SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS and STANLEY ROBINSON
[2010] AATA 117
•15 February 2010
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2010] AATA 117
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2009/4142
GENERAL ADMINISTRATIVE DIVISION ) Re SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS Applicant
And
STANLEY ROBINSON
Respondent
DECISION
Tribunal Ms G Ettinger, Senior Member Date15 February 2010
PlaceSydney
Decision The Tribunal varies the decision under review, being the decision of the Social Security Appeals Tribunal dated 22 July 2009. In doing so, this Tribunal finds that from the date of the original decision 4 November 2008, 86% of the income and assets of Julros Pty Ltd be treated as the income and assets of Mr Robinson for purposes of calculating his rate of age pension. The issue of the loan of $7,472 by Mr Robinson to Julros Pty Ltd in the financial year 2007/2008 was raised at the hearing, but not litigated, and the decision of the Social Security Appeals Tribunal in regard to that issue is affirmed. ..............[sgd].....................
Ms G Ettinger
Senior Member
catchwords
Company – Mr Robinson, the Respondent, is a retired school teacher who used approximately $100,000 of his superannuation moneys to buy a travel agency where his daughter had worked, and of which she now is the general manager. Mr Robinson also personally provided the $100,000 required for the trust fund. He works in the travel agency, and receives certain reimbursement of travel expenses, but does not claim a salary or director’s fees. Mr Robinson owns 65.5% or 95,000 of the shares in the company, the general manager (his daughter), owns 20,000, and a son and second daughter who are not active in the company own 20,000 and 10,000 shares respectively. However he has full control and also meets the source test for the company. His age pension has accordingly been reduced. The decision under review is varied to find that 86%, of the income and assets of Julros Pty Ltd which includes the son and daughter Vicki’s shares, be treated as the income and assets of Mr Robinson for purposes of calculating his rate of age pension.
Social Security Act 1991 ss 8, 1064, 1207, 1207N, 1207Q
Social Security and Veterans’ Entitlements Legislation Amendment (Private Trusts and Private Companies – Integrity of Means Testing) Bill 2000
Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000
Mousney and Secretary, Department of Family and Community Services [2003] AATA 275
O’Meara and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2008] AATA 1083
Ractivand and Secretary, Department of Family and Community Services [2004] AATA 1414
REASONS FOR DECISION
15 February 2010 Ms G Ettinger, Senior Member 1. Mr Stanley Robinson is the Respondent in these proceedings. He is a retired school teacher, and has been receiving age pension since May 1996. In 1999, he spent approximately $100,000 of his superannuation moneys purchasing and setting up a travel agency for his daughter, Julie, and $100,000 for the trust fund it is required to have. Julie had previously worked in that, and other travel agencies.
2. Mr Robinson, a director of the company Julros Pty Ltd, which he established as a vehicle to run the Harvey World Travel franchise he purchased, owns 95,000 shares in the company, which represents 65.5% of the total. His children are also directors, and Julie, who operates the company and travel agency with the assistance of her father, owns 20,000 fully paid ordinary shares. His son Ross owns 20,000, and his daughter Vicki owns 10,000.
3. In 2002, on commencement of legislation affecting shares in private companies and trusts, Centrelink decided that 100% of the income of Julros Pty Ltd should be attributed to Mr Robinson, but because the company had not made a profit, this had no impact on his age pension entitlements until it declared a profit in the 2006/7, and subsequent years.
4. Mr Robinson is aggrieved with the legal interpretation by Centrelink of his share holding, thereby reducing his pension in the 2006/2007 year, and in subsequent years, when Julros Pty Ltd reported a profit.
5. Mr Robinson’s argument is that he has serious health problems, and whilst he acknowledges that he provided all the money for the purchase of the business, and has the “control” of it, he says that he contributes his work free of charge apart from a part reimbursement for travel expenses, and does draws neither income nor director’s fees. He emphasises that the company has not been in a position to make a distribution.
6. Mr Robinson appealed the decision of Centrelink to attribute 100% of the income of Julros Pty Ltd to him, which meant that his age pension was reduced. After a further appeal to the Social Security Appeals Tribunal (SSAT), which attributed only 65.5% to Mr Robinson, the Secretary, Department of Families, Housing, Community Services and Indigenous Affairs (the Secretary) appealed to this Tribunal, where he was represented by Ms R Harlock.
7. I am satisfied that Mr Robinson is a witness of truth, and that he acted properly in disclosing his involvement in the travel agency to Centrelink. However, I am also satisfied that Mr Robinson satisfies the “control test” in regard to Julros Pty Ltd and the travel agency, and further, by way of completeness, that he also satisfies the “source test”. However, given the evidence before me, particularly regarding the two shareholders who do not participate in meetings and decision making, and who receive little if any benefits, I am satisfied that it is appropriate to attribute Mr Robinson with their share of the company. I am satisfied from the evidence that Mr Robinson’s daughter Julie is the general manager of the travel agency, and an active director. For that reason I attribute only Ross and Vicki’s shares to Mr Robinson, (but not Julie’s) and find that 86% of the income and assets of the company should be attributed to him. This may mean that Mr Robinson’s age pension is accordingly reduced. The decision under review is varied. My reasons follow.
ISSUES BEFORE THE TRIBUNAL
8. The issues before the Tribunal were:
· Whether Mr Robinson passes the “control” or “source” test in section 1207Q of the Social Security Act 1991 (the Act);
· Whether Mr Robinson is a 100% attributable stakeholder in Julros Pty Ltd pursuant to section 1207X of the Act or whether a lower attribution percentage is appropriate.
THE RELEVANT LEGISLATION
9. The relevant legislation is the Social Security Act 1991 (the Act), the Social Security and Veterans’ Entitlements Legislation Amendment (Private Trusts and Private Companies – Integrity of Means Testing) Bill 2000, and the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000, which are referred to in these Reasons for Decision.
BACKGROUND AND THE EVIDENCE
10. Mr Robinson is a retired school teacher, and was granted age pension on 30 May 1996. Age pension is calculated taking into account the income and assets of a person, and applying section 1064-G1 of the Act.
11. Mr Robinson explained that after teaching for 41 years, and being retired for nine, he felt he needed mental and physical stimulation, and as the travel agency in which his daughter was working, a franchise, was up for sale, he negotiated to buy and operate it with her. He explained how he spent approximately $100,000 on the purchase, another $100,000 for the trust account a travel agency must maintain, and how he manages the general business account, paying some wages, insurance and other outgoings from it. He said that he also cleans the premises, speaks to clients, and does some promotion by distributing brochures to clubs. He told me that he suffers a number of health conditions, and how his superannuation has eroded so far that only approximately $9,000 remains.
12. There is no dispute that Mr Robinson is a director and major shareholder in the company, Julros Pty Ltd, which he set up to purchase and operate the travel agency he now owns (65.5%), and in which his daughter Julie is general manager, and a director and shareholder. He agreed no one else invested any money in the company, that he offers extensive services in relation to the travel agency for a part reimbursement of his travel expenses and no other remuneration, and agreed that he has also lent money to the company, although he said he could not identify that in the annual accounts. Mr Robinson agrees that he could make a distribution from the company at any time, but said that the company has, to date, been unable to pay directors’ fees or make any distribution, and that he did not intend to do so. He said that he has a good relationship with his daughter Julie, and that he would discuss any decisions to be made with her. He said that he would abide by her suggestions as she knows the business, and that he would not attempt to overrule her. That would not be a good thing, he said.
13. Mr Robinson’s other children, Ross and Vicki are non-active directors who receive little if any benefit from Julros Pty Ltd, and currently own 20,000 and 10,000 shares respectively.
CONSIDERATION OF THE LEGISLATIVE ENVIRONMENT AND CONCLUSIONS
14. The facts in this matter are not in dispute. I have noted them in the paragraphs above, and accept them as provided to me. In coming to a decision, I have considered the facts and the evidence given by Mr Robinson, the submissions and the legislation, being the Social Security Act 1991, the case law, and the Second Reading Speech to the Social Security and Veterans’ Entitlement Legislation Amendment (Private Trusts and Private Companies – Integrity of Means Testing) Bill 2000 which amended the Act when it came into effect on 1 January 2002. The amending Act sets out the means test treatment of private companies and private trusts.
15. In the Second Reading Speech, Mr L Anthony, the then Minister for Community Services stated in the House of Representatives on 17 August 2000:
“The fundamental change being proposed under this measure is that when a private trust of private company is recognised as a designated private trust or private company, the assets and income of these private trusts and private companies may be attributed to a person who controls or has contributed to these structures. Two alternative tests will be applied:
First, there is the ‘control test’….
Secondly there is the ‘source test’…
At present people operating private trusts or private companies are often treated more favourably under the current means test arrangements than individuals, sole traders or people in partnerships, of otherwise similar means.
This is inequitable and inconsistent with the objectives of the income support system, which are to provide a ‘safety net’ for those who cannot adequately support themselves, and to encourage self-provision by those who can.”
16. As to Julros Pty Ltd; there is no dispute that only Mr Robinson has invested any money in the company. Mr Robinson and his children are the only directors and shareholders, and Mr Robinson holds the greatest number of shares, being 95,000 or 65.5% of the company. He is in control, and acknowledges that. He acknowledges that he could in fact without consultation make a distribution from the company at any time, but says he does not plan to, and that he takes note of Julie’s opinions and suggestions.
17. I am satisfied from Mr Robinson’s evidence, and consideration of section 1207N of the Act, that Julros Pty Ltd is a designated private company. This is based on the criteria prescribed, which are that it does not have subsidiaries, and its consolidated revenue for the financial year is less than $25,000,000. The value of the consolidated gross assets at the end of the relevant financial years is less than $12,500, 000, and the company has fewer than 50 employees.
18. I moved then to consider whether Mr Robinson “controls” the company in the terms of the legislation. Section 1207Q(1) of the Act states that an individual passes the control test in relation to a company if the aggregate of the direct voting interests in the company that the individual holds, and the direct voting interests in the company held by the associates of the individual is 50% or more; or the individual, (either alone or together with associates, in this case his children), is in a position to exercise control over the company.
19. It is not in dispute that Mr Robinson and his children are the shareholders and directors of Julros Pty Ltd, that his daughter Julie is the general manager, and that he is the majority share holder. I am satisfied that Mr Robinson exercises control in terms of section 1207Q of the Act, and that Julros Pty Ltd is a controlled private company.
20. In the alternative, the source test may be applied, although in this case Mr Robinson satisfies both the control and source tests. He gave evidence that the company was set up with his funds in 1999 before the commencement of the amendment to the Act which is being applied here. However, he provides services to the company by operating its business account, paying wages, being a courier, and doing many other jobs without being paid wages or director’s fees, and only claims a portion of his travel expenses. Therefore in terms of the legislation, he has provided his services for consideration at less than the arm’s length amount in satisfaction of section 1207A of the Act, and satisfies the source test.
Attributable stake holder and attribution percentage
21. The next section of the Act which I must consider in this context is section 1207X(1) which provides that if a company is a controlled private company in relation to an individual, which Julros Pty Ltd is, then the individual, Mr Robinson, is an attributable stakeholder of the company unless otherwise determined by the Secretary or in this case, the Tribunal. Thus Mr Robinson’s attribution percentage is taken to be 100% of all assets held by, and all income distributed by the company, unless otherwise determined by the Secretary or this Tribunal.
22. The legislation requires that when examining whether or not an individual, in this case Mr Robinson, should be attributed with 100% of the assets of the company, a decision-maker must comply with any relevant decision-making principles. These relevant principles are contained within a disallowable instrument, the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000 (the Principles). The decision-maker, and the Tribunal standing in his shoes should have regard to one or more of the following circumstances, when making a decision regarding attribution. They are:
·circumstances affecting the relationship with the company or trust;
·contribution to company or trust;
·past benefit from distributions by company or trust;
·future benefit from distributions by company or trust;
·benefit from assets and income of trust
·existing attributions to individual (and whether they are stakeholders of any other trusts); and
·other circumstances.
23. As to Mr Robinson, I have already discussed his situation above. In considering the Principles, I am satisfied that Mr Robinson purchased Harvey World Travel at Brighton-Le-Sands in 1999 for approximately $95,000, that he controls the company, with Julie as general manager and a co-decision maker. It was Mr Robinson’s decision to invest his superannuation moneys in the company, which, based on his decision making, has to date made no distributions. He has lent the company money from time to time when this has been required. There is no evidence that anyone other than Mr Robinson contributes financially to the business. Mr Robinson has worked for the company since incorporation without remuneration, other than a part reimbursement of his travel costs. Mr Robinson’s contributions represent a significant proportion of the capital of the company. I have already found above that as the majority shareholder, Mr Robinson controls Julros Pty Ltd and operates it with Julie. He plays an active role in the business, and although he is not a travel agent and cannot use a computer, he does the accounts, cleans and undertakes other promotional and administrative tasks, while Julie, a fellow director who is employed full-time, and assisted by two part-time staff, arranges travel bookings.
24. I am satisfied that Mr Robinson does not have problems with Ross or Vicki, who do not play any active role in Julros Pty Ltd, and that he and Julie make the decisions, and operate the company.
25. From the above evidence and a consideration of the relevant decision-making principles which I have reproduced above, I am satisfied that the circumstances of Mr Robinson’s relationship with Julros Pty Ltd, that is his majority shareholding, level of control and source of company assets do not make it inappropriate for him be an attributable stakeholder of Julros Pty Ltd.
26. What remains is for me to decide is whether it is appropriate in all the circumstances to diverge from attributing the income and assets of Julros Pty Ltd solely to Mr Robinson.
27. In support of her submission that Mr Robinson should be attributed with 100% of the income and assets of Julros Pty Ltd, Ms Harlock submitted that in Mousney and Secretary, Department of Family and Community Services [2003] AATA 275, and Ractivand and Secretary, Department of Family and Community Services [2004] AATA 1414, where the Tribunal affirmed decisions by Centrelink to attribute 100% of the company income and assets to the Applicants in both cases, other family members were shareholders in the relevant companies.
28. She also argued that in the case of O’Meara and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2008] AATA 1083, the Tribunal found that the Applicant’s wife was an attributable stakeholder and also a director, beneficiary, class guardian and class appointer of the relevant trust. She noted that the Tribunal attributed 20% of the trust assets and income to the applicant’s wife because she shared the interest in the trust with four other siblings, none of whom held a majority interest. She submitted that Mr Robinson exercises more control and has potentially more benefit from his interest in Julros Pty Ltd than the applicant’s wife in O’Meara.
29. In coming to a decision, I am mindful of the decisions cited above, the legislation and the Second Reading Speech, a part of which I have cited above, and in which the Minister emphasised that until the legislation was amended, people operating private trusts or private companies were able to be treated more favourably under the means test arrangements than individuals, sole traders or people in partnerships, of otherwise similar means. Further he emphasised that this was inequitable and inconsistent with the objectives of the income support system, which are to provide a safety net for those who cannot adequately support themselves, and to encourage self-provision by those who can.
30. I am also mindful that each case turns on its own facts, and that it was only after hearing all the evidence that I came to fully understand the situation with regard to Julros Pty Ltd. I am satisfied as stated above, that Mr Robinson exercises control over the company, but I am also satisfied that Julie who holds almost 14% of the shares, operates the company and makes decisions about it in conjunction with her father. I am satisfied that neither Ross nor Vicki, although directors and share holders, play any active role at all in relation to Julros Pty Ltd, and that they do not make decisions in relation to the company.
31. Accordingly, I am satisfied that notwithstanding Mr Robinson has control of the company in terms of the legislation, and in the alternative that he also passes the source test, Julie plays an active decision making role in the company. I find therefore that taking into account the Principles, it is the correct or preferable decision to attribute Mr Robinson with 86% of the income and assets of Julros Pty Ltd, that is Ross and Vicki’s shareholding is attributed to Mr Robinson in addition to his own 65.5%.
32. What this means in terms of Mr Robinson’s pension is that the attributed income and assets must be considered in addition to any other ordinary income of Mr Robinson when determining the rate of pension payable to him. That may mean that Mr Robinson’s pension is reduced accordingly. My decision is to vary the decision under review.
The loan of $7,472 from Mr Robinson to Julros Pty Ltd
33. For the sake of completeness, I also need to deal with the loan of $7,472 which Mr Robinson made to Julros Pty Ltd, and which appears in its financial statements for 30 June 2008. This matter was not argued before me, as the Applicant agreed with the decision of the SSAT in its treatment of the loan. Mr Robinson did not want to argue against it, but he did say that he was not certain how it occurred, and where it was documented.
34. I am mindful that section 1122 of the Act provides that the value of a person’s assets includes loans, to the extent that they remain unpaid. Loans are financial assets of a person under subsection 9(1) of the Act. Section 1076 provides that a person who has financial assets is taken to receive ordinary income from those assets in the way set out in that section. That applies to Mr Robinson in relation to the loan for $7,472 which he made to Julros Pty Ltd. As far as I am concerned I affirm that decision of the SSAT in that regard.
DECISION
35. The Tribunal varies the decision under review, being the decision of the Social Security Appeals Tribunal dated 22 July 2009. In doing so, this Tribunal finds that from the date of the original decision 4 November 2008, 86% of the income and assets of Julros Pty Ltd be treated as the income and assets of Mr Robinson for purposes of calculating his rate of age pension. The issue of the loan of $7,472 by Mr Robinson to Julros Pty Ltd in the financial year 2007/2008 was raised at the hearing, but not litigated, and the decision of the Social Security Appeals Tribunal in regard to that issue is affirmed.
I certify that the 35 preceding paragraphs are a true copy of the reasons for the decision herein of Ms G Ettinger, Senior Member
Signed: ........................[sgd]............................
Associate
Date of Hearing 3 February 2010
Date of Decision 15 February 2010Representative of the Applicant Ms R Harlock for the Secretary, Department of Families, Housing, Community Services and Indigenous Affairs
Respondent Mr Robinson, self represented
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