Secretary, Department of Families, Housing, Community Services and Indigenous Affairs and Barnes
[2010] AATA 925
•19 November 2010
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2010] AATA 925
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2010/3631
GENERAL ADMINISTRATIVE DIVISION ) Re Secretary, Department of Families, Housing, Community Services and Indigenous Affairs Applicant
And
Ian Barnes
Respondent
DECISION
Tribunal Mr G L McDonald, Deputy President Date19 November 2010
PlaceMelbourne
Decision The Tribunal sets aside the decision under review and remits the matter to the applicant with a direction to recalculate the respondent’s entitlement to receive the age pension in accordance with the Tribunal’s decision.
……(sgd G L McDonald)…....
Deputy President
CATCHWORDS
Social Security- Aged Pension - Rate of pension subject to income and assets test - Whether total assets exceeded the allowable asset limit - Disposal of assets by transfer of shares - Whether for inadequate consideration - Whether deprivation rule applicable or money owing to recipient of pension constituted a loan - Constructive trust found - Reviewable decision set aside and remitted to applicant for recalculation - Decision set aside.
Social Security Act 1991, ss 1122, 1123, 1126AA and 1126AB
REASONS FOR DECISION
19 November 2010 Mr G L McDonald, Deputy President 1. The applicant seeks a review of the decision of the Social Security Appeals Tribunal (SSAT) made on the 26 July 2010. The SSAT found that the respondent’s assets were below the allowable limit and that he was entitled to receive the age pension. The age pension is payable subject to certain conditions including whether a person is married or single, whether the person owns a home or not and the value to be attributed to the person’s total assets. In this review, the current value of those assets beyond which a person is not entitled to receive an age pension is $755,000. The applicant submits that the value of the respondent’s assets exceeds that amount. At the hearing, the applicant was represented by Mr de Uray and the respondent represented himself. The applicant provided the T Documents pursuant to s 37 of the Administrative Appeals Act 1975 and a Statement of Facts and Contentions.
2. Sometime in 1992, the respondent entered into an agreement (the agreement) with a Mr Bulhakow. The agreement provided that Mr Bulhakow would sell five ordinary shares that he held in Kassler Pty Ltd (Kassler) to the respondent for the consideration of $150,000. There were 10 shares issued in Kassler, the other five ordinary shares were owned by Buxal Pty Ltd. The only relevant asset of Kassler was a half share in a vacant block of land comprising 186 acres in size located in Plumpton, on the fringe of the Melbourne metropolitan area. In addition, their agreement provided that, at any time over the succeeding 20 years, Mr Bulhakow could exercise an option to regain the shares by paying the respondent the sum of $250,000. A written agreement was apparently entered into, but it has since been lost[1]. It was the respondent’s evidence that he did not involve himself in the maintenance of the land and that he never contributed to the payment of the municipal rates. There were no services connected to the vacant land.
[1] T Documents, T 22, p 128 and T 23, p 129.
3. In 2001, upon turning 60 years of age the respondent retired from work. He said that he did not apply to receive any benefits payable under the Social Security Act 1991 (the Act) between his retirement and reaching the age of 65 years. He applied for the age pension upon reaching the age of 65 years in 2006. The respondent told the Tribunal that he disclosed to the applicant the fact that he held five shares in a company, which had a one quarter interest in the land at Plumpton[2]. A Complex Assessment Officer reviewed the respondent’s holding in Kassler and accepted the valuation placed by the local municipality for the 2005-2006 year for assessment of municipal rates, being the value disclosed by the respondent, namely $400,000[3].
[2] This disclosure is confirmed in the T Documents, T 5, pp 35-36 and T 6, p 52.
[3] T Documents, T 6, p 52 and T8, p 60.
4. The respondent commenced receiving payments of the age pension.
5. On 4 March 2008, three of the five shares that the respondent held in Kassler were transferred into Mr Bulhakow’s name. The respondent told the Tribunal that he had nothing to do with the transfer, which had been arranged by Mr Bulhakow. The respondent said he did not sign any transfer form for the shares. The respondent thought that Mr Bulhakow arranged for the transfer of the three shares so that Mr Bulhakow’s interest in the company was on the record should anything happen to him (that is, to the respondent). The respondent said, and the Tribunal accepts, that he received no consideration for the transfer, and it only came to his attention sometime after the transfer had occurred. The respondent told the Tribunal the fact that Mr Bulhakow unilaterally arranged the transfer was of no concern to him. What the respondent regarded as binding were the terms of the agreement entered into with Mr Bulhakow, and it was irrelevant to him as to whose name in which the shares were registered. By that statement, the Tribunal understands the respondent to be saying it was irrelevant to him whether the shares were registered in his name or that of Mr Bulhakow.
6. On 4 November 2009, the respondent transferred his remaining two shares to Mr Bulhakow. Mr Bulhakow agreed to pay the respondent the sum of $250,000, as was set out in the agreement, but the payment was to be delayed until 2011. Mr Bulhakow has permitted the respondent to live, rent free, in a home unit he (Mr Bulhakow) owns, and it is agreed that Mr Bulhakow will transfer the unit, which has an agreed value of $250,000, to the respondent in 2011 in lieu of repaying the $250,000 lump sum. The value of the home unit is not a matter for consideration in this review at this point.
7. Both the respondent and Mr Bulhakow confirmed the above outlined arrangement in statutory declarations.[4] A new substitute agreement, said to be on the same terms and conditions of the original agreement, was signed by Mr Bulhakow and the respondent[5].
[4] T Documents, T 22, p 128 and T 23, p 129, respectively.
[5] Id.
8. On its face, the above description of events and circumstances may ring hollow as constituting a true account of the financial relationship between the respondent and Mr Bulhakow. The respondent is not a sophisticated businessman, and he told the Tribunal he was ‘out of his depth’ on the issues raised by the applicant’s submission to the Tribunal in this review. The respondent told the Tribunal that the 1992 agreement was entered into at a time when Mr Bulhakow was experiencing bankruptcy problems. Whatever was the motivation of Mr Bulhakow to enter into that financial arrangement is not a relevant matter for the Tribunal to consider in this review.
9. The Tribunal is satisfied that from the respondent’s point of view, he trusted Mr Bulhakow to abide by the terms of the agreement. If, as proved to be the case, Mr Bulhakow exercised the option to reacquire the shares in the 20 year period following 1992, then he (the respondent) would be happy to accept payment of the agreed sum of $250,000, regardless of any increase in the value of the land during that period of time.
10. The land has increased in value. It has an agreed conservative value in March 2008 of $3M[6]. It is accepted by the respondent that the value has remained at that figure as at 4 December 2009, being the relevant date for this determination.
[6] Applicant’s Statement of Facts and Contentions, para G.
11. The applicant submits that even if the facts are as maintained by the respondent, then the provisions of the Act operate to apportion the real value to the five Kassler shares. It is this real value which should be taken into account when assessing the level of pension payable to the respondent. In the applicant’s submission, the terms of the agreement between the respondent and Mr Bulhakow are irrelevant. The applicant calculates the true value of the 10 issued Kassler shares to be $150,000 each, on the basis of accepting the valuation of $3M and Kassler holding a half share in the land. The applicant submits that the provisions of the Act result in a value of $450,000 being attributed to the transfer of the three shares in March 2008 and a further $300,000 for those two shares transferred in December 2009. The fact that only $250,000 was agreed to be paid by Mr Bulhakow constitutes a sum of $50,000 less than the true market value of the shares in the latter transfer. As the remaining two shares were disposed of for less than their market value, then the respondent should be regarded as gifting the sum of $50,000 to Mr Bulhakow of which $40,000 should be included as an asset.[7]
[7] $10,000 is allowed as a gift in each income year without that sum being included in the value of the assets pursuant to s 1126AA of the Act.
12. It is submitted that the relevant provisions of the Act are as follows:
1123 Disposal of assets
(1) For the purposes of this Act, a person disposes of assets of the person if:
(a) the person engages in a course of conduct that directly or indirectly:
(i) …
(ii) disposes of all or some of the person’s assets; or
(iii) …
(b)one of the following subparagraphs is satisfied:
(i) the person receives no consideration in money or money’s worth for the …., disposal or …..;
(ii) the person receives inadequate consideration in money or money’s worth for the destruction, disposal or diminution;
(iii) the Secretary is satisfied that the person’s purpose, or the dominant purpose, in engaging in that course of conduct was to obtain a social security advantage.
13. There was no suggestion by the applicant that the shares were disposed of to obtain a social security advantage, and the Tribunal is satisfied that there is no evidence to suggest this. Thus, the issue remains whether the respondent received inadequate consideration in money or money’s worth for the disposal of the shares. It is submitted that the transfer of the shares constituted a “disposal”.
14. Clearly, the holding of an asset as security for a loan does not entitle the holder to claim ownership of the asset, unless the loan agreement stipulates a change of ownership is to occur when there is a breach of a term, or terms, of the agreement evidencing the loan. The holding of an asset for security usually does not involve the transfer of the asset into the name of the lender, although it may do so. If it does, then the lender may be considered as holding the asset in a constructive trust for the borrower until such time as the loan is repaid
15. In the agreement reached between the respondent and Mr Bulhakow, if the option was not exercised by Mr Bulhakow in the stipulated 20 year period, then it may be that the five Kassler shares would vest unconditionally in the respondent. That possibility does not arise to be definitively answered in this review, as a term of the agreement, namely the option to repay an agreed amount, was exercised albeit in a varied form from that apparently originally contemplated (the respondent will acquire a unit from Mr Bulhakow).
16. The Tribunal is satisfied that this rather unusual agreement reached between the respondent and Mr Bulhakow, whatever the motive of the latter, whether it is legally proper or not (and the Tribunal expressly makes no finding on this issue) was, nevertheless, from the point of view of the respondent a binding agreement. Whether the respondent was aware of the legal niceties of his position vis a vis the transfer of the Kassler shares into his name (thereby holding the shares as a constructive trustee) is also not an issue. The fact that Mr Bulhakow arranged the transfer of three of the shares in March 2008 does not affect the outcome. The Tribunal is satisfied that, and determines that, the reality of the situation is that the transfer of the shares from Mr Bulhakow to the respondent resulted in the respondent holding those shares in a constructive trust on behalf of Mr Bulhakow, pending Mr Bulhakow exercising the agreed terms of the option. The Tribunal is satisfied that the respondent never held the five Kassler shares in his own right. There is no evidence to suggest that he had any interest in the asset held by Kassler, nor that he in any way treated the shares as being held in his personal capacity or for his benefit.
17. For the reasons expressed, the Tribunal sets aside the decision under review and remits the matter to the applicant with a direction to recalculate the respondent’s entitlement to receive the age pension. The applicant submitted that there were five separate figures to consider here for the purposes of the asset limit for a single person not being a home owner[8]. The only issue in dispute before the Tribunal appears to be how the disposal of the shares held in the respondent’s name should be characterised. The recalculation should include that ‘nil‘ is attributable to the respondent arising from the transfer of the Kassler shares. The $250,000 owed to the respondent by Mr Bulhakow is an asset to be included in the recalculation. The other matters for inclusion are as determined by the applicant.
[8] Applicant’s Statement of Facts and Contentions, para 21.
I certify that the 17 preceding paragraphs are a true copy of the reasons for the decision herein of
Mr G L McDonald, Deputy President
Signed: ...(sgd D De Andrade).........
Personal AssistantDate/s of Hearing 9 November 2010
Date of Decision 19 November 2010
For the Applicant Mr T de Uray, departmental advocate
For the Respondent self represented
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