Spence and Secretary, Department of Employment and Workplace Relations

[2006] AATA 681

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2006] AATA 681

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No N2005/345

GENERAL ADMINISTRATIVE DIVISION		)          )
Re		AMANDA JOAN SPENCE

Applicant

And SECRETARY, DEPARTMENT OF EMPLOYMENT AND WORKPLACE RELATIONS

Respondent

DECISION

Tribunal Senior Member Robin Hunt

Date3 August 2006

PlaceSydney

Decision The tribunal affirms the decision under review.

[SGD]

Ms R Hunt
  Senior Member

CATCHWORDS

SOCIAL SECURITY - assets and income – parenting payment claim - attribution of private trust assets – attribution of value of assets - beneficial interest in testamentary property given on trust – no contingency observed by trustees - money advanced to applicant for purchase of house – loan asset attributable to applicant..

LEGISLATION

Social Security Act 1991 - s1181, ss 1129, 1207A, 1207X, 1208E, 1209E, 1270V

Real Property Act 1900 (NSW), 42(1)

CASES

Commissioner of Stamp Duties v Livingston [1964] 3 All ER 692
Field v Field [1939] ST R Qd 46
Gill v Gill (1921) 21 SR (NSW) 400
Melbourne v Secretary, Department of Social Security (1988) 85 ALR 291
Official Receiver in Bankruptcy v Schultz (1990) 170 CLR 306
Perrin v Morgan (1943) AC 399
Re Bowmil Nominees Pty Ltd [2004] NSWSC
Re Clayton & Secretary, Department of Social Security (1996) 42 ALD 796
Re Gardiner (deceased); Gardiner v Gardiner and Ors [1971] 2 NSWLR 494
Saunders v Vautier (1841) 4 Beav 115; (1841) 49 ER 282Saliba v Falzon [1998] NSWSC 302
Smidmore v Smidmore (1905) 3 CLR 344
Towns v Wentworth (1858) 14 ER 794
Secretary, Department of Family and Community Services v Geeves [2003] FCA 1486

REASONS FOR DECISION

3 August 2006	Senior Member Robin Hunt
SUMMARY

1.      Ms Amanda Joan Spence, the applicant, applied for review of a decision of the Social Security Appeals Tribunal (SSAT) in respect of her entitlements to receipt of the parenting payment single. The SSAT upheld the decision of an authorised review officer that rejected Ms Spence’s claim on the basis that the value of her assets exceeded the allowable level for receipt of the pension. The tribunal has decided that Ms Spence is an attributable stakeholder of the Amanda Spence Trust with an attribution percentage of 100%. This means that the tribunal affirms the decision under review and finds that Ms Spence is not entitled to the parenting payment single.

BACKGROUND

2.      Amanda Spence was born on 11 February 1969. She has two young children who live with her in a house she purchased using monies advanced to her under the terms of her late mother’s will. Ms Spence purchased the house in early June 2004. She applied for the parenting payment single in October 2004. In her application she completed a private trust module for Centrelink’s records.  In this she disclosed that she was a beneficiary of the Amanda Spence Trust set up under her mother’s will. In the module she named herself, Amanda Joan Spence, and her sister, Victoria Jane Spence, as the trustees of the trust. She named her children, Jaden, born on 12 November 1998, and Sadha, born on 14 August 1988, as further beneficiaries of the trust. With the module Ms Spence also lodged a letter dated 6 October 2004 from a firm of accountants. This advised that she had used most of the trust money to buy a house. A delegate of the respondent, an authorised review officer and the SSAT all decided that Ms Spence was disqualified from receiving the parenting allowance because of the trust. Broadly, the decision makers rejected Ms Spence’s claim on the basis that the assets of the Amanda Spence Trust were attributable to her and that these were assets that exceeded the asset value limit.

ISSUE

3.      The issue in his matter is whether Centrelink’s decision to reject Ms Spence’s application for the parenting payment single was correct. This decision depended on the value of Ms Spence’s assets for social security law purposes, and whether these assets are attributable to Ms Spence.

ANALYSIS AND FINDINGS

The Information Ms Spence provided to Centrelink

4.      Ms Spence disclosed that she was a beneficiary of the Amanda Spence Trust when she applied for the parenting payment on 8 October 2004. She filled out a private trust module at the same time as making the claim. There were several minor inaccuracies in the completed module. For instance, Ms Spence stated that the name of the trust was the “Amanda J Spence & Victoria Jane Spence Family Trust” when it actually is the “Amanda Spence Trust”, according to other records before the tribunal. She also stated the trust’s trading name was “Family trust”. She stated, in naming Victoria Spence under box 26 of the module, that Victoria Spence could veto a trustee’s decision and had other powers. Ms Spence finally recorded that she and Victoria were co-trustees. She set out that the beneficiaries were herself and her children.

5.      Ms Spence also filled out an earlier version of the trust module in February 2003, before she had purchased the house. In this application she declared the testamentary trust arising from her mother’s will benefiting herself and her children. She disclosed her mother’s gift to her daughter of $50,000. In oral evidence before the tribunal, Ms Spence explained that this amount represented a deposit her mother made before her death with her daughter Sadha’s school. The school received the money to pay for Sadha’s education. Under the question about who had power of veto, Ms Spence put down “No powers exist – see will”. Under the question about liabilities of the trust, Ms Spence wrote “school fees” of $50,000. It was plain when Ms Spence gave oral evidence that she had done her best to complete the trust module on these two occasions but did not fully understand what was required.

The Nature of the Trust

6.      The background to Ms Spence’s situation is agreed between the parties. It is the characterisation of her situation with the house that is at issue. Ms Spence’s mother died on 26 July 2002, leaving her estate to Ms Spence and her four siblings according to the terms of her will and a codicil. The mother gave Ms Spence her car and a share of her personal goods free of taxes. Under the will, the mother gave all her real and personal property, that is, her residuary estate, to be divided into five equal shares amongst the siblings. Two of the siblings are executors and trustees of the will. Trust arrangements and powers of the trustees are set out in the will. The trustees of the estate were given various broad powers under the will. Among these clauses, the trustees were given discretions and powers to act for Ms Spence’s benefit.

7.      As to each of the siblings, the mother named trustees, being the particular beneficiary and one other sibling, to hold the named sibling’s 1/5 share in trust. The mother gave the trustees in each case the power to transfer the capital to the beneficiary and to invest any capital not otherwise distributed.  Victoria Spence gave oral evidence to the tribunal that all the children had used some of the capital and had continued to hold the remainder of their share of capital in the trusts set up under the will. She gave further evidence to the effect that “we could dissolve the trusts if we wanted but no one has”.

8.      As to Amanda’s share, the will provided that the trustee hold it on trust prior to Amanda’s vesting date. Under a codicil to the will, made on 26 February 2002, the mother named Ms Spence and her sister, Victoria, as co-trustees of her share.  Ms Spence and her sister told the tribunal that their mother chose to set up the Amanda Spence Trust in a particular way because of Ms Spence’s previous history. The trust was designed to be a protective one.

9.       The will clauses concerning Amanda’s share commence at clause 11A. Clause 11A contains general provisions about the trustees of Amanda’s share and various powers. A codicil changes the trustees to Ms Spence and her sister, Victoria. Clause 11B provides for transfer of any remaining capital on Amanda’s vesting date.  Clause 11C permits the trustees to apply capital at any time for Amanda’s benefit. Clause 11D permits the trustees to buy a residence for Amanda. Clause 11E of the will records the object of the mother in setting up a trust “during the life of my daughter” with the object of providing security for her. Clause 11E expresses the wish that the trustees of the trust favour Ms Spence and not preserve capital.

10.     Ms Spence’s mother passed away on 26 February 2002. The trustees of her will and the beneficiaries in due course proceeded to establish the five separate trusts provided under the will. Ms Victoria Spence gave evidence to this effect. Before the tribunal is a document confirming the establishment of the Amanda Spence Trust by way of opening a cash management account with Macquarie Investment Management Limited in that name. The trustees of the Amanda Spence trust are named on the account statement as Ms Spence and her sister, Victoria. These are the trustees appointed as the trustees of the Amanda Spence Trust by the mother. At the date of the statement, 30 September 2004, the account held $5,403.80. Ms Spence gave evidence to the tribunal that the account now contained about $18. Ms Spence said she had spent the rest of the money on furniture and the like for the house where she lives with her children.

11.     The tribunal was also presented with a letter to this effect from Ms Spence’s accountants. This set out that she:

“[had] used the majority of her inheritance formerly held in a Family Trust, to purchase her home…”. 

Attribution of Assets to Ms Spence

12.     The characterisation of Ms Spence’s situation is seemingly complicated by the fact that trust money was used by Ms Spence to purchase her principal home. Pursuant to s1118 of the Act, a principal home is an exempt asset. It may not be included in the calculation of the value of a person’s assets for the purpose of determining eligibility for a social security pension.

13.     Representatives for Ms Spence argued that, as her main asset was the house in which she and her children lived, she should be treated like any other householder. She contended that her interest in the house should not disqualify her from receipt of the parenting payment. She claimed she simply had a life estate. The respondent considered that the house was not the asset in question. The respondent put forward that the disqualifying asset was a loan from the Amanda Spence Family Trust which had enabled Ms Spence to buy the house.

14.     The evidence before the tribunal points to the fact that the trust set up under Ms Spence’s mother’s will is a controlled private trust that comes under the purview  s 1207X(2) of the Act; the trust does not come within any of the exceptions set out in s 1207P(1). The trust is neither a fixed trust, nor does it come within any of the categories set out in s 1207P(1)(ii) and (iii), (b) and (c). Furthermore, pursuant to s1207(v)(ii) of the Act, the Amanda Spence Trust is also, in relation to Ms Spence, a controlled private trust. S 1207V(2) of the Act provides that an individual passes the control test if:

(2)…

(a) the individual, or an associate of the individual (other than an associate

covered by para 1207C(l)(j)), is the trustee, or any of the trustees, of the trust.

15.     Ms Spence is a controller of the trust in accordance with s 1207V(2). Following this, in accordance with s 1207X(2) of the Act, 100% of the assets of the Amanda Spence Trust are attributable to Ms Spence and so disqualify her from receipt of the parenting payment single. Indeed, as was argued by the respondent, it is not the house that is attributable to Ms Spence under s1207X(2). Rather, it is the loan which enabled Ms Spence to purchase the house in her name.  The tax records and financial accounting documents before the tribunal, as well as correspondence from the solicitor who acted for the trustees, show that the funds used to purchase Ms Spence’s house were a loan from the Amanda Spence Trust. The trust’s balance sheet, as at 30 June 2004, refers to an interest free loan of $432,000 to Ms Spence. Likewise, the trust’s 2004 income tax return shows an interest free loan of $432,000 to Ms Spence. From the evidence before the tribunal, the trustees used this legal arrangement in order to protect the trust and to observe their responsibilities under the will whilst simultaneously taking advantages of provisions such as the first homeowner’s grant (which Ms Spence could not have received had the house been purchased directly by the trust).

16.     In submissions before the tribunal representatives for Ms Spence made reference to the Second Reading Speech introducing the attribution legislation to Parliament. In the second reading speech of 17 August 2000, p19,226, it was said that the government intention with the new legislation was that:

“income support entitlements are based on the level of a person’s resources not the way in which he/she holds those resources”.

17.     As was pointed out by the respondent, this intent is embodied by s1208E of the Act. S1208E provides:

1208E.(1) For the purposes of this Act, if:

(a) an individual is an attributable stakeholder of a company or trust at a particular time on or after 1 January 2002; and

(b) At the time, the company or trust owns a particular asset (whether alone or jointly or in common with another entity or entities); and

(c) If, at that time, that asset had been owned by the individual instead of by the company or trust, the value of the asset would not be required to be disregarded  by any express provision of this Act; and

(d) at that time, the asset is not an excluded asset (see subsection (2));

There is to be included in the value of the individual’s assets an amount equal to the individual’s asset attribution percentage of the value of the asset referred to in paragraph (b).

Excluded assets

1208E(2) the Secretary may, by writing, determine that, for the purposes of the application of subsection (1) to a specified individual and a particular company or trust, a specified asset is an excluded asset. (no emphasis added)

1208E(3) A determination under subsection (2) has effect accordingly.

1208E(4)  In making a determination under subsection (2), the Secretary must comply with any relevant decision-making principles.

18.     It is not disputed that Ms Spence is the owner of the house from which the $432,000 loan from the Amanda Spence Trust enabled the purchase. Victoria Spence gave oral evidence that she and Ms Spence had taken legal and accounting advice that for Ms Spence to buy in her name was the most “cost effective” way for her sister to purchase a home. It was best she buy it outright and not in the name of the trust.  This meant her sister was able to obtain the first homeowner’s grant and advantages offered in government schemes. She did not have to pay the usual stamp duty and would not have to pay capital gains tax upon sale of the house.  Ms Spence said she meant to sell the house eventually and move to Nowra.

19.     In addition, Ms Spence gave oral evidence confirming that she is the registered owner of the land and that a commercial lender had secured a loan to her by registered mortgage over the land. She said she had borrowed $130,000 from the registered mortgagee and was making interest payments to the lender. There is no title deed or mortgage deed before the tribunal but the respondent does not dispute the truth of Ms Spence’s evidence about these matters.

20. In my view, Ms Spence’s status as registered owner of the land and her ability to borrow on this security strongly reinforces a conclusion that she has otherwise unfettered ownership of the property. Under the real property laws of NSW, in which State the house and land are located, registration under the Torrens system is the only necessary evidence of ownership of land. While equitable interests may arise by some other means, it is clear that Ms Spence is the legal owner of the house and land. Section 42(1) of the Real Property Act 1900 (NSW) provides that the estate of the registered proprietor of land is paramount. This is notwithstanding the existence of any other estate or interest except in the case of fraud. There is no fraud alleged in the present case.

21.     While I have some sympathy for Ms Spence and note the intent of s 1208E, the fact that Ms Spence owns the house and not the trust denies her the benefit of s1208E; s1208E(1)(c) requires consideration of the situation:

“if…that asset had been owned by the individual instead of by the company or trust.”

In the present situation, Ms Spence already is the owner of the house.

22.     It is not possible to apply s1208E to the loan which is an asset of the trust. This is for two reasons. Firstly, it cannot be said that Ms Spence owns the loan instead of the trust. As the respondent contends, she cannot be heard to say that she loaned the money to herself. Secondly, even if this situation could be accepted, there is no express provision in the Act that would enable the value of the loan to be disregarded. In fact, pursuant to s1122 of the Act, the value of the loan must be considered in determining Ms Spence’s eligibility for a social security pension. As the loan is a separate transaction to the purchase of the house, the loan is still an attributable asset and its value must be considered. It therefore matters not that Ms Spence has used the loaned money to purchase an otherwise exempt asset. The loan still exists and under the legislation is separate from the house.

23.     The Explanatory Memorandum to the Social Security and Veterans Entitlement Legislation Amendment (Private Trusts and Private Companies – Integrity of Means Testing) Act 2000 (Cth)  states that:

This measure aims to ensure that customers who hold their assets in private companies or private trusts receive comparable treatment under the means test to those customers who hold their assets directly. The assets and income of the structure will be attributed to the person or persons who control the company or trust, or to the person or persons who were the source of the capital or corpus of the company or trust.

24.     As was held by Senior Member Hastwell in Re: Rageless and Secretary, Department of Family and Community Services [2005] AATA 1299, the rationale behind the legislation:

Is to prevent individuals distancing themselves from assets to which they have access, directly or indirectly, while at the same time receiving social security benefits. (at 45).

25.     Although the loan represents no additional money in the present situation, the law is operating as Parliament intended. The Explanatory Memorandum and the legislation specifically contemplate that trust assets will be attributed to a Centrelink customer such as Ms Spence who controls the trust. The legislation intends to negate customers from manipulating the asset rules by distancing themselves from their assets. Although Ms Spence’s situation is unusual, in that an asset is created using no additional funds, the 2000 amendment requires that the decision maker “look through” interposed structures and identifies who controls the structure (Secretary, Department of Family and Community Services V Geeves, [2003] FCA 1486 at 11). In this case looking through the interposed structure reveals that the loan should be attributed to Ms Spence.

Not a life interest

26.     Ms Spence also argued, through a legal representative, that she had a life interest in the assets of the trust and on this basis should be eligible for the parenting payment single. To this end the tribunal was presented with expert evidence in the form of a statement from Associate Professor Brendan Edgeworth, Associate Professor of law convening Porperty, Equity and Trusts 1 and Equity 2, at the University of New South Wales. In the statement before the tribunal Associate Professor Edgeworth contended that under the trust Ms Spence had a life interest. Mr Edgeworth pointed to a number of factors supporting this conclusion. Chiefly, Professor Edgeworth noted the intention of the testator. Pursuant to the House of Lords decision in Towns v Wentworth (1858) 14 ER 794, a decision affirmed in Perrin v Morgan (1943) AC 399, the court shall attempt to give effect to the testator’s intention gleaned from the will as a whole.  This position was developed in Smidmore v Smidmore (1905) 3 CLR 344. There it was found that in a situation where clear words are followed by ambiguous words, the clear words are to be followed.

27.     In his statement Professor Edgeworth noted that in the present case, there were clear words creating a life interest for Ms Spence. In Professor Edgeworth’s analysis:

“ambiguity only arises from the somewhat imprecise sense about the contingent interest that the daughter may acquire…’

28.     In my view the trustees have not observed any contingency in advancing all the capital to Ms Spence but have protected the trust to the extent of the loan arrangement although it is not secured.

29.     In a letter before the tribunal Mr P. Bestic, Ms Spence’s mother’s solicitor, also wrote in support of the intention to create a life estate. In the letter Mr Bestic stated that:

“the terms of the will were drafted…with the intention that the trust would endure to Amanda’s death. It was intended that Amanda would be protected during her life and entitled to the same community benefits as her siblings. I am not aware of what other course could have been undertaken by Mrs Spence, in Amanda’s circumstances, which would have given the protection that the trust gives but not have offended the social services legislation and deprived Amanda of the benefits she would have qualified for in the absence of the trust”.

30.     As was contended by the respondent, Ms Spence now has more than a life interest in the assets of the trust. As the respondent put in submissions before the tribunal, the concept of a life interest normally connotes the temporary use and enjoyment of the capital of an estate in a way that preserves its capital for the ultimate benefit of a remainderman, even though income generated by the capital may be applied to the use and enjoyment of the life tenant. Although the will may have been drafted with the intent of creating a life estate the advance by way of loan has since brought the social security provisions into effect as set out above.

31.     Clause 11C of the trust in this matter provides a very significant discretion to “apply” any part or parts of the capital to Ms Spence or for her benefit. The testator here expressed the wish that in the exercise of their discretion, the trustees shall act generously towards the applicant. Clause 11D of the will provides that they act in favour of Ms Spence rather than preserve the capital for her children, in the absence of considerations other than the preservation of capital for the children. The reality is that no capital has been preserved for the children while the loan remains outstanding.

32.     Under the trust, there is no apparent restriction on the exercise of this power in a way which would transfer assets of the trust to Ms Spence absolutely. The possibility that there may not remain any capital not distributed to Ms Spence is explicitly recognised twice in clause 11B in relation to Ms Spence’s power to dispose of the capital after her death by her own will and the default appointment by the mother’s will to the grandchildren or their heirs.

33.     It follows that the assets of the Amanda Spence Trust includes the loan advance made to Ms Spence to enable her to purchase the house and that this loan is a trust asset which must be attributed to Ms Spence. Therefore, the tribunal must affirm the decision under review.

decision

The tribunal affirms the decision under review.

I certify that the 33 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member Robin Hunt

Signed:         .....................................................................................
  Associate

Date/s of Hearing  27 April 2006 
Date of Decision  3  August 2006
Solicitor for the Applicant                           Jackie Finlay
Representative for the Respondent          John Kenny