Schulz and Secretary, Department of Family and Community Services
[2003] AATA 770
•8 August 2003
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2003] AATA 770
ADMINISTRATIVE APPEALS TRIBUNAL )
) Nos Q2002/687, Q2002/864
GENERAL ADMINISTRATIVE DIVISION ) Re JOHN SCHULZ Applicant
And
SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES
Respondent
DECISION
Tribunal Mr B J McCabe, Member Date 8 August 2003
Place Brisbane
Decision The Tribunal affirms the decisions under review.
(Sgd) B J McCabe
Member
CATCHWORDS
SOCIAL SECURITY – benefits and entitlements – eligibility – assets – whether applicant is a home-owner – characterisation of monies owed by a trust to the applicant – whether monies amount to a “financial asset” under the Social Security Act 1991
SOCIAL SECURITY – benefits and entitlements – age pension – overpayment – whether applicant received monies to which he was not entitled – whether debt should be recovered
Social Security Act 1991 ss 11, 1118, 1122
Re Johnston and Repatriation Commission AAT No 9508, 31 May 1994.
Re Delos Reyes and Secretary, Department of Social Security (1993) 32 ALD 287
Re Dart and Secretary, Department of Family and Community Services [2002] AATA 1289
Re Secretary, Department of Social Security and Staniland (1997) 48 ALD 333
Radaich v Smith (1959) 101 CLR 209
Re Secretary, Department of Social Security and Williams (1998) 52 ALD 418
Re Beadle and Director-General of Social Security (1984) 6 ALD 1
Beadle v Director-General of Social Security (1985) 7 ALD 670REASONS FOR DECISION
8 August 2003 Mr B J McCabe, Member Introduction
1. The applicant in these proceedings is Dr John Schulz. Dr Schulz is also the applicant in Re John Schulz and Repatriation Commission (Q2002/763) (the Repatriation Commission proceedings). These applications and the Repatriation Commission proceedings were heard together since they both arise out of the same facts, although they were dealt with under separate but similar legislation. These reasons relate to the decisions in respect of the applicant’s claims against the Secretary of the Department of Family and Community Services.
2. In file number Q2002/864, the Secretary decided the applicant was not entitled to receive an age pension because the value of his assets exceeded the amount set down in the statute. The applicant disagreed and appealed to the Social Security Appeals Tribunal (the SSAT). On 26 July 2001, the SSAT affirmed the respondent’s decision.
3. Following the SSAT’s decision in Q2002/864, the respondent decided, on 19 April 2002, to raise and recover an overpayment of age pension made to the applicant during the period 26 June 2001 and 26 October 2001 in the amount of $2,293.30. The applicant sought a review of that decision, which was affirmed by an authorised review officer on 4 July 2002 and by the SSAT on 22 July 2002. That decision is the subject of review before this Tribunal in file number Q2002/687.
4. The Tribunal must therefore consider two issues: firstly, were the SSAT and the Secretary right to include the value of the loan in the applicant’s assets; and secondly, if the loan was treated correctly, whether there is any basis for not recovering the debt.
The Material Before the Tribunal
5. The Tribunal was provided with the documents required under section 37 of the Administrative Appeals Tribunal Act 1975 (the “T documents”). The Tribunal also received copies of bank statements and correspondence from Dr Schulz dated 11 October 2002 and 27 November 2002.
6. Dr Schulz appeared before the Tribunal in person. He was questioned by the Centrelink advocate, Ms Shea, and by counsel for the Repatriation Commission, Ms Ford.
The Facts
7. Dr Schulz is a retired medical practitioner. He is married. He applied for the age pension on 31 October 2000, and the application was granted on 11 December 2000. The Secretary now says the applicant would not have been paid the pension (or would not have been paid the pension at the same rate) if the extent and value of his assets had been properly understood.
8. The Schulz Family Trust was settled on 22 December 1997. The applicant is described in the trust documents as a primary beneficiary of the discretionary trust. The corporate trustee was Penfold Lupton Pty Ltd. The applicant is the sole director of that company, and its only shareholder. He is also its only creditor. The accounts of the trust as at 30 June 2001 showed the trust owed the applicant a total of $329,573.52. That loan was unsecured.
9. The trust purchased an apartment in Maroochydore in 1997 that served as the applicant’s home until it was sold in 2002. The trust used funds borrowed from the National Australia Bank to make the purchase. The loan was secured by a mortgage over the apartment and over a property owned by the applicant and his wife. Dr and Mrs Schulz had previously lived in that property. When the applicant sold the other property in August 2000 for approximately $160,000, the proceeds of the sale were used to reduce the trust’s debt to the bank on the Maroochydore apartment.
10. The Maroochydore apartment was sold in 2002 and the proceeds of the sale were used to fund the purchase of a new home for the applicant and his wife. That property was purchased in the name of Dr and Mrs Schulz, rather than that of the trust, and the trust met all of the costs associated with the move.
11. The applicant and his wife notionally paid rent of $200 per week in respect of their occupation (that is, an amount in respect of rent was deducted in the books of the trust from the amount owing to Dr Schulz). There is no written lease agreement.
12. It was apparent during the course of his evidence that Dr Schulz regarded the trust as his alter ego in the sense that he referred to the trust’s actions as if they were his own.
The Relevant Law
13. The Social Security Act 1991 imposes an assets test on applicants for the age pension. It sets a limit on the amount of income and value of assets that an applicant may possess (or jointly possess, if a member of a couple). If one exceeds the limit, one is ineligible to receive the pension. The amount of the limit depends in part on whether one is a home-owner. If one is a home-owner, the value of the home is disregarded in the course of calculating the value of the assets: section 1118(1)(b). However the non-home-owner is allowed to retain more assets than the home-owner.
14. The Secretary says the applicant is a home-owner and disregards the value of the home in the calculation of the applicant’s assets for the purpose of the asset and income test. But he says the value of the loan to the trust should still be included in the assets, which affects the applicant’s entitlement to the pension. The respondent says the unpaid portion of the loan from the applicant to the trust is a financial asset. Dr Schulz, for his part, accepts that he is a home-owner but disagrees with the Secretary’s reasoning. The applicant says he does not have a right or interest in the property by virtue of his occupation. He claims his interest arises out of the fact the money loaned by the bank was used to fund the purchase of his home. He notes the trust’s debt to the bank was secured against his property, and he subsequently paid the debt to the bank out of the proceeds of sale of his property. He argued the Tribunal should look at the “substance” of the arrangement. In substance, the applicant purchased the property himself and lived in it with his wife.
(i) Was the applicant a home-owner?
15. The first step is to determine whether the applicant is a “home-owner” within the meaning of the Act. Section 1118(1)(b) says that if the right or interest in the person’s principal home is a right of interest that confers reasonable security of tenure, the value of the property is disregarded. The definition of “home-owner” in section 11(4)(b) uses the same language, although the word “home-owner” is not actually used in section 1118.
16. Dr Schulz does not own the property, nor does he have a written lease. A question then arises whether he has any sort of interest in the property. This issue was considered by the Tribunal in Re Johnston and Repatriation Commission (AAT No 9508, 31 May 1994). In that case, the Tribunal confirmed the expression “right or interest” was a reference to legal or equitable rights in the property: see paragraph 24; see also Re Delos Reyes and Secretary, Department of Social Security (1993) 32 ALD 287. The Tribunal in Re Johnston went on to add that a right or interest might arise in a variety of ways (although, as Deputy President Forrest noted in Re Delos Reyes (at 291), a merely personal right like a licence might not suffice: see also Re Dart and Secretary, Department of Family and Community Services [2002] AATA 1289 at paragraph 22). A lease agreement, in contrast, would create a right or interest – although a lease might not confer reasonable security of tenure.
17. The Tribunal recognised in Re Johnston, Re Dart and Re Secretary, Department of Social Security and Staniland (1997) 48 ALD 333 that an unregistered or “informal” lease might give rise to a right or interest in real property. I think there is an unregistered lease in this case. The applicant pays rent (even if the rental payments are in fact entries in a journal). More importantly he apparently has (with his wife) exclusive possession of the property, which is a distinguishing feature of leases: see Radaich v Smith (1959) 101 CLR 209 per Windeyer J at 222.
18. I am also satisfied the applicant had reasonable security of tenure in the property. While a lease would not ordinarily confer such a right, the applicant controlled the landlord. He was unlikely to be ejected from the property in those circumstances: see Re Dart at paragraph 27; see also Re Secretary, Department of Social Security and Williams (1998) 52 ALD 418 at 425.
19. It follows that the value of the applicant’s home was properly disregarded for the purposes of the assets test as required under section 1118.
(ii) How should the loan be treated for the purposes of the assets test?
20. A loan is a chose in action, which is a form of intangible property. It forms part of the applicant’s assets: section 11. Section 1122 explains how the value of that asset is to be determined for the purposes of the assets test. Section 1122 says the Secretary must count so much of any loan made by the applicant that has not been repaid, apart from interest.
21. Dr Schulz says the value of the loan is an exempt asset because it was used to buy an exempt asset. He is wrong. A creditor does not obtain any form of interest in the property purchased with the funds he advances by way of loan. The creditor has nothing more than a right to repayment unless he takes security over those assets. That did not occur in this case. The situation would not be any different if the applicant had guaranteed the trust’s loan from the bank. A guarantee creates a liability to meet the obligations of another in defined circumstances, but it does not of itself confer an interest in the property of the debtor.
22. In those circumstances, it would be wrong to treat the loan as an exempt asset. The amount unpaid on the loan must therefore be included in the assessment of the value of the applicant’s assets.
Conclusions in relation to the Decision of the SSAT in file no Q2002/864
23. The applicant is critical of the Secretary’s interpretation of the law in this case. Dr Schulz says the applicant is ignoring the substance or reality of the arrangements involving the trust. He said in his evidence that the arrangements were, in effect, artificial.
24. He is wrong. When one establishes a trust with a corporate trustee, one is making arrangements that have – and are intended to have – a real legal effect. Dr Schulz presumably entered into these arrangements because it suited him to do so. He would undoubtedly be upset were a decision-maker to ignore the legal arrangements he created if the effect was to impose a liability upon him. Having had whatever benefits he supposed might flow from structuring his affairs in this way, it is not open to him to say the decision-maker should ignore the structures he erected and consider the “reality” of the situation in order to obtain a benefit for himself. The legal arrangements are themselves a reality. They cannot be set aside on an “ad hoc” basis in the absence of statutory authority.
25. Accordingly, the decision of the SSAT, in file number Q2002/864, is affirmed.
Conclusions in relation to the Decision of the SSAT in file no Q2002/687
26. In light of the findings set out above, I am satisfied the applicant received social security payments at a rate to which he was not entitled during the period 26 June - 26 October 2001. The decision to raise an overpayment of age pension in the amount of $2,293.30 was properly made by the Department, as affirmed by the SSAT (see file number Q2002/687). The only issue that remains for consideration is whether the right to recover that debt should be waived.
27. The Act provides the Secretary with the power to write off a debt due to the Commonwealth, or to waive the right to recover an overpayment of social security benefits in a number of limited circumstances. These include cases where the debt has arisen solely due to an administrative error by the Commonwealth, and cases in which there are special circumstances.
28. The respondent says the applicant is currently repaying the debt by way of instalments, and therefore it is inappropriate to write off the debt under section 1236(1) of the Act. I accept the applicant is unable to satisfy the criteria in s1236.
29. Can the debt be waived? There is no suggestion the debt arose as a result of an administrative error by the Commonwealth, so s1237 does not apply. The only alternative is the special circumstances provision contained in section 1237AAD of the Act. Section 1237AAD provides as follows:
“The Secretary may waive the right to recover all or part of a debt if the Secretary is satisfied that:
(a)the debt did not result wholly or partly from the debtor or another person knowingly:
(i) making a false statement or false representation; or
(ii) failing or omitting to comply with a provision of this Act or the 1947 Act; and
(b)there are special circumstances (other than financial hardship alone) that make it desirable to waive; and
(c)it is more appropriate to waive than to write off the debt or part of the debt.”
30. The respondent does not contend the debt in this case arose from a “knowing” failure to comply with the Act, or a false representation by the applicant, and therefore they concede that paragraph (a) of section 1237AAD has been satisfied. They do not concede however that there are any special circumstances in this case such that would satisfy paragraph (b) of section 1237AAD.
31. Although the term “special circumstances” is not defined in the Act, the approach to be taken in interpretation and application of the discretionary provisions of the Act have been dealt with by the Tribunal and the Federal Court in numerous cases. In Re Beadle and Director-General of Social Security (1984) 6 ALD 1 it was said:
“An expression such as ‘special circumstances’ is by its very nature incapable of precise or exhaustive definition. The qualifying adjective looks to circumstances that are unusual, uncommon or exceptional. Whether circumstances answer any of these descriptions must depend upon the context in which they occur. For it is the context which allows one to say that the circumstances in one case are markedly different from the usual run of cases. This is not to say that the circumstances must be unique but they must have a particular quality of unusualness that permits them to be described as special.”
32. This decision was generally affirmed on appeal by the Full Court of the Federal Court of Australia in Beadle v Director-General of Social Security (1985) 7 ALD 670, where it was said:
“the phrase ‘special circumstances’, although lacking precision, is sufficiently understood in our view not to require judicial gloss.”
33. The respondent’s statement of facts and contentions argues there are no special circumstances in this case to justify the exercise of the discretion to waive the right to recover the overpayment of age pension made to the applicant.
34. In his response to the respondent’s statement of facts and contentions, Dr Shultz did not address the issue of waiver of the debt. He said the issue of waiver was “Not relevant to our objections” on the grounds that “The factual basis of the decisions [under review] are fatally flawed as demonstrated…”.
35. On the basis of all the evidence provided to the Tribunal, I am unable to be satisfied the circumstances in this case are “unusual, uncommon or exceptional.” There is no basis for exercising the discretion in section 1237AAD to waive the right to recover the overpayment of age pension made to the applicant during the period 26 June 2001 and 26 October 2001.
36. The Tribunal affirms the decision under review in relation to file number Q2002/687.
I certify that the 36 preceding paragraphs are a true copy of the reasons for the decision herein of Mr B J McCabe, Member
Signed: Sarah Oliver
AssociateDate of Hearing 25 February 2003
Date of Decision 8 August 2003The Applicant appeared in person
For the Respondent Ms T Shea, Departmental Advocate
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