Member
Date 9 October 2002
PlaceSydney
Decision The decision under review is affirmed.
..............................................
Ms S M Bullock
Presiding Member
CATCHWORDS
VETERANS' AFFAIRS – Special Rate – Over 65 years – Loss of Earnings on Own Account – Remunerative Work
LEGISLATION
Veterans' Entitlements Act 1986 ss 24, 120
AUTHORITIES
Hill v Repatriation Commission [2000] FCA 929
Counsel v Repatriation Commission [2001] FCA 1032
Counsel v Repatriation Commission [2002] FCAFC 201
Accident Compensation Commission v Alger [1993] 1 VR 379
Cage Developments Pty Ltd v Schubert (1983) 151 CLR 584
Re Maloney and Repatriation Commission (1989) 17 ALD 292; (AAT 5037, 20 April 1989)
Gauntlett v Repatriation Commission (1991) 32 FCR 73
Cavell v Repatriation Commission (1988) 9 AAR 534
Forbes v Repatriation Commission (2000) 58 ALD 394
REASONS FOR DECISION
9 October 2002 Ms S M Bullock, Senior Member Dr J Campbell, Member Mr M A Griffin, Member
This is an application for review to the Administrative Appeals Tribunal ("the Tribunal") made by Mr Hans Walter Rosenthal, the Applicant, of a decision of the Veterans' Review Board ("the Board") dated 2 February 2000 (T2) which assessed pension at 100 per cent of the General Rate to operate from and including 23 August 1995. The Board's decision set aside the decision of the Repatriation Commission ("the Commission") dated 11 June 1996, which accepted the condition of malignant neoplasm of the colon and chronic airflow limitation and assessed pension at 80 per cent of the General Rate with effect from 13 November 1995 (T13).
A Hearing was held before the Tribunal in Sydney on 23 January 2002 and was resumed on 7 May 2002. Mr Rosenthal provided oral evidence to the Tribunal and was represented by Mr R Davis, Advocate with the Returned Services League ("RSL") Welfare and Pensions. The Commission, the Respondent, was represented by Mr S Modder, Departmental Advocate. Concurrent oral evidence was also provided by Mr S Calfas, Public Accountant and Mr S Menzies, Chartered Accountant and Tax Agent. Documents were lodged and taken into evidence pursuant to Section 37 of the Administrative Appeals Tribunal Act 1975, in addition to the following exhibits:
Exhibit No. Description Date
A1 Letter and Annexure A from Mr S Calfas, Accountant 21 January 2002
A2 Statement by Applicant, "To Whom It May Concern" 4 January 2002
A3 Applicant's Ledger Statements and 1992-1993 Income Tax Return Various
A4 Letter from Ms E Begg, "To Whom It May Concern" 17 January 2002
A5 Statement from the Applicant, "To Whom It May Concern" 6 May 2002
A6 Amended Analysis of the Applicant's Tax Returns by Mr R Davis, Advocate with the RSL 6 May 2002
R1 Letter from Mr S Menzies, Accountant 18 December 2001
R2 Letter from Mr S Menzies, Accountant 11 March 2002
R3 Additional documents in relation to the Applicant from the Department of Veterans' Affairs File Various
ISSUES
The issue in this matter is whether or not Mr Rosenthal is qualified to receive pension at the Special Rate and specifically, whether or not he satisfies subsection 24(2A) of the Veterans' Entitlements Act 1986. There was a concession at Hearing that Mr Rosenthal met subsection 24(2A)(g)(ii) of the Veterans' Entitlements Act 1986 in that he had been working on his own account for continuous period of at least ten years that commenced before Mr Rosenthal turn 65 years old.
LEGISLATIONA determination in this matter requires consideration of the provisions of the Veterans' Entitlements Act 1986 ("the Act").
Section 24 of the Act deals with qualification for pension at the Special Rate and as relevant provides:
" 24 Special rate of pension
(1) This section applies to a veteran if:
(aa) the veteran has made a claim under section 14 for a pension, or an application under section 15 for an increase in the rate of the pension that he or she is receiving; and
(aab) the veteran had not yet turned 65 when the claim or application was made; and
(a) either:
(i) the degree of incapacity of the veteran from war-caused injury or war-caused disease, or both, is determined under section 21A to be at least 70% or has been so determined by a determination that is in force; or
(ii) the veteran is, because he or she has suffered or is suffering from pulmonary tuberculosis, receiving or entitled to receive a pension at the general rate; and
(b) the veteran is totally and permanently incapacitated, that is to say, the veteran's incapacity from war-caused injury or war-caused disease, or both, is of such a nature as, of itself alone, to render the veteran incapable of undertaking remunerative work for periods aggregating more than 8 hours per week; and
(c) the veteran is, by reason of incapacity from that war-caused injury or war-caused disease, or both, alone, prevented from continuing to undertake remunerative work that the veteran was undertaking and is, by reason thereof, suffering a loss of salary or wages, or of earnings on his or her own account, that the veteran would not be suffering if the veteran were free of that incapacity; and
(d) section 25 does not apply to the veteran.
…
(2A) This section applies to a veteran if:(a) the veteran has made a claim under section 14 for a pension, or an application under section 15 for an increase in the rate of the pension that he or she is receiving; and
(b) the veteran had turned 65 before the claim or application was made; and
(c) paragraphs (1)(a) and (1)(b) apply to the veteran; and
(d) the veteran is, because of incapacity from war-caused injury or war-caused disease or both, alone, prevented from continuing to undertake the remunerative work (last paid work) that the veteran was last undertaking before he or she made the claim or application; and
(e) because the veteran is so prevented from undertaking his or her last paid work, the veteran is suffering a loss of salary or wages, or of earnings on his or her own account, that he or she would not be suffering if he or she were free from that incapacity; and
(f) the veteran was undertaking his or her last paid work after the veteran had turned 65; and
(g)when the veteran stopped undertaking his or her last paid work, the veteran:
(i) if he or she was then working as an employee of another person—had been working for that person, or for that person and any predecessor or predecessors of that person; or
(ii) if he or she was then working on his or her own account in any profession, trade, employment, vocation or calling—had been so working in that profession, trade, employment, vocation or calling;
for a continuous period of at least 10 years that began before the veteran turned 65; and
(h) section 25 does not apply to the veteran.(2B)For the purposes of paragraph (2A)(e), a veteran who is incapacitated from war-caused injury or war-caused disease or both, is not taken to be suffering a loss of salary or wages, or of earnings on his or her own account, because of that incapacity if:
(a) the veteran has ceased to engage in remunerative work for reasons other than his or her incapacity from that war-caused injury or war-caused disease, or both; or
(b)the veteran is incapacitated, or prevented from engaging in remunerative work for some other reason.
…"
In assessing pensions, the Tribunal must do this to its reasonable satisfaction as provided in subsection 120(4) of the Act which states:
"4) Except in making a determination to which subsection (1) or (2) applies, the Commission shall, in making any determination or decision in respect of a matter arising under this Act or the regulations, including the assessment or re-assessment of the rate of a pension granted under Part II or Part IV, decide the matter to its reasonable satisfaction.
Note: This subsection is affected by section 120B.
…"
EVIDENCE OF MR HANS WALTER ROSENTHAL
Mr Rosenthal told the Tribunal that his date of birth is 1 November 1922.
Mr Rosenthal had not served during the war overseas although he had tried very hard to join the AIF in 1939 at age 16 years. He was able finally to join the Australian Army. Mr Rosenthal agreed that Dr Altman was incorrect in his 1996 report when he noted that Mr Rosenthal had been directly involved in action.
Mr Rosenthal has the accepted conditions for the purpose of a Disability Pension of: recurrent upper respiratory tract infection; irritable bowel syndrome; peripheral vascular disease; malignant neoplasm of the colon; chronic airflow limitation; generalised anxiety disorder; intervertebral disc prolapse; and, bilateral sensorineural hearing loss with tinnitus. The hearing condition was accepted with date of effect from 3 March 1997 (Transcript, 23 January 2002, p43). In 1996, Mr Rosenthal stated that he would have told Dr Altman that he was suffering from lower concentration and he did not have any energy. Mr Rosenthal also has a Gold Card from the Department of Veterans' Affairs.
Mr Rosenthal told the Tribunal that in about 1975 or 1976 he had a loose business association with two other journalists called "Europa Consultants". This was the company's registered business name. The company was run from Mr Rosenthal's Mosman home. One of the partners subsequently died in the late 1970's or early 1980's and the other now lives in a nursing home. The three partners decided that they could exchange information and contacts, which are the most important tools in journalism. Then, in 1983, Mr Rosenthal was no longer working at the daily Telegraph or in London but was working for the Australian Medical Association ("AMA") in New South Wales, where he had commenced working in approximately 1971. The then president of the state branch, Dr G. Reager, asked Mr Rosenthal to compile for the members of the Branch, a list of continuing post-graduate and other educational activities which were occurring around the world and which would be to the benefit of the members. Mr Rosenthal explained that at that time he was working full-time for the AMA and had comparatively little time to devote to this exercise. He completed this additional task, utilising whatever time he had while still undertaking his full-time AMA duties. Mr Rosenthal did not receive any extra remuneration for the research work he did in compiling that list, only his salary as an Information Officer.
In about 1983 or 1985, Mr Rosenthal produced the first list of international medical conferences for the AMA. In the course of the preparation of this document, he travelled to Europe to make contacts and undertake some research.
When Mr Rosenthal ceased working for the AMA in about 1988, he was then paid a fee for the amount of work he did in preparing the list. In the early 1990's until at least 1995, Mr Rosenthal was also producing specific information for the various specialist disciplines, such as what was happening in terms of education or conferences for the specialties including dermatology, surgery, psychiatry or anaesthetics. Mr Rosenthal would invoice the AMA for that work. He did not himself do the book work but there was a payment made to Europa Consultants.
Referring to ledger entries from September 1984 until 30 June 1985, there was a charge of $280.00 for advertising in the New South Wales Branch of the AMA Monthly Bulletin. Mr Rosenthal also noted that he was paid a fee for the book/list of international medical conferences in the amount of $3300.00. That was a once only fee paid by the AMA to Europa Consultants for the book produced in 1983/84. After that, fees were paid in six monthly instalments. Mr Rosenthal explained that he was only able to produce one book per year but towards the end of his time in the company, there was a North American Edition in addition to the Australian/New Zealand Edition. Accordingly, towards the end of his work with Europa Consultants, there was a great deal more work in the early 1990's compared to the middle 1980's. Mr Rosenthal thought that the amount of $3300.00 should appear somewhere in the ledger because it would obviously be listed for taxation purposes.
Mr Rosenthal was referred to an amount paid in November 1986 by the AMA (at page 12 of the ledger) in the amount of $1503.00 (Exhibit A3). Mr Rosenthal agreed that this would have been payment for one book but he was not sure which one. He explained that he had destroyed many of his taxation documents as he was only required to keep them for five or so years.
Mr Rosenthal told the Tribunal that from 1 January 1988 onwards, when he was aged approximately 65 years old, he was able to look around much further to see what "the competition" was doing in terms of publishing details of international and domestic educational activities. He was able to concentrate on Europa Consultants. At that time, Mr Rosenthal was no longer working for the AMA.
Following his retirement from the AMA, he undertook some casual work for that organisation such as organising conferences and meetings until he travelled to Canada in August 1988. The casual work undertaken for the AMA was paid separately to Mr Rosenthal and had nothing to do with Europa Consultants, he told the Tribunal. The work he undertook after January 1988 had to do with the meetings or conferences or internal activities and he was paid as a daily fee approximately $200.00. Mr Rosenthal did not have any records of these payments. He ceased the casual work for the AMA in August 1988 devoting himself almost entirely to the Europa Consultants' work.
Mr Rosenthal did however undertake one additional activity, working as a walking courier on a part-time basis for a few months in 1989 and 1990. He had some Army mates who were doing this work, earning money and keeping up their physical activity and hence fitness. Undertaking this activity helped Mr Rosenthal keep his "head above water" financially as well as maintaining physical fitness by walking approximately five kilometres per day.
In about 1993, Mr Rosenthal travelled to London to increase his contacts from various universities, educational facilities and from the medical profession throughout England, Scotland and Wales. This enabled Mr Rosenthal to build up a network of overseas educational activities which he had not been able to do while working from Sydney. This was the second last time Mr Rosenthal travelled overseas. He did seem to recall that there may have been one other trip though was not able to recall this in any detail. Mr Rosenthal also told the Tribunal of trying to organise something in Russia after the Soviet Union collapsed, but this was very difficult because not everybody spoke English and he did not speak any of the Russian languages.
Mr Rosenthal was unable to continue travelling because his health had deteriorated and he started making mistakes and could not concentrate. He also had to deal with the effects of his bowel cancer and irritable bowel problems. Mr Rosenthal believed that 1993/1994 would have been his very last year full year of travel. By 1995 he believed he started to cut back and by 1996 the business was just about finished (Transcript, 23 January 2002, p21). He found it too hard to continue " in view of my accepted disabilities getting the better of me" (Transcript, 23 January 2002, p22).
Mr Rosenthal was asked about some heavy losses reported by his accountants in the period 1 July 1992 to 30 June 1993, during which period Mr Rosenthal's taxable income was $2627.00 (Exhibit R1, Schedule A). There was a business loss recorded in that year of $10,855.00. Mr Rosenthal noted that he never worried about taxation losses at all as his aim was to produce a first class product and money was not the main object at that stage (Transcript, 23 January 2002, p22). He was satisfied that if and when he could produce that first class product, the list or book, then the income would naturally increase because there was nobody to compete with him. All the figures contained in those documents were based on information supplied by him to his taxation accountants. As far as Mr Rosenthal was concerned, as long as he could survive financially and he had superannuation with the AMA, he was prepared to carry on because he was certain that the reward would come once the product was perfected.
Mr Rosenthal was referred to the financial year 1 July 1993 to 30 June 1994 in which he had a negative taxable income of $279.00 (Exhibit R1, Schedule A). Mr
Rosenthal stated that he had some superannuation to fall back on during that period and a small investment and a savings account.Mr Rosenthal was referred to Schedule A to the report by Mr S Menzies of McDonald Ross, Accountants, and the figures for Net Business Income (Loss) of $10855.00, $10947.00, $6010.00 and $5088.00 (Exhibit R1). Those figures totalled greater than $30,000.00. It was pointed out to Mr Rosenthal that the expenses were twice the sales. From Annexure A to Exhibit A1, four figures are recorded under the heading of "Profit" namely: $704.00, $1606.00, $2085.00 and $93.00. Mr Rosenthal agreed that from the taxation records, these figures were the only profit during a four year period (1989-1992) for Europa Consultants during its life of approximately 12 years, from 1984 until 1996.
Mr Rosenthal told the Tribunal, as reported in his letter of 17 July 1996 to Mr Davis, his Advocate (T20, p95) that up to January 1995, he was working 50 to 60 hours per week quite often. From February 1995 until January 1996, he reduced his hours to approximately 20 hours per week. From January 1996, there was a further reduction of working hours to approximately eight hours per week. Mr Rosenthal stated that the reduction to eight hours per week was because of his illness. Considering his various business losses, the loss for the 1992/1993 financial year was $10,855.00, the loss for the 1993/1994 financial year was $10,947.00, with the loss for the 1994/1995 financial year being $6,010.00. It was put to Mr Rosenthal that it appeared that he was making his biggest losses when he was actually working the longest hours. Mr Rosenthal explained that by noting that he was working very hard, particularly in London in 1993, to try and make the product as perfect as possible.
Also in his letter dated 17 July 1996, Mr Rosenthal had stated that "mainly due to ill health and inability to continue working the long hours", he produced a medical conference list late in 1995 for the 1996 year. Mr Rosenthal was questioned by the Tribunal as to whether or not there were other factors impacting on his inability to work. Mr Rosenthal acknowledged that there were other factors which caused him to be unable to continue working, which included problems experienced in the middle 1990s.
Mr Rosenthal stated:
"Mr Rosenthal: Yes, there was (sic) other factors that were not reported to the medical profession, nor was it claimed as an accepted disability. I developed in the middle 1990s an unsteady gait and it became worse and worse until I felt it had to be reported to the local general practitioner after I came out of hospital in 2001 and I still have this unsteady gait and it appears to be due to a gradually increasing factor of low blood pressure. Now I have not told any medical practitioner about it until last year when it was really bad because I have been running backwards and forwards from one doctor to another over a period of 5 or more years, umpteen investigations, tests and what have you and I wasn't wanting to run to the doctor every 5 minutes. So I decided to put up with it until after hospitalisation I found I couldn't even stand straight.
Tribunal: So when you wrote this letter in 1996 when you're referring to: "Mainly due to ill-health and inability"-there are other-the other factors that you haven't mentioned relate to that unsteady gait?
Mr Rosenthal: Unsteady gait is probably the most important factor, yes.
Tribunal: Right and how was that in 1996 and-well, was it present---?
Mr Rosenthal: It started in the 1990s, yes.
Tribunal: Right and how did that affect you or impact upon your work?
Mr Rosenthal: Well, when I was sitting down it didn't matter but when I had to go somewhere it did matter. In fact, it got so bad in the end that I had to use a walking stick and I've lot two in the last three months because of forgetfulness or inability to concentrate but it was gradually developing problem over a period of at least 5 years, if not more.
Tribunal: Up until June of 1996 how was that-in practical terms-how was that impacting upon your---?
Mr Rosenthal: I tried to combat it and make myself say it doesn't exist, don't worry about it, make sure you can get by without it, without seeking medical assistance and with a walking stick that seemed to be alright.
Tribunal: Were you using walking sticks in 1996?
Mr Rosenthal: Yes
Tribunal: When did you first start to use the walking stick?
Mr Rosenthal: Good question. I used a walking stick for the first time after a bowel cancer operation in 1992 and when I seemed to recover from that I put the walking stick aside and started again mid-90s.
Tribunal: So what, is that 1995? When you say "mid-90s" do you mean 1995?
Mr Rosenthal: I first used a walking stick 1992.
Tribunal: yes but then you put that aside after the effects…?
Mr Rosenthal: Yes, I put it aside and I started again in the mid-90s, in 1995/96 would have been a reasonable period when I started again.
…" (Transcript, 23 January 2002, p34-35)
In answer to Mr Davis' questions, Mr Rosenthal stated that in addition to the major problems impacting on his ability to work being his accepted condition of irritable bowel and anxiety, he had a hearing deficiency which caused him to write down incorrect details arising out of telephone conversations. He also experienced back pain (Transcript, 23 January 2002, p37). Mr Rosenthal did not consider that any of his difficulties continuing to work related in any way to age (Transcript, 23 January 2002, p39).
Mr Rosenthal was questioned about the report by Mr Menzies of McDonald Ross (Exhibit R1), where at Schedule B there did not seem to be any mention of income from the sale of the database (Transcript, 23 January 2002, p32). Mr Rosenthal stated that the taxation papers would probably show how the money was recorded. He stated that the fee for the database was recorded because Europa Consultants had closed down and the fee would have been paid to him. Mr Rosenthal could not explain why in Schedule A of the McDonald Ross report, the earnings did not record the payment of this fee in the 1996/1997 year. Mr Rosenthal also did not know whether this fee may have been tied in with capital gains. In relation to capital gains for the 1995, 1996 and 1997 financial years, it was put to Mr Rosenthal that there would not have been much left of Europa Consultants because it was closed in 1996. Therefore, any amounts showing may have come from a savings account or a small investment. Mr Rosenthal stated that the only income he had after 1996 was from a savings account and a number of investments. He thought that he may have realised some of those investments in the 1995, 1996 or 1997 financial years, including the selling of shares, but could not recall specific details.
Mr Rosenthal told the Tribunal that Mrs Rosenthal was very diligent in keeping the ledgers. She in fact did all of the bookwork from the commencement of the business and even before 1988 and up until 1995 or 1996 when he gave his income and expenditure to his accountants. Mrs Rosenthal still prepares the taxation records to be handed over to the accountants. Mrs Rosenthal was never paid a fee for her work.
In relation to business expenses and the company's losses, it was put to Mr Rosenthal that more than half of this related to motor vehicle expenses. Mr Rosenthal stated that Europa Consultants had a motor vehicle in the 1970's. During the 1970's and 1980's, Mr Rosenthal also used the AMA's vehicle. Mr Rosenthal stated that he travelled in excess of 20000 kilometres every year using the Europa Consultants' vehicle. Mr Rosenthal had this vehicle before the company was established.
Mr Rosenthal was referred to a report by Dr C Jenkins, Thoracic Physician, dated 12 November 1997 (T28, p133). Dr Jenkins noted that she could find no evidence of respiratory disease to account for Mr Rosenthal's breathlessness. She noted that he had travelled overseas two or three times since she last saw him, managing this travel without apparent difficulty. It appears from a report of 27 August 1997 that Dr Jenkins last saw Mr Rosenthal prior to November 1997 in August 1997 (T28, p131). Mr Rosenthal did not think that he had undertaken two or three overseas trips between August and November 1997. At most, he thought there was one since 1993 and that was a trip in 1997, after Europa Consultants had closed down, to London and then to Russia, Berlin, Geneva and back to London. There was a trip to Melbourne in 1997 as well. The information from this trip was used to assist the AMA.
Mr Rosenthal told the Tribunal that Europa Consultants closed on 30 June 1996. Towards the end of 1996, Mr Rosenthal sold the company to the AMA. This involved selling his international contact and database list from 40 or more countries for approximately $2000.00 or $3000.00, which Mr Rosenthal received in approximately 1997. The AMA then started to service their members from that list by producing information. Prior to closing Europa Consultants, there was a suggestion that Mr Rosenthal should take on a partner because he was not well enough to keep the business going himself. Mr Rosenthal did not wish to do this because he was concerned that a partner may not be prepared to accept the discipline that he imposed. If Mr Rosenthal had a partner, then their suggestions had to be listened to and their proposals undertaken. Mr Rosenthal thought that this could well jeopardise the superiority of his product. Another suggestion made by an AMA computer programmer at that time, was that Mr Rosenthal should computerise the business. In order to computerise, Mr Rosenthal believed there would have to be an expenditure of between $5000.00 or $10,000.00. Mr Rosenthal was not prepared to undertake such a financial commitment at that late stage. Mr Rosenthal concluded that it was ill health rather than any other factor which stopped him from undertaking either of these suggestions.
Following the end of Europa Consultants, the AMA had two people doing the work that Mr Rosenthal did as Europa Consultants. Mr Rosenthal stated that one employee only lasted a few months. The other employee carried on until 1998 or 1999. Mr Rosenthal tried to help out for a short time, free of charge.
Mr Rosenthal did not agree that the ending of Europa Consultants would have happened anyway and had nothing to do with his health or his accepted conditions. He stated that the hours of work in 1995 and 1996 were greater than in earlier years, probably due to the fact that he was becoming better known. He was advertising his services in various magazines and journals. There was an increase in the number of telephone calls and inquiries. Mr Rosenthal reiterated that in the last years of the business, he was making mistakes which were hard to correct. He would mix up telephone numbers, fax numbers and addresses. He noted that he only needed to get one number wrong and the individual customer or client would be most upset that he or she could not make contact. If Mr Rosenthal put out a list which had half a dozen fax or telephone number mistakes, these would not be tolerated by his clients.
Mr Rosenthal did not think that his advancing age contributed to his having to leave the business. He remembered working for two Australian Prime Ministers and other politicians who were a lot older than Mr Rosenthal at the time they finished the careers. In Mr Rosenthal's opinion, his cessation of employment had less to do with his age than his ill health. He conceded to Mr Modder however that his earning capacity in 1976 was greater than it was in 1986 because he was younger (Transcript, 23 January 2002, p39).
Mr Rosenthal considered that his irritable bowel syndrome and generalised anxiety disorder were the major problems which prevented him from continuing his work. Mr Rosenthal explained that he could not always meet the requirements of clients. He would often become extremely anxious and worried. He would become irritable, depressed and would make mistakes. Mr Rosenthal also noted that his hearing deficiency often caused him to make mistakes in information provided to him over the telephone. Furthermore, Mr Rosenthal noted that he had back pain which, while able to be controlled whilst sitting, would cause him problems when he had to stand or with having to lift little items such as a briefcase.
Mr Rosenthal's long term goal for the company was that it would be self-supporting showing a profit within 18 months of 1996 at the latest. He would have gladly carried on the work because there was not much more research to be done and at some stage probably at age 74 or 80 years, he would have sold the business. When Mr Rosenthal eventually gave up the business, he thought he was within 18 months of not only breaking even but making a profit. When he did close the business, he thought to himself that he should have tried to carry on for another 18 months but unfortunately in reality, he was incapable of such activity. If Mr Rosenthal did not have the conditions of upper respiratory tract infection, irritable bowel syndrome, peripheral vascular disease, malignant neoplasm of the colon, chronic airflow limitation, generalised anxiety disorder, intervertebral disc prolapse and bilateral sensorineural hearing loss and tinnitus, he believed he would have continued on beyond 1996. Mr Rosenthal stated that he had been reprimanded by various medical professionals for continuing to work. He tried to ignore his problems as he did not want to give in. In the end, the mistakes that occurred, the anxiety, the depression and the irritability all forced him to give up his work.
DOCUMENTARY EVIDENCE OF MR S CALFAS, ACCOUNTANTMr Calfas provided a statement dated 21 January 2002 (Exhibit A1). Mr Calfas noted that he has known Mr Rosenthal for ten years and found him to be scrupulously honest and a straightforward client.
Mr Calfas noted that from Mr Rosenthal's credit and debit ledgers, the first profit was made in the Europa Consultants business in 1988/1989 and profits continued to be made up until 1991/1992. The subsequent losses would have been less, Mr Calfas opined, had it not been for the hiring of a facsimile, the purchase of information in 1992/1993, the overseas trip undertaken in 1993/1994 and other minor incidental costs.
Mr Calfas supported Mr Rosenthal's contention that but for the impact of his increasing ill health, there would have been a sizeable Australian/New Zealand market for his business and also a reasonable profit and income.
In his statement, Mr Calfas strongly disagreed with the opinion of Mr S Menzies, Accountant, who, on 18 December 2001, noted that there was nothing in the information available to Mr Menzies which would indicate that Mr Rosenthal's business was ever going to produce a net profit, particularly as it had already been conducted for eight years, prior to 1993 and still was not profitable (Exhibit R1). Mr Calfas also disagreed with Mr Menzies' assertion that it was in Mr Rosenthal's interest to discontinue the business in 1996. Mr Calfas opined that it was important to note that in many new businesses, whilst fine tuning the product, the business continues to make losses for long periods of time. Mr Calfas noted that Mr Rosenthal had not been deterred from continuing his business and it was ludicrous for Mr Menzies to conclude that it was in Mr Rosenthal's best interest to cease operating. Mr Calfas noted that Mr Rosenthal's view was that the business losses were about to end and the expenditures incurred in the past were about to be converted into substantial profits, if not for his ill health. Mr Calfas opined that this may have happened in 1996 or 1997 but because of Mr Rosenthal's ill health, it was now impossible to determine. On the balance of probabilities, Mr Calfas concluded that Mr Rosenthal, having developed a sizeable market and built up an information database, would have lost a potential source of net income when he ceased trading in 1996. If Mr Rosenthal had been prepared to accept commercial advertising, then he would have considerably enhanced his potential net income, Mr Calfas concluded.
DOCUMENTARY EVIDENCE OF MR S MENZIESIn a letter to the Department of Veterans' Affairs dated 18 December 2001 (Exhibit R1), Mr Menzies noted he had reviewed the taxation records supplied and compiled for the period 1 July 1992 and 30 June 1993. The records supplied for the period prior to 1 July 1992 were incomplete.
Mr Menzies noted that Mr Rosenthal's income for the financial years 1993 to 1998 inclusive, consisted of a pension, passive investment income including interest and dividends and net income (loss) from a business conducted as a sole trader called Europa Consultants. This business was noted by Mr Menzies to have commenced sometime prior to 1985 and ceased in 1996. The business was noted by Mr Menzies to have derived gross assessable income from sales of the medical information service, ranging from $6518.00 in 1993 down to $2155.00 in 1996. Mr Menzies noted that the expenses incurred in achieving these sales were considerably more than the sales, resulting in a net loss for the business in each of the financial; years examined. Mr Menzies concluded that there was nothing in the information supplied to him which indicated that the business was ever going to derive a net profit, particularly as it had already been going for eight years prior to 1993 and was still not profitable.
Mr Menzies further concluded that it was in Mr Rosenthal's interests to discontinue the business in 1996. Although the business loss produced a benefit in a reduction of income tax payable, which was minimal due to low income levels, Mr Rosenthal was still out of pocket by the net after tax loss. When the business ceased, it is Mr Menzies' opinion that the expenses also ceased. He noted that the extent the expenses were not incurred in deriving sales, personal expenses are not legitimate tax deductions.
In a second letter of 11 March 2002 (Exhibit R2) relying on a financial summary by Mr Calfas, it appeared that there was continuity of the business past 1992/93. Mr Menzies expanded his previous opinion concerning tax benefits of business noting that calculation methods allowed by the Tax office provided scope for example of home office or use of private motor vehicle providing a tax benefit, that might otherwise be incurred privately. This provided Mr Rosenthal with an incidental and unintentional benefit in the form of a tax saving. The tax savings did not make up for the loss of income.
Mr Menzies noted that Mr Davis' calculations were flawed as set out in points (I), (ii) and (iii) of Exhibit R2.
Mr Menzies opined that even when Mr Rosenthal's business was profitable in 1989 until 192, it was marginal and certainly not reasonable remuneration for the extensive labour of Mr and Mrs Rosenthal. Furthermore, Mr Menzies opined that any contention that there was a sizeable market for the business database, is not supported by the past performance of the business or by the fact the AMA purchase the database for the amount of $2000.00-$3000.00.
While Mr Menzies acknowledged a business can incur losses in a start-up phase, it is not reasonable for the business to continue to have losses for ten years. Mr Menzies noted that Mr Rosenthal's ill health did not become a factor until 193. Mr Menzies concluded that it was not reasonable to suggest that a change in business strategy was imminent, such as advertising or taking on a partner, when this had not been done in the 12 year life of the business.
CONCURRENT EVIDENCE OF MR CALFAS AND MR MENZIESAt the Hearing, Mr Calfas and Mr Menzies also provided concurrent evidence in relation to their opinions concerning Mr Rosenthal's business circumstances. Each accountant provided a statement of their opinion in relation to Mr Rosenthal's circumstances and had the opportunity of questioning each other in terms of that opinion and of discussing any points of contention. The Tribunal asked questions of both Mr Calfas and Mr Menzies, followed by questioning from the representatives. The final stage of the provision of concurrent evidence involved Mr Calfas and Mr Menzies providing a concluding statement as to their view about Mr Rosenthal's circumstances, having had the opportunity of discussing these together at the Hearing.
The approach adopted by the Tribunal is based upon similar practices of the Federal Court in the provision of concurrent evidence ("Hot Tub"), although there were some differences tailored to meet the specific requirements of the Tribunal. The Tribunal gained much benefit from assistance provided by Lindgren J and Heerey J in relation to the processes and benefits involved with this procedure.
At the outset, Mr Calfas explained that he had been Mr Rosenthal's accountant for ten years. He understood that Mr Rosenthal had developed a data base in conjunction with the AMA compiling information about various conferences and training experiences that medical practitioners may be interested in participating in. Mr Calfas stated that Mr Rosenthal commenced the business approximately ten years ago. When the business commenced, Mr Rosenthal incurred expenditure and his business had overall, incurred losses, Mr Calfas stated. The losses were claimed in Mr Rosenthal's tax returns in the relevant years. It was Mr Calfas' view that because of ill health, he ceased his business. Mr Rosenthal had the expectation that had he continued the business that it would actually made a profit.
Mr Calfas further explained that he had examined Mr Rosenthal's tax returns, which in fact his firm had prepared. It was Mr Calfas' considered view that had Mr Rosenthal not ceased business because of ill health that Mr Rosenthal would have been able to turn the business around and make a profit. It was towards the end of the business, when Mr Rosenthal started to become ill, that Mr Rosenthal realised that had he not been ill and had been able to continue, his income would have gone up. There was expense incurred as result of travel and car expenses. Mr Calfas noted that what is not reflected in the various figures is the effort put in by Mrs Rosenthal, but Mr Calfas reiterated that Mr Rosenthal had created the infrastructure of the business. Mr Calfas acknowledged that towards the end of business there seemed to be increasing effort in terms of hours undertaken by Mr Rosenthal but that despite the increased effort, the income had substantially decreased between 1993 and 1996.
Mr Calfas told the Tribunal that he was not involved with Mr Rosenthal in developing a business plan. He would see Mr Rosenthal perhaps twice a year in relation to preparing tax returns and accounts. He was not actually involved in the business side of things. Mr Calfas could not say with any certainty that he had been involved in any discussions in terms of business planning or discussions about the future development of the business. It was difficult to remember such matters such a long time ago. Mr Calfas agreed that it could be argued that ten years was a long time to build a business and understood questioning as to why a person would continue in a business when it was not doing well after this period of time. In Mr Rosenthal's case, Mr Calfas expressed the view that Mr Rosenthal loved doing what he did and it was something he believed in. Mr Calfas never did projections in relation to the business for Mr Rosenthal. Mr Calfas stated that the only hard evidence he had which provided him with the ability to make a confident prediction of the increased value and potential of Mr Rosenthal's business had he not been ill, was based on what in fact Mr Rosenthal had discussed with him. Mr Calfas had not talked to any of Mr Rosenthal's doctors or done any projections with him. There was no time, towards the period when Mr Rosenthal ceased his business, that Mr Calfas could recollect any meetings between himself and Mr Rosenthal when they discussed the continuation of the business. Mr Calfas did not advise Mr Rosenthal or give him an opinion as to whether or not he should cease or continue the business.
Mr Calfas acknowledged that to a certain degree one of the driving forces behind keeping the business going was that Mr Rosenthal was able to claim a tax deduction on some expenses as long as he put the effort into keeping the business going. That was to a certain degree, Mr Calfas opined, an incentive for him to keep going (Transcript, 7 May 2002, p30). From a tax point of view, there was a cash flow benefit to Mr Rosenthal in continuing the business in order to claim tax deductions against his other income, principally his investment income. Mr Calfas further noted in relation to whether it was reasonable to continue a business after 12 years of continuing losses, that in Mr Rosenthal's circumstances where he was working from home with little major expenditure there was not such a strong reason for Mr Rosenthal to cease the business. If Mr Rosenthal had at the relevant time asked Mr Calfas for an opinion about the continuance of the business, Mr Calfas would deal with this by having Mr Rosenthal examine where he saw the business going in the next one, two or three up to four years. Mr Calfas would look at the expenses which were directly attributable to deriving income outside of his home. He probably would have advised Mr Rosenthal to continue the business as long as he operated it from home. The continuance of the business provided Mr Rosenthal, in Mr Calfas' view, with emotional benefits more than necessarily a financial benefit. He saw Mr Rosenthal as an elderly gentleman with a purpose in life and that for him to have ceased the business may have been detrimental to him. Mr Calfas understood and to some extent agreed with Mr Menzies' proposition that if Mr Rosenthal had been Mr Menzies' client, that Mr Menzies would have discussed with him matters such as the fact that Mr Rosenthal liked doing what he was doing and it was not costing him much and there was some tax being saved, even though he would still be out of pocket. Mr Menzies stated he would have discussed with Mr Rosenthal the fact that Mr Rosenthal liked doing the business, it was occupying his time and he was getting some support from the AMA so he may as well have continued.
Mr Calfas further opined that there was some value in the data base because Mr Rosenthal had actually sold it and the client list for between $2000.00-$3000.00. Mr Calfas noted however that the database was not computerised. He did not know whether the intellectual property of the database was protected by copyright. Furthermore, Mr Calfas did not know whether Mr Rosenthal had developed any associations with business partners or if he spoke to travel agents about the way to develop the business or help market the business.
Mr Menzies told the Tribunal that the information he had considered, led him to conclude that the business had operated for a long period making no or very little net income and Mr Menzies could not see anything that was going to change that. He acknowledged that there was collateral benefit in the years that the business made a loss in that there is a tax saving from expenditure that would, as Mr Davies had pointed out, have been otherwise categorised as private and that is now tax deductible. Therefore there was a tax saving by operating the business which would not otherwise have been there. Leaving aside the tax savings, Mr Menzies opined that the business was still losing. As a result, Mr Rosenthal had been "out of pocket" for a number of years. Mr Menzies opined that the business income and expense summaries did not make allowance for the personal effort of the veteran, who had put a lot of hours into the business. Furthermore, there was no remuneration for Mrs Rosenthal's efforts as was agreed by Mr Calfas. While the business appeared to be conducted in a business like manner from an income tax point of view in that records were kept and summaries made, Mr Menzies opined that the business was not conducted in a business like or commercial manner in that it was labour intensive and did not appear to have been computerised or further business connections or associations developed or marketed. Mr Menzies concluded that it was financially in the veterans' interest to stop the business. There may have been other rewards such as mental or emotional matters and keeping Mr Rosenthal occupied and interested, but from a financial point of view there was no reward for Mr Rosenthal continuing in the business.
Mr Menzies referred Mr Calfas to the report he had prepared on 11 March 2002 (Exhibit R2) in which he calculated the tax benefit of what was itemised by Mr Davis as otherwise private expenditure. Accepting those figures and accepting that there was a tax benefit, Mr Calfas agreed that leaving aside what the business would have done in the future, Mr Rosenthal had been out of pocket in the years that he incurred the losses. In this regard, Mr Rosenthal was financially worse off because of carrying on the business. Mr Calfas agreed with this proposition. By looking at this and what the business had done in the past, and for how long it had been operating in that way, Mr Menzies opined that these facts indicated that Mr Rosenthal was financially worse off each year in that he incurred a loss. Again, Mr Calfas agreed with his proposition. Even though Mr Menzies had used figures provided by Mr Davis, he expressed some concern that in relation to the earnings, Mr Davis had added a tax benefit as a result of claiming those earnings. To Mr Menzies' mind, there was some issue of doubling up. In this regard, he noted that on the one hand the expenses were taken out and then on the other hand, Mr Davis had noted that there was a tax benefit because of those expenses. Despite these errors of calculation in Mr Davis' submissions, Mr Menzies did not consider that it caused a problem with his argument because the result was that even after the tax benefit each year there was still a loss. Again Mr Calfas agreed with this proposition.
Mr Calfas further agreed with Mr Menzies that there was a significant reduction in income from Mr Rosenthal's trusts and in 1996 there was some capital gain, indicating that money was being withdrawn from investments to fund the outflow of cash for the business. Until such time as in 1996, when further assets had to be sold and capital gains realised, this was then shown in 1996 in an increase in the interest received. Mr Menzies noted that Mr Rosenthal would have invested the proceeds from sale of these assets giving rise to the capital gain in 1996. Even so, income from the investments, it appeared to Mr Menzies, again agreed to by Mr Calfas, that the investments were reducing over the period presumably to fund the outflow of cash for the business.
Mr Menzies noted that the tax saved by Mr Rosenthal was less than the outgoings and less than the net loss and it had to be less than the expenditure to which it related because it was a percentage of that expenditure. What Mr Davis had done was multiply the expenditure by the relevant tax rates and they were the tax figures which Mr Menzies had calculated. The figure achieved was less than what Mr Rosenthal was going to be out of pocket, after taking those figures into account. Mr Menzies opined that Mr Rosenthal had not lost a financial net benefit. He was losing money net after any tax saving and when that outflow stopped, then he was losing a loss, not losing a benefit. This was despite the fact that Mr Rosenthal had some benefit in terms of tax deduction because it was out-weighed in net value terms by reason of the losses that he was incurring. Again, Mr Calfas agreed with this opinion.
Mr Menzies noted that there was significant travel costs in the 1982 financial year. There was a later trip. Mr Menzies noted that if Mr Rosenthal had not had the expenditure for the overseas trip, the loss would have been $4000.00. Mr Menzies did not know whether the overseas trip was going to create some asset, it was going to be a value in the future. All he could say was it did not appear to have been beneficial from the asset point of view because, from subsequent trading results and the actual amount the business was sold to the AMA, no benefit was indicated.
In contrast to Mr Davis' proposition that the real development of the business did not commence until Mr Rosenthal left the AMA in 1988, Mr Menzies' view was that the business started when the veteran was at the AMA which was in 1984. The input levels of Mr Rosenthal continued for a long period at different levels and there was nothing showing to Mr Menzies in terms of the fluctuation of income or expenditure that would indicate that the business was going to take off. Mr Menzies reiterated that Mr Rosenthal's business had a long time for a lead up and unless there was some other purpose to continuing the business, one would have, from the commercial sense, ceased it. The business could be compared with other businesses such as a bookkeeper or a sole trader undertaking design services. There are many businesses that are solely reliant on the personal exertion of one person. Mr Menzies stated that he had not seen any of those types of business in his history of clients that would continue on in the business losing the amount of money over the number of years that Mr Rosenthal had done unless they were doing it for some other purpose, such as that they loved doing it.
In cross-examination by Mr Modder, Mr Calfas stated that he could not characterise Mr Rosenthal's business as a hobby. In so opining, Mr Calfas stated that he did not know how many hours Mr Rosenthal worked per day or the actual extent that ill health impacted on this. Mr Calfas stated that he made an assumption that Mr Rosenthal's operation and ill health affected his concentration. He noted that there was a small profit in the 1992 financial year before Mr Rosenthal's ill health in 1993.
Mr Modder put to Mr Calfas that noting Mr Rosenthal's statement of 17 July 1996 at page 95 of the T Documents (T20), there was an indication that Mr Rosenthal was working 50 to 60 hours per week in 1994, that this scenario goes against Mr Calfas' suggestion that ill health affected the business in 1993. Mr Calfas opined that the hours devoted to the business may not necessarily be relative to the actual efficiency of the business enterprise. Mr Calfas noted, as he had previously, that in providing his opinions, he was making a lot of assumptions. Mr Calfas furthermore stated that Mr Rosenthal could have hired staff or operated in a more business like fashion, but at the end of the day, it was his decision as to how he ran his business. Looking at a hypothetical situation of a 40 year old man trying to operate a business like Mr Rosenthal's, Mr Calfas agreed, hypothetically, that you would have expected that a 40 year old business person would have expanded the database, advertised, developed associations and protected the intellectual property of the business.
Mr Calfas later agreed that by 1996, the Europa Consultants business had well passed its start up phase. Furthermore, it was conjecture or assumption on Mr Calfas' part, that there was a sizeable market for Mr Rosenthal's type of business. Mr Calfas could not point to one particular thing in relation to Mr Rosenthal's ill health, that would have made the business profitable if not for Mr Rosenthal's ill health. All he could say was that the business declined, in his view, because of Mr Rosenthal's ill health. He could not point to anything that could have made it profitable if Mr Rosenthal had not been ill. Mr Calfas agreed that talking generally about businesses, if Mr Calfas had records of a business which had operated for ten years, he agreed that he would be able in most cases to predict as to whether or not the company was likely to trade profitably or unprofitably in the future. Mr Calfas agreed that he was not in a position, having considered all of the relevant information, to indicate that Mr Rosenthal's business was likely to trade at a profit in the future.
Mr Menzies concluded that he did consider that Mr Rosenthal's business would trade profitably in the future because of the way the business was run. He opined that Mr Rosenthal's business was not run in a commercial manner. In this regard, things were not done that should have been done by a person who wanted to make money out of the business. The business was supported by one key client, the AMA, and in Mr Menzies' view, it was more akin to a hobby or an indulgence of Mr Rosenthal's than a business conducted in a commercial manner where one would have expected business plans, copyright of information that you had worked on over many years to develop running a business was more than just adding up what was spent and seeing what could be claimed as a tax deduction, Mr Menzies stated. Furthermore, Mr Menzies noted that Mr Rosenthal had not sought out associations with other like businesses. He had not made the use of advertising and most importantly, he had not computerised. There are simple data programs, Mr Menzies noted, that do not cost much to buy but can reduce all of the hours spent, as Mr Rosenthal did, in editing and refining his data on a manual basis. Mr Menzies agreed that Mr Rosenthal's business would not have turned into one of profitability because of the influence of ill health alone. His business was not going to be profitable whether or not he was ill, Mr Menzies concluded. The business problems went a long way back before 1993 when he became unwell. If the health problems had developed in 1986, 1987 or 1988, then it might be a different story. Mr Menzies stated that there did not seem to be a commercial motivation in running Mr Rosenthal's business. The future profitability of the business would appear, in Mr Menzies' consideration, to be unrelated to the state of Mr Rosenthal's health.
In summary, Mr Calfas stated that Mr Rosenthal's business was a different type of business and comments about commerciality may not have been as relevant to a person who carried out a business from rental premises and employed staff. It was a business that was carried on at a much lower level. Mr Calfas believed that Mr Rosenthal carried out his business to the best of his endeavours and efforts. As far as Mr Rosenthal was concerned, he was conducting a business as a business. Mr Calfas was of the view that the business did deteriorate further as a result of Mr Rosenthal's ill health (Transcript, 7 May 2002, p50).
Mr Menzies concluded that the business conducted by Mr Rosenthal was not conducted with the profit making incentive. It was dependent upon one client to support it basically as a hobby. To Mr Menzies, the way the business looked, was that it did not need to make a profit. There was no need to make money out of the business otherwise things would have been done very differently. Irrespective of Mr Rosenthal's health, Mr Menzies was firmly of the view that things would not have changed in relation to the manner in which the business was being conducted.
SUBMISSIONSMr Davis submitted to the Tribunal that Mr Rosenthal's case was about qualification for the Special Rate. Although Mr Rosenthal satisfied some of the criteria for the Extreme Disablement Adjustment, he did not meet all the criteria and therefore this was not being contended before the Tribunal.
Mr Davis opened his submissions in relation to Special Rate by referring the Tribunal to the Federal Court decision in Counsel v Repatriation Commission [2001] FCA 1032 in which reference was made to Ashley J's decision in proceedings before the Victorian Supreme Court in the matter of Accident Compensation Commission v Alger (1993) 1 VR 379. In that decision, Ashley J cited the High Court decision in Cage Developments Pty Ltd v Schubert (1983) 151 CLR 584 noting:
"Where, for example, a business consists essentially of the provision of personal services by the former worker (e.g. a business of a sole plumber or casual gardener) and no significant investment of capital is involved, the actual net earnings of the business might properly be seen as representing the actual "reward for [the] labour" of the former worker…during a period of partial incapacity. In such a case, if the former worker is carrying on business solely on his own account, the net earnings of the business might properly be seen as representing the "amount he is earning" in a business; if he is carrying on business in partnership or as an employee of a family company, the net earnings might properly be seen as representing the "amount he …is able to earn" either in employment or in a business."
Mr Davis further referred the Tribunal to Counsel v Repatriation Commission [2001] (supra), in which Moore J noted that the Tribunal in that matter followed an analysis of the business in which the Tribunal pointed to the capital injections made by the Applicant and his wife, uncertainty as to the benefits enjoyed by the Applicant while operating the partnership business and the Applicant's expectation of receiving payment from the business whether by income reinvestment and capital enhancement or by way of drawings, profit, tax benefits or living expenses. The approach the Tribunal took had regard to the generality of the language used in subsection 24(2A)(e) of the Act and the material available to it and there was no error of law in the Tribunal's approach, Moore J concluded.
Mr Davis submitted that Moore J also noted in Counsel v Repatriation Commission [2001] (supra) that there was no single way in which actual or potential earnings could be determined. The circumstances of a particular case would indicate in which manner matters should be decided and what evidence was relevant for the purpose of determining the actual earnings. Furthermore, in the High Court decision in Cage Developments Pty Ltd v Schubert (supra), it was determined that it is undesirable to confine decision making within the strictly artificial rules laid down in advance by an Appellate Court.
Mr Davis wished to highlight the term "income reinvestment'. He noted that from the McMillans Dictionary of Modern Economics "investment" is defined as a term most commonly used to define the flow of expenditure devoted to increasing or maintaining the real capital stock. Mr Davis submitted that a more accurate definition clearly encompasses that investment is the flow of expenditure devoted to projects producing goods which are not intended for immediate consumption. Investment projects may take the form of adding to both physical and human capital as well as inventories. Mr Davis contended that a great deal of the expenses incurred by Mr Rosenthal were investment expenses to update his inventory and should be classed as more of an investment because it was not for immediate use. As an example, Mr Davis noted that Mr Rosenthal used his car a great deal in assisting him to collect data. Mr Rosenthal had overseas trips also to collect data but they were not for immediate use. Therefore, these were investments and, his expenses, if those investments were set aside, included printing, paper, typewriter ribbons and similar items. Therefore, Mr Davis submitted, that if those "investments" are put aside, Mr Rosenthal does in fact tend to show a profit in the relevant years. Thus, from Schedule B to the letter of 18 December 2001, prepared by Mr Menzies (Exhibit R1), the majority of his expenses were motor vehicle expenses. They should be looked at as investments as defined in the dictionary. Mr Davis acknowledged that he had not put this contention to either accountant during evidence.
In relation to the proposition that Mr Rosenthal had not been carrying on his business as if he intended to make a profit, for example, by not computerising, Mr Davis submitted that computers were in the infant stages of development in 1993 and he was quoted $10,000.00 to computerise in 1995.
Mr Davis submitted that when Mr Rosenthal was forced to give up his work, this was due to ill health and yet at that time there was great potential for him to have reasonable earnings from his business. He had been overseas in 1993 and collected a great deal of information. It was a huge task for Mr Rosenthal to collate the information and in the end, he was not fit enough to put it together properly. Mr Rosenthal was, Mr Davis submitted, perhaps obsessed by having all the details correct and found that he was just unable to assimilate all the information according to the standard that he had set himself. He was so obsessed, Mr Davis submitted, that he ended up selling his business for only $3000.00 to the AMA. To support the proposition that at the time Mr Rosenthal ceased his business, he had great potential for significant earnings, Mr Davies contended that Mr Rosenthal himself was convinced that if he went overseas in 1993, which he did, the amount of effort and time and money spent on the trip to obtain additional and required data would enable him to produce a product which would be very marketable right across the world.
Mr Davis acknowledged in his submissions that Mr Rosenthal's "business qualities" were not what they should have been. He should for example, have advertised and used more travel. He did not do this and he also did not have a business plan nor was he computerised. Furthermore, he had not obtained intellectual copyright over his business. If Mr Rosenthal had had business acumen, Mr Davis submitted that he would have developed his business into a successful business (Transcript, 7 May 2002, p55). Mr Davis stated that Mr Rosenthal has never had business acumen and on top of this there was a deterioration in his health. The Tribunal was referred to Re Maloney and Repatriation Commission (1989) 17 ALD 292; (AAT 5037, 20 April 1989) in which Senior Member Muller as he then was, stated in relation to subsection 24(1)(c) of the Act that:
"I detect no such Legislative intent. In my view there is nothing in the relevant section which requires the applicant to manage his affairs, property or assets in such a way that he obtain the best commercial advantage to himself lest he be disqualified from obtaining a pension right to which he would otherwise be entitled…"
The situation in Re Maloney and Repatriation Commission (supra), was similar to the circumstances experienced by Mr Rosenthal, Mr Davis submitted. Mr Rosenthal did not manage his assets in such a way that he could obtain the best commercial advantage. He should have sought help for his business including the establishment of business plans.
Following Mr Modder's submission, Mr Davis submitted that Mr Rosenthal may well have been working long hours in 1995 but he was inefficient because of his ill health. At that time, he had a combined impairment rating of 70 points. Furthermore, Mr Davis submitted that Dr Dinnen had opined that Mr Rosenthal would be unable to work because of his anxiety state alone. This was further supported by the evidence from Dr Solomons at T18, p93 in which Dr Solomons noted that he had provided professional advice to Mr Rosenthal as his local medical officer since 1992. Dr Solomons wrote in 1995 that Mr Rosenthal was having health problems. Accordingly, Mr Davis submitted that Mr Rosenthal more than qualifies in meeting the requirement of subsection 24(1)(b) of the Act. It was only natural, given the level of his war-caused incapacity, that he could not progress his business. The business which had great potential could not be attained even though he had possibility of doing it, save for his health, at the end of 1993.
Mr Modder for the Respondent submitted that Mr Rosenthal meets the requirements of subsection 24(1)(a) of the Act as he had a degree of incapacity of at least 70 per cent. In relation to subsection 24(1)(b) of the Act, Mr Modder submitted that the requirement is that Mr Rosenthal be totally and permanently incapacitated and that he cannot work eight hours per week. Mr Modder submitted that Mr Rosenthal's circumstances did not meet this requirement. This submission is based on Mr Rosenthal's statement made on 17 July 1996 (T20) in which he had informed Mr Davis that in early 1988, he had worked a minimum period of 40 hours per week, February to May inclusive. He had then worked on average 50 to 60 hours a week from June to January inclusive in each twelve month period up until January 1995. For the remainder of 1995 and up to January 1996 inclusive, Mr Rosenthal had reduced his weekly working to 20 hours and had gradually reduced the commitments to eight hours per week or less. He had officially closed his medico-educational information service on June 30, 1996. Thus, Mr Modder submitted, up to early 1996, Mr Rosenthal was working long hours and much longer than the average hours. At that stage, he had an earning capacity, Mr Modder concluded.
Turning to the test of whether Mr Rosenthal's accepted disabilities alone prevented him from undertaking remunerative work, Mr Modder noted Mr Calfas' opinion supporting this proposition. Mr Modder noted however that Mr Calfas had very little information to support this opinion, particularly regarding Mr Rosenthal's illness. He had obtained his information from Mr Rosenthal himself. Mr Calfas could supply little objective information to support his contention that since 1993, Mr Rosenthal's ill health had increasingly adversely affected his ability to concentrate on his work. And in any event, this was inconsistent with Mr Rosenthal's account of his work effort as provided at T20. On the other hand, Mr Menzies had provided very detailed evidence having looked at all of the material in the matter, including the Transcript, T Documents, the ledger accounts and the material provided by Mr Davis. Mr Modder submitted that Mr Menzies has many years experience as an accountant and in his considered opinion, as a business enterprise, Europa Consultants was not likely to be profitable at any stage in the future after it ceased even without Mr Rosenthal's accepted disabilities. To support his views, Mr Menzies outlined that Mr Rosenthal had no computerisation, did not use spreadsheets and had no business plan. Furthermore, Mr Rosenthal had no copyright protection and there was little or no advertising. There was no use made of networks such as travel agents. Mr Calfas had conceded that if these business practices had been implemented, a different scenario might have eventuated. For example, if the Applicant was aged 40, he would have undertaken all of those things if he wanted the business to be remuneratively profitable.
Mr Modder referred to the test of remunerative work as discussed in Hill v Repatriation Commission [2000] FCA 929 and also in Counsel v Repatriation Commission [2001] (supra) in which Moore J raised the issue without actually resolving conclusively the meaning of remunerative work. In Hill v Repatriation Commission (supra), it was found that a dog breeding business was far from being a remunerative activity and had been costly to Mr Hill. Mr Modder submitted that Mr Rosenthal's circumstances were exactly the scenario as outlined in Hill v Repatriation Commission (supra). Europa Consultants was a costly enterprise for Mr Rosenthal. Mr Menzies was emphatic that there was no way that Mr Rosenthal's business was ever going to be profitable based on its track record. Mr Modder noted that during a 12 year period, there was a $41,809.00 loss. The only profit over the 12 years totalled $4,488.00. Therefore, Mr Menzies' conclusion was well justified and in the end, Mr Calfas had conceded that there was no hard evidence to point to the business ever being successful or profitable. Mr Modder submitted that after ten years it was agreed by Mr Calfas that one could predict whether or not a business was likely to be profitable. Mr Menzies had submitted that in his opinion, the enterprise, Europa Consultants amounted to little more than a hobby for Mr Rosenthal and although there were tax advantages, these were to a limited extent and business was never really carried on in a business-like way.
Mr Modder submitted that there was never any intention to make Europa Consultants profitable. Mr Calfas later said that one of the major driving forces behind Europa Consultants was the tax concessions available.
Mr Modder submitted that in relation to Mr Davis' submissions about investment, there was no evidence to support what he submitted.
While Mr Modder's main submission was that Mr Rosenthal did not meet the criteria contained within section 24(2A)(d) and (e) of the Act, he also was of the view that Mr Rosenthal did not meet subsection 24(1)(b) as required by subsection 24(2A)(c). Accordingly, the decision under review should be affirmed.
FINDINGSThe Tribunal has reached a decision in this matter taking into account the oral and documentary evidence, the legislation and case law.
The Tribunal finds that Mr Rosenthal provided evidence to the best of his ability and allowing for difficulties in memory, considers him to have been a witness of truth.
The issue in this matter is whether or not Mr Rosenthal is qualified to receive pension at the Special Rate. The Tribunal is satisfied that at the time of hearing, although Mr Rosenthal satisfied some of the criteria for the Extreme Disablement Adjustment, he did not, on all the evidence, satisfy all the criteria. Mr Rosenthal is currently receiving pension at 100 per cent of the General Rate and accordingly, subsection 24(1)(a) of the Act as dealt with in subsection 24(2A)(c) is met. Furthermore, Mr Rosenthal satisfies subsection 24(2A)(a) in that he had made a claim for an increase in the rate of pension and also satisfies subsection 24(2A)(b) in that he had turned 65 before his application was made. There was a concession by the Respondent that Mr Rosenthal also meets subsection 24(2A)(g)(ii) of the Act, in that he had been working on his own account for a continuous period of at least 10 years prior to turning 65 years of age. The Tribunal is satisfied that this is a concession which is properly given.
Turning to the facts in this matter, Mr Rosenthal commenced his business association, as he called it, with two other colleagues, developing a database within Australia and internationally, detailing training opportunities including conferences and contacts useful to principally the medical profession. By the time Mr Rosenthal ceased his business in 1996, the other colleagues were no longer involved with the business. During the life of the business, Mr Rosenthal had published two books detailing information about medical conferences and training opportunities. It is his contention that because of his war-caused ill health, he was prevented from continuing in his business and suffered a loss of earnings.
The evidence from the two accountants in this matter was provided concurrently and was a most beneficial exercise. The Tribunal notes that both accountants indicated their satisfaction with this process.
Mr Calfas, the Applicant's Accountant and Mr Menzies, engaged by the Respondent, entered into the provision of concurrent evidence with integrity and great professionalism. It was indeed a most instructive process for the Tribunal with both accountants carefully listening to each other's evidence and providing well reasoned argument.
It is Mr Calfas' contention that Mr Rosenthal's business was prevented from producing a profit because of Mr Rosenthal's ill health. After discussion between Mr Menzies and Mr Calfas, Mr Calfas noted that he had based his opinion on consideration of tax returns and what Mr Rosenthal had told him. Mr Calfas had furthermore noted that businesses will often produce losses in their early years before turning to profit, but conceded that it could be argued in Mr Rosenthal's case that the continuing losses over a period of more than ten years was problematic. Mr Calfas acknowledged that Mr Rosenthal did not have business plan, did not undertake reviews, nor had he undertaken prudent business strategies such as concerted advertising, computerisation and the development of contacts and associations. Mr Calfas also conceded Mr Menzies' point that on the projected figures supplied by Mr Rosenthal and also by Mr Davis, the business in fact was not likely to have made a profit.
The Tribunal notes Mr Menzies' opinion in agreement with Mr Calfas that businesses do, in their start up phase, make losses. In Mr Rosenthal's case however, it was Mr Menzies' contention that it had progressed well beyond its startup phase and was not conducted in a business-like manner and it was not ever going to make profit. The Tribunal notes Mr Calfas' evidence that the business further deteriorated following Mr Rosenthal's war-caused disabilities coming to the fore. The Tribunal also noted Mr Davis' submissions that Mr Rosenthal never had business acumen and the impact of his war-caused incapacity on his poor business skills further caused his loss of earnings.
As Mr Menzies had said, the business had continued with different input levels for a long period without showing anything in terms of the fluctuation of income or expenditure which would indicate that the business was going to succeed. The business was purely the exertion of an individual such as those undertaken by bookkeeping services or design services. The benefits gained through tax deduction did not outweigh, Mr Menzies had submitted, the amount Mr Rosenthal was out of pocket by continuing to carry on the business. Its eventual sale for $3,000.00 was indicative of the small value placed upon the business and not at all conducive to the conclusion that the business had great potential.
The Tribunal gained some guidance from the Full Court of the Federal Court decision in Counsel v Repatriation Commission [2002] FCAFC 201 which dealt with the issue of earnings in the context of the beneficial nature of the Act. In that decision, it was noted that for Special Rate to be applicable, as dealt with in subsection 24(2A) of the Act, it is sufficient for there to be "a loss of salary or wages" or earnings on the veterans' own account that the veteran would not be exposed to in the absence of his or her incapacity. Carr J acknowledged that depending on the context, the word "earnings" is ambiguous in that it could mean gross earnings or a figure which results after deleting expenses from gross earnings. It was noted that the amount of earnings lost through incapacity was irrelevant to the amount payable from the Special Rate. Carr J concluded that earnings should be construed as gross earnings. Goldberg J noted that earnings as dealt within subsection 24(2A)(e) of the Act does not mean an amount derived after deducting expenses. Goldberg J in Counsel v Repatriation Commission [2002] (supra) further referred to Hill v Repatriation Commission (supra) in which Wilcox J dealt with the issue of whether a veteran's dog-breeding activity was remunerative work for the purposes of subsection 24(1)(c) of the Act. In that case, Wilcox J was not called upon to determine the proper construction of the expression "suffering a loss of earnings on his or her own account". Goldberg J noted that subsection 24(2A)(e) of the Act has a common thread running through it concerning whether or not an income revenue or cash flow stream available to the veteran is arising out of a veterans' service-related incapacity.
Goldberg J noted at paragraph 79 of his decision in Counsel v Repatriation Commission [2002] (supra), that the fact that at the end of a relevant accounting period a business or partnership might be showing a loss, should not obscure the fact that during the year, Mr Counsel had access to cash flow or earnings of the partnership which had been derived from his personal exertion. When Mr Counsel was ultimately prevented by incapacity from continuing to undertake the work which he carried out in the course of the partnership, he thereby suffered a loss of earnings on his own account in the sense that Mr Counsel was no longer able to have access to, or take advantage of, the cash flow or earnings of the partnership business. It is not the point, Goldberg J concluded, that at the end of a relevant accounting period, the partnership was shown in Mr Counsel's accounts to have carried on business at a loss. Goldberg J urged that the entitlement to a Special Rate pension depends on establishing not only that war-caused injury or disease prevented a veteran from undertaking the remunerative work that he or she had been undertaking, but that it also brought about a cessation of the generation of an income stream which had previously existed. Put another way, this meant that Mr Counsel's efforts of personal exertion no longer produced money.
In Gauntlett v Repatriation Commission (1991) 32 FCR 73 at 76, Pinkus J noted:
"As I read s24, to qualify under it a veteran does not have to show that he has lost a "living", but merely that he has lost salary, wages or earnings. Applying the provision in this fashion can considerably overcompensate a veteran who falls within the section's scope, as compared with other veterans who do not so fall: the extra pension paid may considerably exceed the actual earnings lost. But that seems necessarily to follow from the language used."
In terms of the term "remunerative work", in Hill v Repatriation Commission (supra), Wilcox J noted that there may be cases where an activity in which a veteran is engaged fails to return a net profit by the veteran, for example, when a veteran is attempting to establish himself or herself in a particular activity but was denied success by his or her war-caused disability. Hill J noted that if the decision-maker was satisfied that the attempt would have been successful, in the sense of providing earnings on his or her own account but for the war-caused incapacity, then Hill J saw no difficulty about concluding such circumstances as representing remunerative work. Furthermore, in those circumstances a veteran could be seen to be prevented, by war-caused disability, from continuing to undertake remunerative work that the veteran was undertaking and that by reason thereof, had suffered a loss of earnings on his or her own account.
In the Tribunal's view, even though Mr Rosenthal was making a loss, he was still engaged in remunerative work. He was thus receiving remuneration though less than he hoped for, as a result of his activity. His earnings, following the decision in Counsel v Repatriation Commission [2002] (supra), while indicative of him making a loss, could not detract from the fact that he had access to a cash flow or earnings which was derived from his personal exertion. If Mr Rosenthal was prevented by his war-caused incapacity alone from continuing to undertake the work in his Europa consultancy, then he could be considered to have been suffering a loss of earnings on his own account. This is clear from Goldberg J's reasoning in the Full Court decision in Counsel v Repatriation Commission [2002] (supra).
The Tribunal has already found that Mr Rosenthal meets the requirements of subsection 24(2A)(a) and (b). He has also met the requirements of subsection 24(2A)(c) in that he has met subsection 24(1)(a). In relation to the second requirement of subsection 24(2A)(c) of the Act, requiring that Mr Rosenthal meets subsection 24(1)(b), Dr Solomons' and Dr Dinnen's opinions are that Mr Rosenthal was unable, because of his war-caused incapacity alone to undertake remunerative work for periods aggregating more than eight hours per week. Nether Dr Dinnen nor Dr Solomons refer however, at the time of their reporting in relation to Mr Rosenthal's cessation of work, to the non-accepted health conditions of his unsteady gait problem and his hearing difficulties. Both of these difficulties were significant in their impact on Mr Rosenthal's continuing ability to work as he discussed in his evidence. Thus there were non-accepted conditions impacting on Mr Rosenthal's ability to continue to work. While the hearing disability has subsequently been accepted, the problem with Mr Rosenthal's gait has not been accepted, as he himself acknowledged. Furthermore, on all of the evidence available to the Tribunal, there is nothing to indicate that the gait problem is symptomatic of any of his accepted disabilities. Mr Rosenthal, on his evidence, was also working greater than eight hours per week, though the Tribunal understands the submission that he was working inefficiently because of his health problems.
Mr Rosenthal was clear in his evidence that there was a significant impact on his work and continuing ability to work by the presence of another condition, not claimed by him nor accepted by the Repatriation Commission, which he described as a gait problem. The presence of this non-accepted condition relating to Mr Rosenthal's unsteady gait was significant because of a number of factors including an impact on his mobility. He described being all right when sitting, but unstable if he had to move around. This restricted mobility and unsteadiness disrupted Mr Rosenthal's ability to pursue his business associations and contacts. There was further disruption, as on his evidence, he had frequently to consult the doctor more than usual and hence further impact on his ability to work. The Tribunal finds therefore that Mr Rosenthal does not meet subsection 24(1)(b) of the Act and consequently does not meet subsection 24(2A)(c) of the Act.
For completeness, the Tribunal turns to consider subsections 24(2A)(d) and (e) of the Act which require that Mr Rosenthal was, because of his war-caused incapacity alone, prevented from continuing to undertake remunerative work that he was undertaking before making his application and that because he is prevented from undertaking his last paid work, he is suffering a loss of salary or wages or earnings that he would not be suffering if he were free from the incapacity. Subsection 24(2A)(e) must be read in conjunction with subsection 24(2B) of the Act. That is, Mr Rosenthal would not be taken to be suffering a loss of salary or wages or earnings on his own account because of incapacity if either he had ceased to engage in remunerative work for reasons other than his incapacity or he was incapacitated or prevented from engaging in remunerative work for some other reason.
The Tribunal finds that on all of the evidence, and also noted by Mr Davis in submissions, that Mr Rosenthal did not have any business acumen. He did not have this prior to the onset of his war-caused disabilities and in fact on the evidence, the war-caused disabilities when they came to the fore, caused the further deterioration of his ability to conduct his business. Noting the decision in Re Maloney and Repatriation Commission (supra), the Tribunal does not consider that the innate qualities that Mr Rosenthal brought to his business activities can be used to disentitle him to pension at the Special Rate. Mr Rosenthal does, however, have a non-accepted condition related to his gait for which Mr Rosenthal has not made any claim for pension. The Tribunal has already found that this non-accepted condition does not, on the evidence, relate to any of Mr Rosenthal's accepted conditions. The Tribunal notes the decision in Cavell v Repatriation Commission (1988) 9 AAR 534 in which Burchett J did not characterise the "alone test" as the sole or unique and absolute cause of the cessation of remunerative work, because it has the tendency:
"… to distract the tribunal from its true task – to make a practical decision whether the veteran's loss of remunerative work is attributable to his service-related incapacities, and not to something else as well. It is a decision that should not be made upon nice philosophical distinctions, but with an eye to reality, and as a matter in respect of which common sense is the proper guide."
Furthermore, in Forbes v Repatriation Commission (2000) 58 ALD 394 at 400, R D Nicholson J noted the decision of Burchett J, in Cavell v Repatriation Commission (supra) which referred to a statement by the Tribunal that:
"…any factor having employment consequences which played a part in the applicant's inability to work or to obtain and hold remunerative employment, is sufficient to displace the applicant's case for pension at the special rate."
R D Nicholson J continued in Forbes v Repatriation Commission (supra) at 401:
"The question whether the veteran by reason of the war-caused condition "alone" has been prevented from continuing to undertake remunerative work can only be answered by reference to all of the circumstances in which the war-caused condition exists. The fact that a non war-caused condition is not alone causative of such preventative effect does not prevent it having that effect in combination with the war-caused condition… Furthermore it is consistent with the application by a tribunal of a common sense approach "with an eye to reality".
As in the case of the present applicant, it is possible that the war-caused condition will be by far and away the more dominant of the causes of the preventative effect where there is also present a non war-caused condition having such effect in combination. The result is the presence of the latter will deny to a veteran qualification for special rate of pension.
…"
The Tribunal finds that Mr Rosenthal's war-caused incapacities did have an impact on the way he conducted his business from about 1995 and on his ability to continue to conduct his business. However, there was the other non-accepted health factor of his unsteady gait problem which impacted, amongst other matters, on his mobility. The Tribunal finds that the combination of accepted and non-accepted conditions prevented Mr Rosenthal continuing the business. Thus, even though in terms of the principles outlined in Counsel v Repatriation Commission [2002] (supra), Mr Rosenthal in his loss producing business was suffering a loss of earnings on his own account because he could not continue working, it was not because of his war-caused disabilities alone. Even though the gait problem and its consequences may not have been the predominant reason for cessation of work or continuing to work, it is present and significant, as described by Mr Rosenthal. In the Tribunal's view, the combination of these factors, both war-caused and not, displaces Mr Rosenthal's qualification for the Special Rate.
Considering the Explanatory Memorandum to the Veterans' Affairs (1994-95 Budget Measures) Legislation Amendment Bill (1994) and also the then Minister for Finance, Mr K Beasley's discussion in his Second Reading Speech in relation to the new measures contained within subsection 24(2A) of the Act, it was noted that Special Rate qualification for veterans over the age of 65 would in fact occur only rarely and in specific circumstances. Section 24 is not a provision intended by the Parliament nor interpreted in the caselaw which should be enacted on constructions of the employment and financial circumstances of veterans. In this particular case it applies to subsection 24(2A) for veterans over the age of 65 years.
The Tribunal finds that on all of the available evidence, Mr Rosenthal is not eligible for payment of pension at the Special Rate as he fails, for the reasons expressed above, to meet the requirements of subsection 24(2A)(c), (d) and (e) of the Act in combination with subsection 24(2B) of the Act. In such circumstances, pursuant to Section 43 of the Administrative Appeals Tribunal Act 1975, the decision under review is affirmed.
I certify that the 104 preceding paragraphs are a true copy of the reasons for the decision herein of Ms S M Bullock, Senior Member, Dr J D Campbell, Member and Mr M A Griffin, Member.
Signed: .....................................................................................
AssociateDates of Hearing 23 January 2002 and 7 May 2002
Date of Decision 9 October 2002Representative for the Applicant Mr R Davis, Advocate with the RSL
Representative for the Respondent Mr S Modder, Departmental Advocate
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