SECRETARY, DEPARTMENT FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS and IRWIN SAUNDERS

[2009] AATA 193

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2009] AATA 193

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2008/2972

GENERAL ADMINISTRATIVE DIVISION		)
Re		SECRETARY, DEPARTMENT FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS

Applicant

And IRWIN SAUNDERS

Respondent

DECISION

Tribunal Senior Member Bernard J McCabe

Date20 March 2009

PlaceBrisbane (heard in Lismore)

Decision The Tribunal sets aside the decision under review and remits the matter to the applicant for reconsideration in accordance with these reasons.

......................[Sgd]........................

Senior Member

CATCHWORDS

SOCIAL SECURITY – Age pension – Attributable assets – Beneficiary under trusts – Whether controlled private trusts – Whether respondent passes control test – Respondent and associates control more than 50% of corpus or income of trusts – Respondent attributable stakeholder – Decision set aside and remitted

Social Security Act 1991 (Cth) ss 1207B, 1207C, 1207P, 1207V, 1207X

REASONS FOR DECISION

20 March 2009  Senior Member Bernard J McCabe

1.      Mr Irwin Saunders is the respondent in these proceedings. He applied for the age pension in 2007. In the course of considering his application, Centrelink noted Mr Saunders was a beneficiary under two trusts. Centrelink said the assets and income of the two trusts should be attributed to Mr Saunders. On this basis, Centerlink decided that Mr Saunders was not eligible to receive the age pension.

2. The Social Security Appeals Tribunal (“the SSAT”) concluded one of the trusts did not qualify as a “controlled private trust” within the meaning of s 1207V of the Social Security Act1991 (“the Act”) because the trustee was independent. In those circumstances, the SSAT held the assets of that trust should not be attributed to Mr Saunders.

3.      The Secretary to the Department of Families, Housing, Community Services and Indigenous Affairs disagrees with the SSAT’s view. This Tribunal has been asked to reconsider the matter.

The factual background

4.      The factual background to the dispute is uncontroversial. Mr Saunders is the beneficiary under two trusts. The applicant’s late brother, Mr Kenneth James Saunders, established the first trust (“the KJS trust”) pursuant to his will. The terms of the KJS trust provide:

·the respondent and another individual would act as trustees of the trust; and

·the assets of the trust would be dealt with by the trustees for the benefit of the respondent during his lifetime and for the benefit of his niece upon his death.

I note the other trustee has since died. The respondent is now the only trustee. A copy of the will is found in Exhibit 1, at folio 192.

5.      The second trust (“the ICS trust”) was established pursuant to the will of Mr Saunders’s late father, Mr Irwin Charles Saunders. A copy of that will is found in Exhibit 1, at folios 193ff. The trustee of the ICS trust is Perpetual Trustees. The ICS trust includes several sub-trusts, two of which are relevant for present purposes. Under the first sub-trust, an amount of $400,000 was set aside. The terms of the first sub-trust provided for payment of the income from that sub-trust to the respondent. The terms also gave the trustee the discretion to make payments to the respondent from the corpus. The trustee was not obliged to accede to any request for payment. As a practical matter, Mr Saunders must convince the trustee that a payment should be made for a particular purpose. Under the second sub-trust, Mr Saunders had a 4/20^th share in the remainder of the trust assets and income.

6.      I understand Mr Saunders accepts he is entitled to the income he receives from both the KJS and ICS trusts. In other words, he does not dispute that the amount of income he is paid under the terms of the trust should be taken into account for the purposes of assessing his entitlement to the age pension. His disagreement relates to whether the assets of both trusts – especially the ICS trust, which is larger – should be attributed to him.

7.      Mr Saunders gave evidence at the hearing. His evidence was directed to his relationship with Perpetual Trustees, the trustee of the ICS trust. He said he had made a number of requests over the years for payments from the ICS trust over and above the income he received. Some of the requests for additional payments had been granted, but some of them had been denied. He said Perpetual Trustees was clearly in control of the trust and its assets, so he did not understand how Centrelink could argue that the assets should be attributed to him. He expressed frustration at his inability to take control of the assets. He said he was sure he could get a better rate of return than Perpetual Trustees was managing to achieve. 

The legislation and its application

8. Part 3.18 of the Act includes the provisions which regulate the treatment of assets and income held on trust. There does not appear to be any dispute that both of the trusts in this case are “designated private trusts” within the meaning of s 1207P. The issue in this case is over whether the trusts are “controlled private trusts” within the meaning of s 1207V. If either trust qualifies as a controlled private trust in relation to Mr Saunders, the assets of that trust can be attributed to him: s 1207X.

9. Section 1207V says a trust is considered to be a controlled private trust in relation to an individual if the individual passes a “control test” (referred to in s 1207V(2)) or the “source test” (referred to in s 1207V(3)). The source test does not appear to be relevant in this case.

10. Section 1207V(2) identifies several ways in which the control test may be satisfied. For example, s 1207V(2)(a) says the test will be satisfied in relation to an individual if the individual is the trustee of the trust or an associate of one of the trustees. I note the respondent is the sole trustee of the KJS trust. It follows that the respondent satisfies the control test in relation to that trust. In those circumstances, the KJS trust is a controlled private trust in relation to the respondent.

11. What of the ICS trust? At first glance, it is easy to see why the respondent should be mystified by Centrelink’s insistence that the assets be attributed to him, when, as a practical matter, he must go cap-in-hand to Perpetual Trustees should he want a payment over and above the income to which he is entitled under the terms of the two sub-trusts. If Perpetual Trustees was accustomed to acting in accordance with the directions of Mr Saunders, there would be no doubt Mr Saunders could be said to satisfy the control test: s 1207V(2)(h). But that is not the only situation in which the control test can be satisfied.

12. Section 1207V(2)(d) says a person will also pass the control test in relation to a trust if the individual and any associates collectively hold more than 50% of the beneficial interest in the corpus or income of the trust. In this case, Mr Saunders is entitled on his own to more than 50% of the income of the first sub-trust. In the second sub-trust, he is entitled to 20% of the corpus and income in his own right. The respondent says the balance is held by associates of Mr Saunders. Section 1207C defines the expression “associate” to include “relatives” of the individual, a term that is broadly defined in s 1207B. A quick perusal of the will establishes on its face that most of the individuals who are named as beneficiaries under the second sub-trust are relatives of Mr Saunders, and therefore associates. Between them, they are entitled to more than 50% of the interest in the corpus or income of the sub-trust. It follows that both of the sub-trusts created under the will of the applicant’s late father are controlled private trusts in relation to the respondent, Mr Saunders.

13. In those circumstances, s 1207X(2) says Mr Saunders is an attributable stakeholder of the KJS trust and the two sub-trusts of the ICS trust. The entire value of the assets held within the KJS trust and within the two sub-trusts of the ICS trust must therefore be attributed to him in the course of calculating his entitlement to an age pension.

Conclusion

14.     The decision under review is set aside. The matter is remitted to the applicant for reconsideration in accordance with these reasons.

I certify that the 14 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member Bernard J McCabe.

Signed:...................................[Sgd]...........................................
  Michael Buckingham, Associate

Date of Hearing  11 December 2008
Date of Decision  20 March 2009
Advocate for the applicant        Mr R McQuinlan, Centrelink
Respondent was self-represented