Seymour v Secretary, Department of Social Services
[2015] AATA 505
•13 July 2015
[2015] AATA 505
Division GENERAL DIVISION File Number(s)
2014/5538
Re
James Seymour
APPLICANT
And
Secretary, Department of Social Services
RESPONDENT
DECISION
Tribunal Professor R Deutsch, Deputy President
Date 19 June 2015 Date of written reasons 13 July 2015 Place Sydney The decision under review is affirmed.
...........................[sgd].............................................
Professor R Deutsch, Deputy President
Catchwords
SOCIAL SECURITY – disability support pension – whether income exceeded maximum allowable for payment – whether loan a deprived asset – derivation of income from trust
Legislation
Social Security Act 1991 (Cth) ss 8, 9(4), 1066A, 1072, 1076, 1083 1123
Cases
Re Georgina Frendo v Secretary to the Department of Social Security [1987] FCA 438
Inguanti v Secretary, Department of Social Security (1988) 15 ALD 348
Re Elena Mazzella v Secretary to the Department of Social Security [1989] AATA 35
REASONS FOR DECISION
Professor R Deutsch, Deputy President
13 July 2015
The hearing in this matter was held on 29 May 2015 in respect of an appeal by Mr James Seymour (the Applicant) against a decision of the Social Security Appeals Tribunal (SSAT) which was made on 12 September 2014. The Applicant was represented by his father, Mr Anthony Seymour. The decision of the SSAT affirmed a decision of the Respondent made on 10 February 2014 to refuse to grant the Applicant a disability support pension (DSP). The reason for the refusal was that the Applicant’s income was more than the maximum amount the Applicant could receive before DSP is not payable to him.
I delivered an oral decision in this case on 19 June 2015. The Applicant has requested a written decision – these are my reasons.
FACTUAL BACKGROUND
The Applicant through his nominee lodged a claim for DSP on 6 December 2013.
On 7 January 2014, the Applicant’s claim was refused on the basis that his income was above the maximum allowable limit for DSP.
The Applicant applied for a review and, as part of that application, provided further documents in support.
On 10 February 2014, the original decision to refuse the DSP to the Applicant (because the Applicant’s income exceeded the maximum allowable limit) was affirmed.
On 26 May 2014 the Applicant requested that the SSAT review the decision. In a decision dated 12 September 2014, the SSAT affirmed the decision to refuse the Applicant’s claim for DSP also on the basis that the Applicant’s income exceeded the maximum allowable limit for DSP.
On 24 October 2014, the Applicant applied to this Tribunal for a review of the decision of the SSAT.
Importantly, the Applicant was and is at all relevant times nominated as a beneficiary of the Seymour Family Trust (the SF Trust). In both the year to 30 June 2012 and 30 June 2013, distributions were declared by the trustee of the SF Trust in favour of the Applicant. These were in the total amount of $19,802 for the first year and $21,289 in respect of the latter year.
In addition, previous trust distributions had been retained by the trust as a loan from the Applicant in the amount of $124,186.52. At some stage in 2013, it seems that this loan was effectively transferred from the Applicant to his father such that the amounts owing to the Applicant became treated for all purposes as though they were amounts now owing to the Applicant’s father. To the extent that this was done for no consideration, social security law would apply certain rules about deprivation so as to treat the Applicant as holding what is referred to as a deprived asset on which he would be deemed to derive interest income.
ISSUES TO CONSIDER
Broadly speaking, the critical issue for consideration is whether the SSAT’s decision, made on 12 September 2014, that the Applicant was not entitled to the DSP on 6 December 2013 based on the assessment of his income is the correct or preferable decision?
More specifically, there are two issues which are still the subject of dispute between the parties. First, there is an issue as to whether the Applicant held a financial asset or a deprived asset (the asset in both cases being the purported loan to the trust) at the relevant times. Secondly, there is an issue as to whether the Applicant derived income in circumstances where he never actually received income from the SF Trust, that income having only been declared in his favour.
THE APPLICANT’S INCOME FOR THE YEAR ENDED 30 JUNE 2013
The Legislative Background
Under section 98 of the Social Security Act 1991, DSP is not payable to a person if the rate of DSP would be nil.
The rate of DSP payable to the Applicant is to be worked out in accordance with section 1066A of the Social Security Act 1991. The section requires a decision maker to work out the amount of the relevant person’s ordinary income on a yearly basis.
Ordinary income is defined in section 1072 of the Act as follows:
A reference in this Act to a person's ordinary income for a period is a reference to the person's gross ordinary income from all sources for the period calculated without any reduction, other than a reduction under Division 1A.
Section 8 of the Act defines income and income amount as:
"income " , in relation to a person, means:
(a) an income amount earned, derived or received by the person for the person's own use or benefit; or
(b) a periodical payment by way of gift or allowance; or
(c) a periodical benefit by way of gift or allowance;
but does not include an amount that is excluded under subsection (4), (5) or (8).
Section 1076 extends the concept of ordinary income such that “a person who has financial assets is taken, for the purposes of this Act, to receive ordinary income on those assets in accordance with [section 1076]”.
The section sets out formulas particularly sub-sections 1076(3) and (3A) for determining the deemed amounts to be included as ordinary income.
Further, income actually earned, derived or received on a financial asset is not taken to be ordinary income of the person: s 1083 of the Act. Generally, this has the effect that, in calculating ordinary income, it is the deemed income from a financial asset and not the actual income from that asset which is to be included in the ordinary income of the person.
The Application to the Facts
Actual Income
It appears to be agreed between the parties that, if amounts for trust distributions were correctly included, the income derived by the Applicant for the year ended 30 June 2013 is $21,289.
Deemed Income
It also appears to be agreed between the parties that if the deemed interest is to be included, the correct calculation of the income deemed to be derived by the Applicant is based on the deeming rates being applied to the beneficiary loan of $124,186.52.
For the 2013 year, based on the deeming rates provided in the Guide to Social Security Law, paragraph 4.4.1.10, the deemed income would be $3647.51. This is calculated as follows:
2% of $46,600 : $ 932.00
3.5% of $77,586.52 : $ 2,715.51
Total : $ 3,647.51
There appears to be no dispute between the parties in regard to the calculation of this deemed interest. There is however disagreement as to whether such deemed interest should arise in this case at all.
Total Income
Accordingly, if the deemed interest is correctly included, the total income of the Applicant for the 2013 year is $24,936.51 or $959.10 per fortnight.
THE MAXIMUM AMOUNT THE APPLICANT COULD RECEIVE FOR THE 2013 YEAR BEFORE DSP IS NOT PAYABLE TO HIM
Although not in dispute, it is helpful to consider how the maximum amount the Applicant could receive before DSP is not payable to him is calculated. After the hearing in this matter, the Respondent provided to the Tribunal a brief summary of the way this amount is calculated. Clearly it is a complex process worked out using the method statement in section 1066A-A1 of the Act.
Having regard to that Method Statement, the following amounts appear to be the relevant amounts in respect of the Applicant:
o Step 1: Calculate the Maximum Basic Rate
The maximum basic rate for a single person under 18 years of age, and who was a dependent, was $223.00.
o Step 1A: Calculate the Energy Supplement
The energy supplement was not payable to Mr Seymour because DSP recipients who were aged under 21 and without dependent children commenced receiving energy supplement payments from 1 January 2014.
o Step 2: Calculate the Youth Disability Supplement
This is an amount of $115.40 per fortnight.
o Step 3: Calculate the Pharmaceutical Allowance
The pharmaceutical allowance was $6.20 per fortnight for an eligible single person.
o Step 4: Calculate Rent Assistance
Mr Seymour was not eligible to receive rent assistance because he was living at home with his parents, and he was not charged rent.
o Step 5: Calculate the Total Maximum Payment Rate by adding together all the amounts at steps 1 to 4
The total maximum payment rate for Mr Seymour equals $344.60 per fortnight ($223+$115.40+$6.20).
o Step 6: Calculate the Income Reduction
The Income Reduction is worked out using Module F.
Module F requires the amount of the Applicant’s ordinary income on a yearly basis ( $24,936.51) to be worked out first and to then compare that amount with the Applicant’s ordinary income free area. The ordinary income free area for the Applicant being a single, 16-17 year old claiming DSP with no children was $156.00 per fortnight for the year in question (see Chart C(b), page 32 of the Guide). This translates to an amount of $4056 on a yearly basis.
The Excess is $19880.
The Income Reduction is that amount divided by two, being $9940 per year or $382.31 per fortnight
o Step 9: Take the Income Reduction from the Maximum Payment Rate.
The Income Reduction is more than the Total Maximum Payment Rate. Accordingly the DSP rate for the Applicant is reduced to nil.
Thus, if Mr Seymour earned more than $845.20 per fortnight (or $21,975.20 per year), his rate of DSP would be reduced to nil and the DSP would not be payable to him. He actually earned $959.10 per fortnight if the deemed interest is included.
THE MAIN DISPUTED ISSUE
What is in dispute is the deemed income which arises as a result of the Applicant holding a financial asset which is deemed to produce income at the relevant deeming rates, regardless of the actual income generated by that asset.
The financial statements provided by the Seymour Family Trust (the Trust) to Centrelink indicated that:
·as at the end of the 2012 financial year, the Applicant’s beneficiary loan to the Trust was an amount of $109,501.21; and
·as at the end of the 2013 financial year, the Applicant’s beneficiary loan to the Trust had risen to an amount of $124,186.52.
It appears that the Applicant has then assigned the benefit of that loan to his father, Mr Anthony Seymour. Mr Seymour was subsequently listed as the person who owned that loan.
It is asserted that the reason this was done was that Mr Anthony Seymour had over a period of time outlaid from his own funds amounts for the Applicant’s medical and educational expenses. The transfer of the loan would reimburse the Applicant’s father for those expenses.
If this characterisation of what has taken place is correct, the issue becomes whether the arrangement gives rise to the Applicant owning a financial asset for the purposes of the income test.
Financial asset is a defined term and under subsection 9(1) of the Act it means:
(a)a financial investment; or
(b)a deprived asset.
A financial investment is defined to mean, amongst a number of other things, a loan that has not been repaid in full.
Thus, while the loan remained as an obligation of the Trust to the Applicant, it was clearly a financial asset as it was a financial investment.
The assignment of the loan to the Applicant’s father makes the situation more complicated. The essential issue is whether the Applicant, after the transfer of the loan to his father, was the owner of a deprived asset.
The definition of a “deprived asset “ is to be found in s 9(4) of the Act which provides that
For the purposes of the Act, an asset is a deprived asset if:
(a)a person has disposed of the asset; and
(b)the value of the asset is included in the value of the person’s assets by section 1124A ...
A person has disposed of an asset under s 1123 of the Act if:
(a) the person engages in a course of conduct that directly or indirectly:
(i) destroys all or some of the person’s assets; or
(ii) disposes of some or all of the person’s assets; or
(iii) diminishes the value of all or some of the person’s assets; and
(b)one of the following subparagraphs is satisfied:
(i) the person receives no consideration in money or money’s worth for the destruction disposal or diminution;
(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.
Quite clearly for the purposes of sub-paragraph 1123(a)(ii), the Applicant did dispose of an asset in 2013 when he allowed his beneficiary loan to be assigned to his father. No one is suggesting, or has ever suggested, that sub-paragraph (b)(iii) applies. Whether sub-paragraph (b)(i) or (ii) applies depends on whether the Applicant received either no consideration or inadequate consideration in money or money’s worth for the assignment of the loan.
In this context, there is no meaningful evidence to support the view that consideration has been provided. The meaning of consideration was considered in a somewhat different context in Re Georgina Frendo v Secretary to the Department of Social Security[1987] FCA 438 where the Court confirmed that a pensioner who had disposed of a large sum of money to her son in return for the right to reside with him for the remainder of her life, had disposed of her asset. No consideration had been provided in a legal sense – the family arrangement that had been entered between the mother and son was a purely family domestic arrangement that did not give rise to consideration.
Applying the same logic here, it would appear to be the case that there are at least two reasons why the Applicant could not be said to have received any consideration.
First, there is no binding contract or arrangement between the parties such as to connect the assignment of the loan to the payment of the medical expenses by the Applicant’s father. In other words, to constitute legal consideration the exchange must be connected in a meaningful way. To put it another way, the Applicant’s father would have paid the medical bills of the Applicant even without the reimbursement. In fact he did so with no assurance that an assignment of the loan would be made to him.
Secondly, it is generally expected that a parent will pay the medical expenses of their child as part of his natural love and affection within the family or as a part of a moral obligation from parent to dependent child: Re Elena Mazzella v Secretary to the Department of Social Security [1989] AATA 35. Likewise in this case there is nothing to suggest that Mr Seymour paid for the Applicant’s medical expenses for any other reason.
In relation to the 2012 income year, the resolution of the issues is more straightforward as at that time there was no deprivation of the financial asset and there would have been a straightforward deeming of interest based on the outstanding loan balance. As a result, the Applicant’s income, including the actual trust income and the deemed interest, would have exceeded the maximum the Applicant could have derived before DSP is not payable to him.
THE OTHER DISPUTED ISSUE
There was a further issue raised by the Applicant in relation to the beneficiary loan. The Applicant argued that none of the trust distributions for either the 2012 or the 2013 financial years were actually paid to him but were kept by the trust. Accordingly it was not the income of the Applicant.
Even if that is the case, the critical issue for these purposes is derivation of income, not necessarily its receipt. The Applicant still derived the income in question even if the Applicant did not actually receive the payments because he could compel the trustee to pay those monies to him through a legally enforceable right to compel payment: Inguanti v Secretary, Department of Social Security (1988) 15 ALD 348.
Since the trustee had passed two resolutions - one on 30 June 2012 and the other on 30 June 2013 – which resolved to distribute the relevant income to the Applicant, and as the Applicant could call on those monies to be paid to him, the amounts in question were income of the Applicant
CONCLUSION
In conclusion, the Tribunal is of the view that the deemed interest and the trust distributions were correctly included as income of the Applicant.
The decision of the SSAT was the correct or preferable decision.
I certify that the preceding 49 (forty-nine) paragraphs are a true copy of the reasons for the decision herein of Professor R Deutsch, Deputy President.
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Associate
Dated 13 July 2015
Date(s) of hearing 29 May 2015, 19 June 2015 Date final submissions received 19 June 2015 Advocate for the Applicant A Seymour Solicitors for the Respondent G Thangasamy, Department of Human Services
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