Schulz and Repatriation Commission (Veterans' entitlements) - [2019] AATA 999

Schulz and Repatriation Commission (Veterans' entitlements) [2019] AATA 999 (24 May 2019)
Division:VETERANS' APPEALS DIVISION
File Number:2018/2265
Re:John Schulz
and
Ruth Schulz
THEAPPLICANTS

Repatriation CommissionAnd
RESPONDENT

DECISION
Tribunal:Deputy President J Sosso
Date:24 May 2019
Place:Brisbane

The Tribunal affirms the decision under review.
.............................[SGD]........................................
Deputy President J Sosso
CATCHWORDS
VETERANS’ AFFAIRS – service pension – surrender of three life insurance policies – income – when was income earned, derived or received - decision affirmed.
LEGISLATION
Administrative Appeals Tribunal Act 1976 (Cth)
Social Security Act 1991 (Cth)
Veterans’ Entitlements Act 1986 (Cth)
CASES
Secretary, Department of Social Security v Davies (1997) 75 FCR 596
Barry v Repatriation Commission (1993) 41 FCR 529
Podkalicki and Repatriation Commission [2002] AATA 38
Clarke and Repatriation Commission [1996] AATA 398
Rose v Secretary, Department of Social Security (1990) 21 FCR 241
Secretary, Department of Social Security v SRA (1993) 43 FCR 299
Hill v Repatriation Commission [2004] FCA 832
Secretary, Department of Employment and Workplace Relations v Richards (2007) 98 ALD 319
Haldane-Stevenson v Director-General of Social Security (1985) 9 FCR 73
Read v Commonwealth (1988) 167 CLR 57
Inguanti v Secretary, Department of Social Security (1988) 80 ALR 307
Rose v Secretary, Department of Social Security (1990) 21 FCR 241
Secretary, Department of Family and Community Services and McLaughlin (2003) 37 AAR 59
Secretary, Department of Employment and Workplace Relations v Richards [2007] FCA 1710
REASONS FOR DECISION
Deputy President J Sosso
24 May 2019
INTRODUCTION

Mr John Schulz and Mrs Ruth Schulz (the Applicants) seek a review of a decision dated

28 March 2018 (the reviewable decision) of a delegate of the Repatriation Commission (the Commission). The reviewable decision affirmed a determination of the Commission of 19 February 2018, that the “profit” received by the Applicants upon the termination of three life insurance policies was income for service pension purposes in accordance with s 5H of the Veterans’ Entitlements Act 1986 (the Act) and was assessable in accordance with s 46A.
Accordingly, the issues to be determined by the Tribunal are relatively straightforward. First, it is necessary to consider whether the “profit” received on the surrender of the three life insurance policies falls within the definition of “income” in s 5H(1). In reaching a conclusion consideration of other definitions is also required including “income amount” and “ordinary income”. If those moneys can be characterised as “income” consideration must then be given to s 46A which deems the profits to be received over the twelve month period from the day on which the person becomes entitled to receive that amount. Various exemptions are provided for which also need to be considered.
By consent it was agreed that this matter could be adequately determined in the absence of the parties, and the Tribunal agreed to review the reviewable decision in accordance with s 34J of the Administrative Appeals Tribunal Act 1975 by considering the documents lodged.
THE FACTS
The Applicants have received service pensions since 30 August 2002 – Exhibit…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2019] AATA 999
Decision Date: 24 May 2019

CaseChat Overview and Summary

The Administrative Appeals Tribunal considered a dispute between Mr. Schulz and the Repatriation Commission concerning the assessment of service pension. The applicants had surrendered three life insurance policies, and the Commission determined that the profit realised from this surrender constituted assessable income, leading to an overpayment of service pension. The applicants sought a review of this determination, arguing that the earnings from the policies were accumulated over time and should only be considered from the year they became eligible for a service pension, or that the transaction was merely a transfer of assets.

The primary legal issue before the Tribunal was to determine when the "profit" from the surrender of the life insurance policies was earned, derived, or received for the purposes of assessing service pension under the Veterans' Entitlements Act 1986. Specifically, the Tribunal had to consider whether the accumulated bonuses constituted ordinary income, and if so, when that income became assessable, particularly in light of section 46A of the Act, which deals with the deeming of certain amounts as ordinary income over a 12-month period.

The Tribunal reasoned that the difference between the total amount received upon surrender and the premiums paid represented an "income amount" for the purposes of the Act. It accepted the Commission's contention that the applicants did not have a present entitlement to this income amount until the policies were surrendered, nor had they realised an actual gain or been able to dispose of the funds at will before that date. The Tribunal applied section 46A of the Act, which deems certain amounts received to be ordinary income over the 12 months from the day the person becomes entitled to receive it.

Consequently, the Tribunal affirmed the decision that the profit from the surrender of the life insurance policies was assessable income for service pension purposes. However, it varied the reviewable decision to assess this income under section 46A at $423.46 per week, reflecting the deeming provision for the 12-month period following the surrender.

Orders

Orders of the court

Full text does not contain this section.

Background

Background to the litigation

By consent it was agreed that this matter could be adequately determined in the absence of the parties, and the Tribunal agreed to review the reviewable decision in accordance with s 34J of the Administrative Appeals Tribunal Act 1975 by considering the documents lodged.THE FACTS The Applicants have received service pensions since 30 August 2002 – Exhibit 1 T13 p. 55. Mr Schulz purchased three life insurance policies with Colonial Mutual Life Assurance Society Pty Ltd (Colonial) on 5 April 1965, 11 October 1966 and 31 December 1976 – Exhibit 1 T15 p. 81. Each of these policies was terminated and the balance “called in” on 19 April 2016 – Exhibit 1 T15 p. 81. On 31 October 2017, as part of the Department of Veterans’ Affairs (the Department) Compliance Review Program, a “Review of Personal & Financial Circumstances” Form was sent to the Applicants for completion and return. On 10 November 2017 the Department received a completed Form from the Applicants. Questions 16 – 18 related to the three life insurance policies. In response to each Question as to the withdrawal value of the policies, the Applicants wrote “cashed in” – Exhibit T14 p. 67. The surrender value of Colonial policy 1029576(4) was stated in the Form to be $1,998 and the surrender value of the remaining two policies was as follows: policy 1032222(0) $9,538 and 2302125(6) $6,681. On 12 February 2018 an officer of the Department emailed Colonial seeking the following information regarding the Applicants life insurance policies – Exhibit 1 T15 p. 82:(a)the commencement date of the “investments”;(b)the total amounts contributed by the policy owner;(c)the date(s) and amount(s) of each withdrawal made from the “investments” before maturity;(d)the date of the final redemption of the “investments” on maturity; and(e)the net amount of the final redemption paid to the policy owner on maturity. On 19 February 2019 an officer of Colonial emailed to the Department the following information as requested - Exhibit 1 T15 p. 81: On the same day, a Delegate of the Commission determined that an amount of $35,943.29, which was classified as “profit” from the surrender of the Colonial life insurance policies, should be held in the Applicants service pension assessments. The Delegate assessed fortnightly income of $1381.41 for the period 19 April 2016 until 18 April 2017. This equated to service pension overpayments of $8569.08 for each of the Applicants. – Exhibit 1 T18.1 p. 89. The Applicants requested a review of this Determination (Exhibit 1 T17 p. 85). In his letter of 26 February 2018, Mr Schulz advanced the following grounds for seeking a reconsideration:“Firstly: 1: The income earned by the cashed in insurance policies was accumulated from the initiation of each policy on an annual basis and is not a capital gain on disposal of an acquired asset;2: The cashing in of the policies was in effect a transfer of an asset from one head of accounting to another head and did not alter my total assets;3: The earnings from the policies are only of interest to DVA from the year when I was first granted a service pension – probably 2002.Secondly: The income from the solar panels resulted from a Federal Government policy and to my understanding is to be regarded as from a ‘hobby’ and not assessable; note that I have not claimed depreciation, maintenance or repairs as deductions against this ‘income’. Note also that least year I exchanged my electric hot water system for a solar hot water system making a difference to the recent solar income and no adjustment has been claimed.Thirdly: Income from all sources is calculated annually for tax purposes and I cannot remember non-pension income exceeding the annual DVA allowable limit.”

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

The Tribunal accepts that the concession is properly made and the recalculated figure is in accord with the material before the Tribunal.DECISION The Tribunal:(d)affirms the decision under review, insofar as it determined that the profit received by the Applicants from the surrender of the three Colonial life insurance policies is income for service pension purposes and is assessable pursuant to section 46 of the Veterans’ Entitlements Act 1986; and(e)varies the reviewable decision so that the Applicants total income from the surrender of the three Colonial life insurance policies is assessable under section 46A at $423.46 per week.

Ratio Decidendi

Legal Principle Established

As explained earlier, a key provision for the resolution of this matter is s 46A, which deems certain amounts received as ordinary income over the 12 months from the day the person is entitled to receive that amount:“If a person receives, whether before or after the commencement of this section, an amount that:(a)is not income within the meaning of Division 3 or 4 of this Part; and(b)is not:(i)income in the form of periodic payments; or(ii)ordinary income from remunerative work undertaken by the person; or(iii)an exempt lump sum;the person is, for the purposes of this Act, taken to receive one fifty-second of that amount as ordinary income of the person during each week in the 12 months commencing on the day on which the person becomes entitled to receive that amount.”CONSIDERATIONIntroduction There are few, if any, factual matters that are in dispute. The Applicants are each a member of a couple as defined by s 5E(2) of the Act. Further, it is not disputed that Mr Schulz opened life insurance policies with Colonial in 1965, 1966 and 1976. Annual premiums were paid on each of the policies and bonuses accumulated during their life. Mr Schulz surrendered the policies on 19 April 2016 and, together with his first spouse, was paid the premiums plus the accumulated bonuses.The Commission’s submissions The Commission contends (Amended Statement of Issues, Facts and Contentions of the Respondent – ASIFCR at para 32.1) that the difference between the total amount received on surrendering the life insurance policies and the purchase price and premiums paid is an “income amount”, namely a “profit”, for the purpose of s 5H(1) of the Act. Consequently, it is contended:(a)Mr Schulz “earned, derived or received” an income amount on surrendering the life insurance policies on 19 April 2016 – ASIFCR para 32.2;(b)the income amount from the life insurance policies was “income” on 19 April 2016 when Mr Schulz received his share for his own use or benefit – ASIFCR 32.3;(c)Mr Schulz did not earn, derive or receive the income amount from his life insurance policies for his own use and benefit before 19 April 2016 because - ASIFCR para 32.4:(i)he did not have a present entitlement to the income amount from the surrender of the life insurance policies until he surrendered them: reliance being placed on, inter alia, Secretary, Department of Family and Community Services and McLaughlin (2003) 37 AAR 59 at 63 – 64/[25];(ii)he did not realise an actual gain until he surrendered the life insurance policies; and(iii)he could not dispose of the income amount from the life insurance policies at will until he surrendered the life insurance policies;(d)the income amount is not an “excluded amount” under s 5H(4),(5), or (8) – ASIFCR para 32.5;(e)the income from the surrender of the life insurance policies is “ordinary income” under s 5H(1) because it is not maintenance income or an exempt lump sum -ASIFCR para 32.6;(f)the money received on the surrender of the life insurance policies is not an “exempt lump sum” because it is not – ASIFCR para 32.7:(i)a “periodic amount” within s 5H(13) because it was not one payment in a series of payments nor was it a payment making up for arrears in such a series;(ii)income from remunerative work undertaken by the Applicants;(iii)an amount, or one of a class of amounts, that the Commission determines to be an exempt lump sum; or(iv)an “exempt lump sum” within the meaning of s 8(11) of the Social Security Act 1991;(g)by operation of s 46A, the Applicants are taken to receive one fifty-second of the surrender amount during each week in the 12 months commencing 16 April 2016 – ASIFCR para 32.8.The Applicants submissions