Snodgrass and Secretary, Department of Social Services (Social services second review)
[2016] AATA 185
•30 March 2016
Snodgrass and Secretary, Department of Social Services (Social services second review) [2016] AATA 185 (30 March 2016)
Division
GENERAL DIVISION
File Number(s)
2013/5020
Re
Warren Snodgrass
APPLICANT
And
Secretary, Department of Social Services
RESPONDENT
File Number(s)
2013/5038
Re
Gail Snodgrass
APPLICANT
And
Secretary, Department of Social Services
RESPONDENT
DECISION
Tribunal Prof R Deutsch, Deputy President
Date 30 March 2016 Place Sydney The decision under review is affirmed.
...............................[sgd].........................................
Prof R Deutsch, Deputy President
CATCHWORDS
SOCIAL SECURITY – pensions – disability support pension – carer payment – cancellation – asset limit – loan as asset – decision affirmed
LEGISLATION
Social Security Act 1991 (Cth) ss 11, 1064, 1122, 1129, 1130
CASES
Goh v Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2010] FCA 396
Gorton and Secretary, Department of Families Housing, Community Services and Indigenous Affairs [2012] AATA 127
Secretary, Department of Social Security v Carapeta [2013] FCA 1369
Saunders and Secretary, Department of Family and Community Services [2002] AATA 1256
Sommer and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2008] AATA 836Unicomb and Secretary, Department of Social Security [1998] FCA 204
REASONS FOR DECISION
Prof R Deutsch, Deputy President
30 March 2016
INTRODUCTION
On 28 August 2013 the Social Security Appeals Tribunal (SSAT) made a decision in which it affirmed the decision made by Centrelink to cancel;
·the disability support pension (DSP) previously given to Mr Snodgrass; and
·the carer payment (CP) previously given to Mrs Snodgrass.
In reaching those decisions the SSAT agreed with the calculation originally made by Centrelink of the combined assets owned by the Applicants, Mr and Mrs Snodgrass. In particular, the SSAT agreed with the calculation of the net attributable assets of Mr and Mrs Snodgrass’ company Abonema Holdings Pty Ltd (Abonema).
BACKGROUND CHRONOLOGY
Mr and Mrs Snodgrass (collectively referred to as “the Applicants”) were both born in 1949.
On 7 December 2010, Mr Snodgrass lodged a claim for DSP and Mrs Snodgrass lodged a claim for a CP and a carer allowance (CA) with Centrelink. Mrs Snodgrass also lodged an Income and Assets form declaring both parties assets including bank accounts and shares.
Shortly thereafter, DSP, CP and CA claims were all granted with effect from 7 December 2010.
On 1 November 2011, Centrelink wrote to the accountant acting for the Applicants requesting certain taxation records be provided for Abonema together with the company’s full financial reports.
On 11 November 2011, the Applicants’ taxation returns and the records of Abonema respect of the 2010 year of income were provided by the accountant to Centrelink.
On 15 December 2011, Centrelink notified the Applicants of the cancellation of DSP and CP respectively because the value of the combined assets exceeds the allowable limit.
On 10 October 2012, a review was requested by the accountant acting for the Applicants of the Centrelink decision on the basis that a certain loan made by the Applicants to Abonema, a company associated with them, in the amount of $1,032,833.64 was unrealisable based on the fact that the hotel which was the only asset of Abonema at the time was trading at a loss and was for sale. A supporting valuation of the hotel was also provided to Centrelink.
On 4 February 2013, Centrelink was advised that both the hotel and the private residence of the Applicants were now officially listed for sale. Loans outstanding to St George Bank at the time were in the order of $4.1 million and it was anticipated that the proceeds of sale would go to reduce to the maximum extent possible the outstanding loan balance.
On 28 February 2013, the hotel was valued by the Australian Valuation Office at $3.5 million.
On 7 June 2013, the decisions to cancel both the DSP and the CP were affirmed by an Authorised Review Officer.
On 3 July 2013, the Applicants lodged appeals with the SSAT.
On 28 August 2013, the SSAT affirmed the decisions under review.
On 3 October 2013, the Applicants lodged their application for review with this Tribunal.
On 15 July 2014, new claims were lodged on behalf of the Applicants for DSP and CP respectively as well as a claim for consideration under the hardship provisions.
On 20 November 2014, the Applicants were found to be in severe financial hardship particularly as their loan to the company would now be considered unrealisable.
On 26 November 2014 the Applicants were granted arrears of DSP (Mr Snodgrass) from 15 July 2014 and arrears of age pension (Mrs Snodgrass) from 10 July 2014.
Thus, Mr Snodgrass did not receive a pension from 15 December 2011 until 15 July 2014 and Mrs Snodgrass did not receive the Carer’s Payment from 15 December 2011 and was in receipt of the age pension from 10 July 2014.
ISSUES
The critical issue for consideration in this matter is whether, as at December 2011 the value of the Applicants’ assets for the purposes of the assets test as set out in the Social Security Act 1991 (Cth) (“the Act”) exceeded the amount of $1,018,000 such that the married pension rate was reduced to nil.
In this regard it appears to be common ground that the Applicants had five classes of assets as at the relevant time namely:
·Assets owned by Abonema attributable to the Applicants;
·Loans made by the Applicants to Abonema;
·Commonwealth Bank Accounts;
·Household Contents; and
·Motor Vehicles x two
It also appears to be common ground that the values in respect of four classes were agreed as follows
·Assets owned by Abonema attributable to the Applicants Nil
·Commonwealth Bank Accounts $3,259
·Household Contents $4,000
·Motor Vehicles x two $ 830
TOTAL $8,089
What is not agreed and is the subject of the current dispute is the value to be attached to the loans made by the Applicants to Abonema.
The Applicants contend that the relevant value is zero in which case the Applicants DSP and CP respectively should be reinstated in full for the entire period in question.
The Respondent contends that the relevant value is $1,032,833.64 in which case the entitlement in respect of both payments is reduced to nil.
THE RELEVANT LEGISLATION
The relevant legislation is to be found largely in the Act and the key provisions requiring attention in this case are summarised as follows.
Section 1064:
(1) The rate of:
(b) disability support pension of a person who has turned 21
…
(d) carer payment
…
is subject to subsection (2), to be calculated in accordance with the Rate Calculator at the end of this section.
The Rate Calculator contains a series of Modules with Module A establishing the overall rate calculation process and the remaining Modules providing for the calculation of the component amounts used in the overall rate calculation.
Steps 5 and 8 of the Module A method statement require a calculation to be made of “the income reduction” calculated under Module E and for that amount to be taken away from the maximum pension amount. The net figure is the income reduced rate.
Steps 9 and 10 of the Module A method statement require a calculation to be made of “the reduction for assets” calculated under Module G and for that amount to be taken away from the maximum pension amount. The net figure is the assets reduced rate.
Step 11 of the Module A method statement requires a comparison to be made between the income and the assets reduced rates and the lower of the two rates becomes the rate of pension (after some other adjustments are made at step 12 none of which are relevant for present purposes).
There is no income to speak of in this case so the income reduction would be negligible if at all.
The relevant issue is the reduction for assets which is calculated under Module G.
Step 1 requires a calculation of the “value of the person’s assets” and step 2 “the person’s assets value limit”.
The calculation of the person’s assets value limit depends both on the marital status of the person and on whether the person is or is not a home-owner. The limit is indexed annually. Of relevance in this case is the unchallenged conclusion that the point at which the married pension rate would be reduced to nil for a married person would be $1,018,000 combined.
In other words, if the value of the combined assets of a married home-owning couple was $1,018,000 or more as at the relevant time, the pension and carer payment entitlements would be reduced to nil.
Section 11 defines asset to mean “property or money” and section 1118(1)(b) provides that the value of the person’s principal private residence is an exempt asset.
Section 1122 provides that if a person lends an amount after 27 October 1986, then “the value of the assets of the person for the purposes of this Act includes so much of that amount that remains unpaid…”.
CONSIDERATION
Having regard in particular to sections 11 and 1122 of the Act, it is clear the lending of money by a person to another party, even if the lender and the borrower are closely related in some way, gives rise to an asset held by the lender.
It is also clear from the wording of section 1122 that for social security purposes the value of that asset held by the lender is equal to “so much of the amount that remains unpaid” at the relevant time.
The difficulty in this case is in identifying what exactly was the amount that remained unpaid by Abonema to the Applicants as at 15 December 2011 when the DSP and CP were cancelled.
The following possibilities have been advanced by the parties:
·$1,032,833.64 – provided on one version of the 30 June 2011 balance sheet of Abonema given to the Respondent on or around 23 January and again on 13 March 2015;
·$976,447.82 – provided on one version of the 30 June 2012 balance sheet of Abonema given to the Respondent on or around 23 January and again on 13 March 2015;
·$182,833.64 – provided on a different version of the 30 June 2011 balance sheet of Abonema given to the Respondent on or around 10 March 2015;
·$126,447.82 – provided on a different version of the 30 June 2012 balance sheet of Abonema given to the Respondent on or around 10 March 2015;
·$899,585.64 – provided as part of the Applicants’ contentions;
·$981,578.02 – provided by the accountant in his letter to the Department of Human Services on 10 July 2013;
·Nil – provided by the Applicants in their Statement of Facts and Contentions.
The Respondent has relied on the figures first presented to it on 23 January 2015 as being the relevant accounts and these accounts were presented again as the correct accounts on 13 March 2015.
The alternative version of the accounts was presented to the Respondent on 10 March 2015 but no explanation seems to be available as to why there is such a significant discrepancy.
In a letter dated 10 October 2012 the accountants for the Applicants wrote to Centrelink and made reference to “the allocated loan amount of $1,032,833.64 shown to be a liability in the financial statements of the company”. Later in the same letter they say: “We dispute that the loan amount of $1,032,833.64 as at today is representative of that amount and the reasons are summarised below”.
There follows an explanation of how the company’s assets have deteriorated in value and concludes with:
This write down would effectively remove any entitlement Warren and Gail Snodgrass would have against the company. In other words this alleged asset would not exist for purposes of calculating entitlement to a pension.
It appears from the content of this letter that the accountant accepts that there was a loan of $1,032,833.64 but its value in economic terms has deteriorated as a result of the collapse in the underlying value of the company’s assets.
While that may be true, the reasoning adopted by the accountant fundamentally overlooks section 1122 of the Act which treats the value as the amount “that remains unpaid” and has no regard to the deterioration in value of the underlying assets of the company that owes the money.
The operation of section 1122 has been called into question in a number of cases all of which have confirmed, in my view correctly, that the value of the loan remains the outstanding balance owing at the relevant time irrespective of any deterioration in the value of the underlying assets.
In Re Secretary, Department of Social Security v Carapeta [2013] FCA 1369 the Court considered an appeal by the Secretary as to the circumstances under which the value of a person’s assets will be reduced for the purpose of the Social Security Act 1991 (Cth). The Court held:
[17] The appeal must be upheld for the following brief reasons. There was no evidence before the AAT which showed that the sum loaned to the company was obtained by the Carapetas via secured loans advanced to them from creditors of the Carapetas. Therefore, there is no basis for the contention that s 1121 of the Act applied, as there was no evidence that a charge or encumbrance existed over the particular asset. In any event, s 1122, when read in conjunction with s 1121, applies to make so much of the loan advanced to the company as remains unpaid to the Carapetas, an asset of the Carapetas.
[18] There is no basis for the submission that the result of the current application is absurd or irrational. The Carapetas lent money to a corporation which is their alter ego. In effect, they lent it to themselves. There is nothing absurd or irrational about that loan being treated as their asset.
The manner in which loans are treated was also the subject of Re Goh v Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2010] FCA 396. The Court held:
[16] The applicants made reference to the fact that Jaytra should be viewed as a separate entity.
[17] However, the Act operates in the way indicated by the Tribunal, and even treating Jaytra as a separate entity, the conclusion reached by the Tribunal is authorised by the Act. In giving the Court illustrations of the errors of the respondents, the applicants fail to apply the various definitions and deeming provisions of the Act. It may well be from an investment or accountant’s point of view, various liabilities arise, and certain losses occur, but these may be irrelevant to the operation of the Act in any given circumstance in determining the social security benefits to be received.
[18] There may have been some confusion of expression used in certain documentation, and in the respondents’ submissions as to whether the relevant sections of the Act (in particular s 1122) related to loans to shareholders, as distinct to loans from shareholders to a private company. It is clear that s 1122 (in the context of this case) is concerned with loans from the applicants to Jaytra, which were to be re-paid by Jaytra but which remained unpaid in the relevant years.
[19] The applicants also contended that the loans to Jaytra should be considered in the context of all the assets and liabilities of the company itself. Whilst there may be some sense in this approach, this is not the way the Act operates: see eg Unicomb v Department of Social Security (1998) 86 FCR 96 (Branson J). The Act operates, as I have said, in the manner indicated by the Tribunal and I can find no error of law in the Tribunal’s approach. The Tribunal having found certain facts (importantly that loans did exist) was bound as a matter of law to apply the Act as it did.
Similarly in Re Unicomb and Secretary, Department of Social Security [1998] FCA 204 the Applicants argued that a loan to their son’s company should not be regarded as an asset. The Court held:
The question is thus whether the applicant lent the sum of $647,000 to Chemle. There was no evidence before the Tribunal as to the terms of the arrangement between the applicant and Chemle pursuant to which Chemle came to have the benefit of the monies borrowed by the applicant from AGC. However, there is no suggestion that the monies were a gift to Chemle. It is thus to be assumed that the applicant did have a legally enforceable right to claim repayment of such monies from Chemle.
Nothing in the terms of s 1122 of the Act, in my view, suggests that it is appropriate, for the purpose of determining whether a person has lent an amount, to consider whether, having regard to the factual circumstances which surround the transaction prima facie falling within the terms of the section, the person has gained a net advantage from such transaction so far as his or her total assets are concerned.
In Re Saunders and Secretary, Department of Family and Community Services [2002] AATA 1256 the Applicants argued that the loan to a family trust should be disregarded because the family trust never had the capacity to repay the loan. The Tribunal held:
Loans
[21] In relation to the loans by the applicants to the family trust, section 1122 of the Act provides that, for amounts lent by a person after 27 October 1986, so much of a loan as remains unpaid to the person must be included as an asset for the purposes of the Act. It is not disputed by the applicants and I am satisfied that the loans were made ... I am also satisfied that those are the amounts that remain unpaid to the applicants and that, therefore, they are embraced by the terms of section 1112 of the Act.
[22] Mr Saunders submitted that this was not a fair approach because the family trust had no capacity to repay the loans. That raises two matters for consideration: the appropriate method of valuing the loans and the role of the provisions relating to unrealisable assets.
[23] In respect of the first matter, the practice of adopting the full face value of the loan has applied since 27 October 1986 when the Act was amended: see Re Ling and Secretary, Department of Family and Community Services [1999] AATA 797; Re Mendes and Secretary, Department of Family and Community Services [2000] AATA 22; Re Hughes and Secretary, Department of Social Security [1992] AATA 52; (1992) 25 ALD 754 and Re Trewin and Secretary, Department of Family and Community Services [2002] AATA 437.
[24] In respect of the second matter, the term "unrealisable asset" is defined in sub-section 11(12) of the Act as set out above and it may well be the case that the loans to the applicants fall within that category. However, even if that were the case, such a finding would have no relevance to the application of the assets test when assessing the value of assets. In the circumstances of this case, the only occasion when the notion of an unrealisable asset would be relevant is if the financial hardship provisions in section 1129 of the Act were invoked. In a case such as this, that provision has application where the relevant allowance, Newstart or partner, is not payable because of the application of the assets test and a request has been lodged in the approved form for the financial hardship provisions to be applied. This means that the notion of an unrealisable asset is only relevant after the value of the applicant's assets has been determined. Also, a specific request must be lodged and that has not been done by the applicants.
[25] It follows that the loans which total $128,325.53 are to be taken into account as assets for the purposes of the assets test under the Act.
Using the balance sheet as at 30 June 2011 provided to the Respondent on both 23 January and 13 March 2015 was both logical and reasonable in that that provided the best available evidence as to the amount outstanding. The figure so used also appears to have been confirmed by the accountants own letter as mentioned above.
The other figures and their provenance remain unclear to this Tribunal but it does appear that some of them are amounts arrived at as a result of the accountants discounting the face value having regard to the deterioration in value of the underlying assets and the consequent diminished capacity of the borrower to repay the loan advanced. As already indicated this is not an appropriate way to deal with the value of the loan for social security purposes having regard to section 1122 of the Act.
Utilising the balance sheet in circumstances such as these as evidence of the value of a loan to a corporation has been recognised as appropriate in many cases: see ReSaunders and Secretary, Department of Family and Community Services [2002] AATA 1256; Re Sommer and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2008] AATA 836 and Re Gorton and Secretary, Department of Families Housing, Community Services and Indigenous Affairs [2012] AATA 127.
This is not to suggest that there can never be a circumstance where the amount shown on the balance sheet to be outstanding is no longer the correct figure. For example, if it could be shown that an amount was actually repaid shortly after the balance sheet closing date that would be relevant. This would require the Applicants to put forward cogent evidence of the repayment so as to support a lesser figure as the amount that is outstanding. No such evidence has been provided here to support the conclusion that the balance sheet amount as first suggested in respect of the year ended 30 June 2011 was wrong. Indeed the accountant accepted that figure as being correct at various times.
Finally, a claim can be made on the grounds of hardship pursuant to sections 1129 and 1130 of the Act especially where a person holds unrealisable assets that otherwise count as full face value for assets testing purposes. The Applicants in fact lodged such a claim based on hardship and were successful. Sadly, this was only done on 15 July 2014 and they were granted pensions from that date.
Under section 1129(2)(b) of the Act a decision to pay a person under the hardship provisions cannot take effect any earlier than six months before the date on which the claim is made.
Consequently, this Tribunal is not able to consider the hardship provisions in determining the decision under review. The Respondent has accepted the hardship application and given effect to that decision in a manner which is consistent with s 1129(2) of the Act
The value of the Applicants’ total assets at the time of the cancellation was $1,040,922.64 being made up of the value of the loan to the company ($1,032,833.64 plus Other Assets of $8,089.00).
As this amount exceeded the applicable assets value limit at the relevant time the decisions to cancel the DSP and the Carer Payment were correct.
DECISION
The decision of the Social Security Appeals Tribunal of 23 August 2013 is affirmed.
I certify that the preceding 63 (sixty-three) paragraphs are a true copy of the reasons for the decision herein of Prof R Deutsch, Deputy President ................................[sgd]........................................
Associate
Dated 30 March 2016
Date(s) of hearing 16 November 2016 (on the papers) Advocate for the Applicant ABA Accounting Pty Ltd Solicitors for the Respondent Department of Human Services
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