Stephens-Ryan; Secretary, Department of Social Services and (Social services second review)
[2020] AATA 961
•24 April 2020
Stephens-Ryan; Secretary, Department of Social Services and (Social services second review) [2020] AATA 961 (24 April 2020)
Division: GENERAL DIVISION
File Number(s): 2018/3197
Re:Secretary, Department of Social Services
APPLICANT
Helen Stephens-RyanAnd
RESPONDENT
DECISION
Tribunal:Deputy President P Britten-Jones
Date: 24 April 2020
Place:Adelaide
The Tribunal sets aside the decision of the Social Services & Child Support Division of the Administrative Appeals Tribunal dated 1 May 2018 and substitutes a decision that the respondent is liable to repay a carer payment debt of $39,197.55 for the period 18 September 2013 to 29 June 2015.
...........[Sgnd]..........................................
Deputy President P Britten-Jones
CATCHWORDS
SOCIAL SECURITY – Debt to Commonwealth arising from payment of carer payment benefits to which applicant not entitled – Applicant relied on accountant to correctly complete application form – Accountant failed to disclose trust distributions as income – Whether trust distributions can correctly be characterised as “income” – Where trust distributions to a beneficiary were recorded in the Trust’s financial statements and in the tax returns of the beneficiary – Whether trust distributions were received or earned - Whether waiver of debt available – Decision set aside
LEGISLATION
Social Security Act 1991 (Cth)
CASES
Angelakos v Secretary, Department of Employment and Workplace Relations (2007) 100 ALD 9; [2007] FCA 25Chianti Pty Ltd v Leume Pty Ltd [2007] WASCA 270
Duckworth v Secretary, Department of Social Security [1995] AATA 179
Freelance Global Ltd (in liq) v Bensted [2016] VSC 181
Inguanti v Secretary, Department of Social Security (1988) 80 ALR 307
James Seymour and Secretary, Department of Social Services [2015] AATA 505
Re Heather Margaret Heidemann and Secretary to the Department of Social Security [1985] AATA 82
Read v Commonwealth of Australia (1988) 15 ALD 261
Ryde v Secretary, Department of Family and Community Services [2005] FCA 866
Seoud (by his litigation guardian) v Fortythird Garland Pty Ltd (as trustee of the Seoud Family Trust) (2019) 57 VR 262
REASONS FOR DECISION
Deputy President P Britten-Jones
In 2012, Ms Stephens-Ryan (the respondent) sold her business in the Whitsundays and returned to her hometown of Mannum in South Australia to look after her aging mother who suffers from advanced dementia. Shortly after her return, she was approached by her former accountant, Mr Nuske, who offered to take care of her finances. Mr Nuske assisted her to apply for Centrelink’s carer payment which was granted. The primary issue raised by this review is whether she was entitled to the payments which she received.
The decision under review is the decision of the Social Services & Child Support Division of the Administrative Appeals Tribunal (the AAT1). On 1 May 2018, the AAT1 set aside the Secretary’s decision to raise and recover a carer payment debt of $39,197.55 (the debt). Instead, the AAT1 found that Ms Stephens-Ryan had not been overpaid carer payment. The Secretary has sought a second tier review of the decision made by the AAT1 and seeks to set it aside.
The Ma and Fred Memorial Trust
The Secretary contends that Ms Stephens-Ryan derived undeclared income from distributions from the Ma and Fred Memorial Trust (the Trust) of which she was a nominated beneficiary. Fundamental to this matter is an understanding of the Trust which can be gained from the Trust’s annual financial statements and tax returns prepared by the accountant, Ms Susan Chinn. Ms Chinn also prepared, on behalf of Ms Stephens-Ryan and submitted to Centrelink, an online form (the PT form)[1] with information about the Trust on 4 January 2016. Ms Stephens-Ryan signed the PT form which included a declaration that the information provided was complete and current. Based upon these documents I make the following findings with respect to the Trust.
[1] T documents T12 p 267
On 21 March 2007, the Trust was established by John Royce as the appointor and trustee. Mr Royce was the partner of Ms Stephens-Ryan at all material times except for a two year period after she returned to Mannum.
The principal asset of the Trust was a half interest in a property at Peppermint Grove in Perth which half interest, as at June 2013, was valued at $431,295. The Trust was a beneficiary of the RG Royce Family Trust from which it received the majority of its income. The Trust also received rental income from leasing the Peppermint Grove property.
Ms Stephens-Ryan was named as a beneficiary of the Trust.
The Trust income statement for the year ending 30 June 2012 showed a profit of $89,945.55 and a distribution to Ms Stephens-Ryan as a beneficiary of $89,945.55.
The Trust income statement[2] and the Trust tax return[3] for the year ending 30 June 2013 showed a profit of $93,940 and a distribution to Ms Stephens-Ryan as a beneficiary of $70,000.
[2] T14 p 329 - 338
[3] T14 p 339 - 344
The Trust income statement[4] and the Trust tax return[5] for the year ending 30 June 2014 showed a profit of $55,416 and a distribution to Ms Stephens-Ryan as a beneficiary of $55,416.
[4] T14 p 345 - 354
[5] T14 p 355 - 360
Question 55 of the PT form asks if any associate did ‘receive, or were they entitled to receive, any income from the trust in the last financial year?’. Ms Stephens-Ryan is named as receiving an income distribution in the financial year of 2013. It is expressly asked as part of question 55 ‘Will the person [Ms Stephens-Ryan] receive this income in the current financial year?’ and the answer given is ‘Yes’.
It is stated in answer to question 56 of the PT form that Ms Stephens-Ryan received income distribution of $70,000 in 2013 and $55,416 in 2014 (together referred to as the Trust distributions).
The Personal Income Tax Returns of Ms Stephens-Ryan
It was not in dispute that the Trust distributions were recorded in the annual personal income tax returns[6] of Ms Stephens-Ryan as follows:
(a)On her 2011/12 income tax return, Ms Stephens-Ryan declared that she received a trust distribution of $89,946.
(b)On her 2012/13 income tax return, Ms Stephens-Ryan declared that she received a trust distribution of $70,000. Her income was confirmed in an amended tax return lodged for the same year.
(c)On her 2013/14 income tax return, Ms Stephens-Ryan declared that she received a trust distribution of $55,416. Her income was confirmed in an amended tax return lodged for the same year.
[6] Exhibit 2
These tax returns were prepared by Ms Chinn, but Ms Stephens-Ryan accepts that she signed them and declared that the information in them was true and correct. Ms Stephens-Ryan said that the tax returns were amended so as to reflect the period when she was single. Ms Chinn said that those amended tax returns would have been lodged in December 2015.
Procedural History
The uncontentious procedural history from the documents is as follows:
(a)On 18 September 2013, Ms Stephens-Ryan lodged a claim for carer payment with Centrelink.[7] Mr Nuske assisted her to complete the form. The claim for carer payment contained an ‘Income and Assets’ form.[8] Question 23 asked ‘Are you or have you been involved in a private trust?’ The question was left blank. At the conclusion of the form, Ms Stephens-Ryan signed and dated the formal endorsement of the form and declared that ‘the information provided on this form is complete and correct’.
[7] T10 p 211 to 227
[8] T11 p 228 to 240
(b)On 4 November 2013, Ms Stephens-Ryan provided a written statement to Centrelink concerning her income. She made no mention of the Trust distributions in that written statement.
(c)On 8 November 2013, the claim for carer payment was granted (with effect from 18 September 2013).
(d)On 4 November 2015, Centrelink wrote to Ms Stephens-Ryan requesting information about her income and the Trust.
(e)On 14 December 2015, Ms Stephens-Ryan’s carer payment was suspended, and on 29 February 2016 her carer payment was cancelled.
(f)On 4 January 2016, Ms Stephens-Ryan signed and lodged with Centrelink the PT form together with a form[9] which provided details of her private company, NSS Qld Pty Ltd, including that it was incorporated on 14 September 2009 and ceased trading on 30 June 2014.
[9] T13 p 313 to 328
(g)On 7 March 2017, a Departmental Complex Assessment Officer determined that Ms Stephens-Ryan was a beneficiary of the Trust.
(h)On 16 March 2017, a carer payment debt totalling $39,197.55 was raised against Ms Stephens-Ryan for the period 18 September 2013 to 29 June 2015.
(i)On 13 April 2017, Ms Stephens-Ryan requested a review of the decision made on 16 March 2017.
(j)On 26 June 2017, an Authorised Review Officer (ARO) reviewed and affirmed the decision of 16 March 2017.
(k)On 22 September 2017, Ms Stephens-Ryan requested a review of the ARO’s decision.
(l)On 1 May 2018, the AAT1 reviewed and set aside the ARO’s decision. The AAT1 held that Ms Stephens-Ryan:
was not overpaid any amount of Carer Payment between 18 September 2013 and 29 June 2015 on account of any distribution made in her favour in the books of the Ma and Fred Memorial Trust.
(m)The AAT1 found that, because the Trust distributions were not physically paid out to Ms Stephens-Ryan, they were not income but were simply:
…accumulated amounts to which Ms Stephens-Ryan is presently entitled. To that extent, they are debts that are owed to her by the trust. Thus, they are certainly capital assets of Ms Stephens-Ryan and the accumulated balance must be taken into account in applying any applicable asset test to her entitlement to social security benefits.
(n)On 12 June 2018, the Secretary requested a review of the AAT1’s decision.
(o)On 5 August 2018, Ms Stephens-Ryan completed a Statement of Financial Circumstances (Centrelink reviews)[10] which included her statement that ‘Previously I received a distribution from a family trust but I no longer do so.’
[10] T3 p 11 to 16
THE LEGISLATIVE FRAMEWORK
The legislation relevant to this review application is found within the Social Security Act 1991 (Cth) (the Act).
The carer payment that a person receives is calculated in accordance with that person’s income and assets. When a person applies for carer payment, they are required to complete an ‘Income and Assets’ form. Part K of that form requires a person to disclose any involvement they have with a private trust or private company.
Section 8 of the Act contains the following definitions:
“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).
“income amount” means:
(a)valuable consideration; or
(b)personal earnings; or
(c)moneys; or
(d)profits
(whether of a capital nature or not).
Earned, derived or received
(2) A reference in this Act to an income amount earned, derived or received is a reference to:
(a)an income amount earned, derived or received by any means; and
(b)an income account earned, derived or received from any source (whether within or outside Australia).
In the case of Read v Commonwealth of Australia,[11] Brennan J considered the definition of “income” in the Social Security Act 1947 which does not differ materially from the definition in s 8 of the Act:
The definition is exhaustive: the term “income” means what it is defined to mean; it does not mean what “income” would be understood to mean if the definition were not in the Act. The definition is couched in the widest terms, presumably to ensure that public expenditure is directed to those who stand in actual need to the periodic support which income-related pensions provide.[12]
[11] (1988) 15 ALD 261
[12] (1988) 15 ALD 261, 268
In Inguanti v Secretary, Department of Social Security,[13] the Federal Court considered the meaning of the words “earned”, “derived” and “received” in the definition of “income”. Sheppard J said:
The use of the verbs “earned”, “derived” and “received” in juxtaposition in the definition of “income” in the Act strongly suggests that each was intended to have a different meaning… Sometimes moneys will be earned, derived and received simultaneously. At others they will be earned or derived but not received until a later time… Countless pensioners were accustomed to invest in Australian Savings Bonds. Their entitlement to a pension is properly calculated upon the basis of the expectation they have that interest on their investment will be paid on the day promised. That is because they are “deriving” income from their investment. They do not receive it daily, weekly or monthly. But the moneys to which they are periodically entitled are moneys derived by them, and thus income for the purposes of the Act.[14]
[13] (1988) 80 ALR 307
[14] (1988) 80 ALR 307, 311
In Re Heather Margaret Heidemann and Secretary to the Department of Social Security,[15] the Tribunal discussed the meaning of “earned, derived or received” and noted that:
The meaning of "earned, derived or received" has been considered by this Tribunal on several occasions … . The gist of these decisions is that moneys may be "derived" before they are received, so long as a person has a present entitlement to them, and that income may be "earned or derived" without the actual receipt of it.
[emphasis added]
[15] [1985] AATA 82 at [12]
In Duckworth v Secretary, Department of Social Security,[16] the Tribunal found:
Upon the trustee declaring, pursuant to the terms of the discretionary trust, that the beneficiary be credited with a share of the trustee's income for the year, that beneficiary then has an absolute, indefeasible and absolutely vested interest in that amount and is legally able to demand payment of that amount - it is a recoverable debt at that point in time; see for example Latham C J and Williams J in FC of T v Whiting [1943] HCA 45; (1943) 68 CLR 199, 7 ATD 179 at ATD p.183 where their Honours speak of the right to demand payment of a vested right to income. As such the amount is income derived by the beneficiaries, even though it may not have been paid over to them. Support for this finding is found in decisions of this Tribunal in Re Secretary, Department of Social Security and Browne (AAT Decision No. 8032, 19 June 1982) and Re Christensen and Secretary, Department of Social Security (AAT Decision No. 10114; 6 April 1995).
[16] [1995] AATA 179 [15]
In D’Angelo and Secretary to the Department of Family and Community Services,[17] the Tribunal was satisfied that a distribution from a trust was income within the meaning of s 8 of the Act because it was derived at the date of the trust distribution.
[17] [2003] AATA 712 [34]
In the more recent decision of James Seymour and Secretary, Department of Social Services,[18] the Tribunal considered whether trust distributions could correctly be characterised as “income” for the purposes of s 8 of the Act. In that case, Deputy President Deutsch concluded that trust distributions were correctly included as income of Mr Seymour:
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 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.[19]
[18] [2015] AATA 505
[19] [2015] AATA 505 [45]–[46]
Section 1223 of the Act deals with situations where a recipient has been overpaid. It provides:
(1) Subject to this section, if:
(a)a social security payment is made; and
(b)a person who obtains the benefit of the payment was not entitled for any reason to obtain that benefit;
the amount of the payment is a debt due to the Commonwealth by the person and the debt is taken to arise when the person obtains the benefit of the payment.
However, the Act does bestow a discretion on the Secretary to waive the Commonwealth’s right to recover a debt. Section 1237AAD provides:
The Secretary may waive the right to recover all or part of a debt if the Secretary is satisfied that:
(a)the debt did not result wholly or partly from the debtor or another person knowingly:
i.making a false statement or a false representation; or
ii.failing or omitting to comply with a provision of this Act, the Administration Act or the 1947 Act; and
(b)there are special circumstances (other than financial hardship alone) that make it desirable to waive; and
(c)it is more appropriate to waive than to write off the debt or part of the debt.
ISSUES
The issues that I need to determine are:
(a)Has Ms Stephens-Ryan been overpaid $39,197.55 in carer payment?
(b)If yes, is the said debt recoverable?
(c)If yes, are there grounds to waive recovery of all or part of the said debt?
There is no dispute with respect to the financial documents that record the Trust distributions to Ms Stephens-Ryan in the 2012/13 and 2013/14 financial years. The Trust distributions are correctly recorded in Ms Stephens-Ryan’s income tax returns and in the Trust’s end of year financial records.
It is also not in dispute that Ms Stephens-Ryan did not disclose the receipt of the Trust distributions in the “Income and Assets” form when she applied for carer payment, despite them being recorded in her tax returns. Her evidence was that she never received them so that there was nothing to disclose.
CONTENTIONS
The Secretary contends that:
(a)the Trust distributions made to Ms Stephens-Ryan should be characterised as “income”;
(b)Ms Stephens-Ryan has derived income via the formal distributions made to her from the Trust in the years ending 30 June 2013 and 30 June 2014;
(c)the debt has been correctly calculated, namely the entire amount of carer payment paid to Ms Stephens-Ryan in the period 18 September 2013 to 29 June 2015;
(d)the debt cannot be waived under s 1237AAD of the Act on the basis that:
(i)the debt resulted wholly or partly from the debtor or another person knowingly failing or omitting to comply with a provision of the Act; and
(ii)it is not appropriate to waive the debt in circumstances where Ms Stephens-Ryan has the financial capacity to repay the debt.
Ms Stephens-Ryan contends that:
(a)the Trust distributions are not “income” in accordance with the Act because she did not earn or receive the income;
(b)the debt should be waived under s 1237AAD of the Act on the basis that:
(i)she was acting in accordance with the advice provided by her accountant, Mr Nuske who failed to disclose to her that he had actually been suspended by the Tax Practitioners Board;
(ii)she did not know that she was a beneficiary of the Trust and even if she did, she did not have actual knowledge that the Trust distributions were not disclosed in the carer payment application; and
(iii)she never received an actual monetary amount from the Trust distributions as it was merely a distribution made ‘on paper’ and did not provide her with a real financial gain.
EVIDENCE
Ms Stephens-Ryan
Ms Stephens-Ryan gave evidence as follows.
In August 2012, Ms Stephens-Ryan moved from the Whitsundays to Mannum in order to take care of her elderly and sickly mother. Whilst living in the Whitsundays, she operated a small café business. The business was owned by NSS QLD Pty Ltd (NSS QLD) of which she was the sole director and shareholder. Before moving to Mannum, NSS QLD sold the business and Ms Stephens-Ryan began the process of winding up NSS QLD. The move to Mannum also marked the commencement of a 2 year period of separation from her partner, Mr Royce.
Ms Stephens-Ryan’s tax accountant in the Whitsundays was Ms Susan Chinn, who was the accountant for her and her partner’s (Mr Royce) tax affairs.
The relationship between Ms Stephens-Ryan and Mr Royce ceased for about two years from when she returned to Mannum in about August 2012.
Ms Stephens-Ryan owned a property in Mannum in which she lived.
After returning to Mannum, Ms Stephens-Ryan was approached by her former accountant, Mr Nuske. Mr Nuske had been her accountant about 10 years earlier. He offered to once again assist her and she accepted. Ms Stephens-Ryan suggested that Mr Nuske contact Ms Chinn to arrange a transfer of documents.
In about August 2013, Mr Nuske suggested to Ms Stephens-Ryan that she was eligible for a carer payment. She recalls telling Mr Nuske that she was not comfortable filling out the forms and he offered to do this for her. They sat together at the table and Mr Nuske asked her questions the answers to which he then recorded on the forms. Ms Stephens-Ryan recalled personally filling in one section which related to her mother’s name and date of birth. Any questions with respect to her finances she believed Mr Nuske could answer because he had been provided with her financial records. She signed and dated the forms without looking over them. She acknowledges that she declared the forms to be complete and accurate and that she signed them but she was relying on her accountant, Mr Nuske, to provide all the relevant details in the forms to Centrelink. She acknowledges that the forms were incorrect and incomplete because they failed to disclose that she was a beneficiary of the Trust and failed to attach the PT form (which was later provided in January of 2016).
Ms Chinn remained as the accountant for Ms Stephens-Ryan after she returned to Mannum.
Ms Stephens-Ryan first became aware that there was a problem with her carer payment when she received a notice from Centrelink to which she responded by telephone in about October 2015. She recalls being asked whether she was part of a trust. After this phone call, she went to the Centrelink office and was provided with a copy of the claim form that Mr Nuske had filled out back in 2013. She briefly looked over it and noticed that Mr Nuske had not disclosed a previous compensation claim arising from a car accident in about 1992/93.
Ms Stephens-Ryan made several attempts to contact Mr Nuske at this time but could not locate him. She contacted Ms Chinn and spoke at length to her about the carer payment. She provided Ms Chinn with a copy of the claim form.
Ms Stephens-Ryan gave oral evidence that she was unaware that she was a beneficiary of the Trust until the problems with her carer payment started. She said that neither Ms Chinn, nor Mr Royce, told her that she was a beneficiary or that she would be receiving annual distributions from the fund. However, she did say in oral evidence that as at December 2012 she knew that there was a trust because she asked Ms Chinn about it. Ms Chinn said that she would tell her about it one day. In her written letter[20] dated 30 January 2019 responding to the Secretary’s Statement of Facts, Issues and Contentions she wrote:
My only peripheral understanding about any involvement as a Trust beneficiary per se was by way of recalling my accountant Susan M Chinn’s comments when presenting successive Tax Returns for signature, whilst I was living in the Whitsundays, that it had to do with Tax Reporting and that she would explain one day …
[20] Exhibit 7
Since as far back as 2010, Ms Chinn has been doing Ms Stephens-Ryan’s annual income tax returns. Ms Stephens-Ryan trusted Ms Chinn and she would simply sign the income tax returns where she was told to. She did not go over the information in the income tax returns to make sure it was correct. Consequently, she never noticed that her income tax returns included a distribution from the Trust. She also never received any money in her bank account that could have brought these to her attention.
Ms Stephens-Ryan was very shocked to find herself in this position. She does not know why Mr Nuske would have incorrectly completed the carer payment application form. Mr Nuske was aware that she was a beneficiary of the Trust, yet omitted to include that in the claim. Ms Stephens-Ryan now knows that Mr Nuske held this knowledge at the time of completing the form because of an exchange of correspondence[21] (set out below) between Mr Nuske and Ms Chinn in December 2012.
[21] Ms Stephens-Ryan gave evidence that she did not see the correspondence at the time
In an email dated 17 December 2012, Ms Chinn wrote the following to Mr Nuske:
…The loss this fee will create in 2012 will reduce the distribution from a trust of which Helen is a beneficiary (emphasis added).
Mr Nuske replied to this email on the same day and wrote:
…I was not aware of a trust. I assume the trust is Mr Royce’s and nothing to do with Ms Stephens Ryan (sic) other than being a beneficiary of the trust.
Again on the same day, Ms Chinn replied with the following:
The trust is part of the “Royce Group” so I am not in a position to give you any more detail except to advise that Helen normally receives a distribution (“rather hefty” in John’s vernacular).
Ms Chinn
Ms Chinn gave evidence as follows. Ms Chinn is based in Queensland and started working as Ms Stephens-Ryan’s accountant in about 2010.
After Ms Stephens-Ryan returned to South Australia, Ms Chinn received a request from her to hand over her tax affairs to Mr Nuske. Ms Chinn recalls receiving a letter from Mr Nuske regarding the handover and she provided a letter in response. She does not recall ever speaking with Mr Nuske on the phone.
Ms Chinn gave evidence that Ms Stephens-Ryan is a beneficiary of the Trust. In fact, there are two discretionary trusts in the Royce Group and sometimes she would get distributions from both and other times she would only get a distribution from one. Ms Stephens-Ryan was receiving trust distributions from about 2010. These were taxable distributions that needed to be included in her tax return but they were not necessarily funds given to her. Ms Stephens-Ryan had been receiving annual trust distributions from the time that Ms Chinn was engaged as her accountant. The Trust distributions were minuted and signed by the trustee (Mr Royce). They were recorded in the tax returns of Ms Stephens-Ryan.
Ms Chinn cannot recall ever sitting down with Ms Stephens-Ryan to discuss her income tax returns. Ms Stephens-Ryan was always very busy working at her café. She also had difficulties understanding the nuances of tax returns, and financial matters in general. Ms Chinn would meet with Ms Stephens-Ryan’s partner, Mr Royce, and go over her income tax returns with him. Presumably, he would then discuss the income tax returns with Ms Stephens-Ryan.
Ms Chinn could not recall ever having a formal discussion with Ms Stephens-Ryan about the Trust. If it was ever raised, it would have just been in passing. Ms Chinn thinks she would have indicated to Ms Stephens-Ryan from the beginning that there was a distribution to her but she said that Ms Stephens-Ryan found it very confusing and simply trusted her.
Ms Chinn prepared Ms Stephens-Ryan’s income tax returns for the financial years ending 30 June 2013 and 30 June 2014. Ms Chinn was unsure whether she would have spoken with Ms Stephens-Ryan when preparing the returns. Most of her communications were with Mr Royce. When the income tax returns were completed she sent them to Ms Stephens-Ryan to sign. The amendments to the 2013 and 2014 tax returns would have been completed together in December 2015.
Ms Chinn said that she assumed that Mr Royce would have paid for Ms Stephens-Ryan’s tax liabilities because he handled her finances.
Mr Royce
Mr Royce gave oral evidence including as follows.
Mr Royce and Ms Stephens-Ryan owned a property at Airlie Beach together but she surrendered her 50% interest because Mr Royce helped her pay off her mortgage over the Mannum property.
Mr Royce was aware of the distributions from the Trust to Ms Stephens-Ryan which were for tax planning set up by Ms Chinn.
CONSIDERATION
Can the Trust distributions correctly be characterised as “income” under s 8 of the Act?
The issue for determination is whether Ms Stephens-Ryan obtained the benefit of a social security payment to which she was not entitled. The question of her entitlement depends upon whether the Trust distributions come within the definition of “income”. If so, she has no entitlement and under s 1223 a debt to the Commonwealth is taken to arise.
Ms Stephens-Ryan was at the material times a beneficiary of the Trust. In the 2013 and 2014 financial years the Trust generated revenue which was available for distribution to its beneficiaries. The Trust’s financial reports show that there were distributions to Ms Stephens-Ryan of $70,000.00 in 2013 and $55,416.55 in 2014. These are the ‘Trust distributions’. Ms Chinn said that there were distributions from the Trust to Ms Stephens-Ryan from at least 2010. All the financial records show that the Trust distributions were properly recorded and that they were properly made in accordance with the Trust deed.[22] Mr Royce, as trustee of the Trust, gave oral evidence that the Trust distributions to his partner, Ms Stephens-Ryan, were made for tax planning purposes. Ms Chinn prepared the Trust’s financial reports which included the Trust distributions. She also prepared Ms Stephens-Ryan’s tax returns which recorded the Trust distributions as income.
[22] The Trust deed was not tendered as evidence but there was no dispute about its existence
Ms Stephens-Ryan gave evidence that she did not receive the Trust distributions into her bank account and that she did not see the reference to the Trust distributions in her tax returns. If she had, then she would not have claimed the carer payments in the relevant years. As I set out below, her evidence about not receiving the Trust distributions is not supported by the documentary evidence and, in any event, it is not determinative of the issue of whether the Trust distributions were income.
For the reasons that follow I consider that the Trust distributions come within the definition of income.
Income is broadly defined in the Act ‘to ensure that public expenditure is directed to those who stand in actual need’.[23] The definition includes not just income amounts ‘received by the person’ but also ‘derived … by the person’. As found by Sheppard J in Inguanti v Secretary, Department of Social Security,[24] the use of the verbs “earned”, “derived” and “received” in juxtaposition in the definition of “income” in the Act strongly suggests that each was intended to have a different meaning. It follows that “income” can be derived, even if not received, and still satisfy the definition.
[23] Read v Commonwealth (1988) 167 CLR 57; [1988] HCA 26
[24] (1988) 80 ALR 307
In this case, there is a strong argument and I find on the balance of probabilities that the Trust distributions were in fact received by Ms Stephens-Ryan because they are recorded as income in her tax returns and amended tax returns and because they are acknowledged by Ms Stephens-Ryan as income received in the PT form dated 4 January 2016. The tax returns were prepared by a professional accountant, Ms Chinn, and there is no suggestion that they are not true or accurate. In fact, Ms Stephens-Ryan declared that the information provided is true and accurate. There is a further written acknowledgment in the Statement of Financial Circumstances dated 15 August 2018 in which Ms Stephens-Ryan writes that she previously ‘received a distribution from a family trust’ but no longer does.
Each of the tax returns, the PT form and the Statement of Financial Circumstances were signed by Ms Stephens-Ryan and declared to be correct. If they do not represent the true position then Ms Stephens-Ryan has made numerous false declarations over a period from 2014 to 2018. This seems improbable especially after she became aware of the significance of the receipt of the Trust distributions when approached by Centrelink in October 2015 and after she had spoken to Ms Chinn at length about the Trust and the distributions. It seems very improbable that Ms Stephens-Ryan would continue to make the same declarations (if they were false) as to the receipt of the Trust distributions in the amended tax returns made in December 2015 and in the PT form of January 2016. By this stage she had been fully informed about the Trust operations.
It is particularly noteworthy that the PT form dealt squarely with the issue of the receipt of the Trust distributions at questions 55 and 56 where it was recorded that Ms Stephens-Ryan was a person who received income from the Trust in 2013 and 2014. The PT form was originally meant to be provided with the carer payment form lodged in September 2013 and it is the form that was provided so as to correct any misinformation earlier given. Ms Stephens-Ryan did not deny the accuracy of the PT form when giving evidence. It expressly states that Ms Stephens-Ryan received income from the Trust and I consider that to be true. The only evidence that contradicts these official records is the oral evidence from Ms Stephens-Ryan that she did not receive the Trust distributions. In making my findings as to the facts I give more weight to the documentary evidence than I do to Ms Stephens-Ryan’s oral assertions which are contrary to her earlier declarations and which are unsupported by any documentation.
Even if the Trust distributions were not received by Ms Stephens-Ryan I consider that they were derived by Ms Stephens-Ryan in the sense (referred to by Sheppard J in Inguanti v Secretary, Department of Social Security[25]) that she was entitled to them.
[25] (1988) 80 ALR 307
The Trust distributions of $70,000 and $55,416.55 to Ms Stephens-Ryan as a beneficiary in 2013 and 2014 were recorded in the Trust’s financial reports and tax returns and were minuted by Mr Royce as trustee. The amounts of the Trust distributions were included as income in the tax returns of Ms Stephens-Ryan. It follows that Ms Stephens-Ryan, as a beneficiary to whom a distribution has been made, has an absolute and present entitlement to be paid the amount of the distributions from the Trust.[26] Support for the proposition that a beneficiary derives income upon a trustee declaring or making a distribution comes from Tribunal decisions referred to above, namely Duckworth v Secretary, Department of Social Security,[27] D’Angelo and Secretary to the Department of Family and Community Services[28] and James Seymour and Secretary, Department of Social Services.[29]
[26] Freelance Global Ltd (in liq) v Bensted [2016] VSC 181 at [29] where the beneficiaries were held to have an absolute entitlement to a distribution properly made under a trust. See also Chianti Pty Ltd v Leume Pty Ltd [2007] WASCA 270 [59] to [72] and Seoud (by his litigation guardian) v Fortythird Garland Pty Ltd (as trustee of the Seoud Family Trust) (2019) 57 VR 262 [56] and [68]
[27] [1995] AATA 179 [15]
[28] [2003] AATA 712 [34]
[29] [2015] AATA 505
I find that the Trust distributions made to Ms Stephens-Ryan should be characterised as “income” under the Act and that there is a recoverable debt owed by Ms Stephens-Ryan.
Should the Carer Payment debt be waived under s 1237AAD of the Act?
If Ms Stephens-Ryan or another person, such as Mr Nuske, knowingly made a false statement then the Secretary may not waive the debt under s 1237AAD of the Act. The applicant contends that, at the time of completing the carer payment application, Mr Nuske knew that Ms Stephens-Ryan was the beneficiary of the Trust and that by not disclosing this information in the application, he has made a false representation with respect to Ms Stephens-Ryan’s income. The Tribunal did not hear evidence from Mr Nuske so as to determine whether he “knowingly” made a false representation because Ms Stephens-Ryan has been unable to contact Mr Nuske since about 2015. The email communication between Mr Nuske and Ms Chinn in December 2012 is evidence that Mr Nuske did in fact know that Ms Stephens-Ryan was involved in a private trust but without hearing evidence from him I am not prepared to make a finding that he knowingly made a false representation.
The next issue is whether the debt should be waived because there are special circumstances. The question of what constitutes “special circumstances” has been considered by the Federal Court on numerous occasions. In Ryde v Secretary, Department of Family and Community Services,[30] Branson J stated that the hardship or unfairness of the claimed special circumstances ‘must be understood to be hardship or unfairness sufficient to justify departure from the general rule in the particular case’.[31]
[30] [2005] FCA 866
[31] [2005] FCA 866 [26]
In Angelakos v Secretary, Department of Employment and Workplace Relations,[32] Besanko J stated the following in respect of “special circumstances”:
I also note that the authorities have emphasised time and again the importance of maintaining flexibility in determining what constitutes special circumstances. The danger is that the test will be overstated if the word “exceptional” is emphasised. It was not the intention of parliament to confine the exercise of the discretion to an exceptional case. There is less risk of overstatement if the words “unusual” or “uncommon” are emphasised. Those words indicate, correctly in my view, the fact that there must be something that distinguishes the case from the ordinary or usual case.[33]
[32] (2007) 100 ALD 9
[33] (2007) 100 ALD 9, 17–18
Ms Stephens-Ryan contends that the special circumstances are:
(a)She suffered severe injuries in a car accident and has thereafter had to place significant reliance on professionals to help with her business and tax affairs;
(b)She relied on her accountant, Mr Nuske, when completing the carer payment form and expected him to include all relevant financial information;
(c)She had no actual knowledge of the Trust distributions and ‘No actual monetary amount was received from the trust distribution, it was merely a distribution made “on paper” which provided Ms Stephens-Ryan no financial gain.’
The effect of Ms Stephens-Ryan’s contention is that it would be unfair for her to have to repay the debt because she was unaware that she was not entitled to the carer payment at the relevant time. For the reasons that follow, I reject that contention and find that there are no special circumstances that would make it desirable to waive the debt.
As to whether Ms Stephens-Ryan was unaware of the Trust distributions, I note that she was not entirely naïve with respect to business and tax affairs. She was the sole director and shareholder of NSS QLD Pty Ltd which operated the Beaver Bar and Café in Queensland from 2009 to 2012. Ms Chinn was the accountant for her and her partner, Mr Royce. I accept that Ms Stephens-Ryan relied on Ms Chinn but nevertheless Ms Stephens-Ryan was responsible for providing information for the company accounts and for the company tax returns. As public officer, she made important declarations in the company tax returns which she signed. She also signed and declared as true and correct her annual personal tax returns. Her 2013 tax return includes the income of $70,000 from the trust distribution together with gross rental income of $5,720 from her property at Mannum. It also includes a $25,000 deduction for a personal superannuation contribution to the Royce Family Superannuation Fund. She owned the Mannum property which was valued at about $1,200,000 and there was no mortgage after Mr Royce helped pay it out in or around 2012. She also had previous property interests including a half interest with Mr Royce in a property at Airlie Beach. Mr Royce said that she surrendered her interest in the Airlie Beach property because he helped her pay off the mortgage over the Mannum property. The total value of her and Mr Royce’s real estate and other property and interests as at August 2018 was in excess of $2.5 million.[34]
[34] Statement of Financial Circumstances (Centrelink reviews)
Ms Stephens-Ryan gave evidence that after she and Mr Royce became a couple they kept their financial affairs separate, but that is not entirely accurate. First, he nominated her as a beneficiary to the Trust and he caused distributions from the Trust to be made to her from at least 2010. Second, they owned the property at Airlie Beach together. Third, Mr Royce lent money through his family trust to her café business conducted via NSS QLD Pty Ltd. Fourth, Mr Royce helped pay off her mortgage over the Mannum property. Fifth, it would appear that she was making contributions to the Royce Family Superannuation Fund. Sixth, Ms Chinn referred to Mr Royce and Ms Stephens-Ryan having a joint account from where she assumed Ms Stephens-Ryan’s tax liabilities were paid. Seventh, Ms Stephens-Ryan’s tax return provided electronic fund details of a bank account in the name of Mr Royce. I note also that her tax return recorded Mr Royce’s taxable income as $113,383.
Ms Stephens-Ryan and her partner, Mr Royce, are clearly not in financial difficulty. It is apparent that the Trust was set up and the Trust distributions were made to Ms Stephens-Ryan for tax planning purposes that no doubt provided a legitimate financial benefit to Mr Royce, but also to Ms Stephens-Ryan. It is apparent that Mr Royce provided financial assistance at various times to Ms Stephens-Ryan. I consider that Ms Stephens-Ryan has benefited financially over time from her relationship with Mr Royce.
Ms Stephens-Ryan maintains that she was unaware of any of the matters that made her ineligible for the carer payment, namely the Trust distributions. I am unable to accept her contention. Prior to applying for the carer payment she was aware of the Trust and she was aware that Mr Royce had provided financial assistance to her. She has to take some responsibility for what was clearly evident from her tax returns, namely that she was receiving very significant distributions from Mr Royce’s trust. Ms Chinn gave evidence that she would have indicated to Ms Stephens-Ryan that she was receiving trust distributions. In all of these circumstances, I find it difficult to believe that someone with the business experience of Ms Stephens-Ryan, and who was having financial dealings with her partner, would not have seen the reference to or been aware of the Trust distributions of $70,000 and $55,416 in her tax returns.
To establish special circumstances under s 1237AAD there must be something that distinguishes the case from the ordinary or usual case.[35] It is not unusual for couples to use a family trust structure so as to minimise the tax payable by the main earner. This provides a benefit to the couple. It is also not unusual for persons to rely on their accountants when filling in forms for Centrelink but they must take responsibility for the information provided particularly when they have signed the document and declared the information to be complete and correct.
[35] (2007) 100 ALD 9, 17–18
I do not consider that s 1237A assists Ms Stephens-Ryan because it cannot be said that the debt was attributable solely to an administrative error made by the Commonwealth. Ms Stephens-Ryan seeks to blame Centrelink for granting the carer payment when the form was not completely filled in and certain information was not provided. But the main reason for the carer payment being granted (and the debt arising) was because Ms Stephens-Ryan failed to disclose to Centrelink the Trust distributions that she was receiving and which were clearly recorded in her tax returns.
There are no special circumstances or any other reason for the debt to be waived.
DECISION
The Tribunal sets aside the decision of the AAT1 dated 1 May 2018 and substitutes a decision in the terms of the decision of the ARO dated 26 June 2017 which found that the respondent was liable to repay the carer payment debt of $39,197.55 for the period 18 September 2013 to 29 June 2015.
I certify that the preceding 80 (eighty) paragraphs are a true copy of the reasons for the decision herein of Deputy President P Britten-Jones.
[Sgnd]
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Associate
Dated: 24 April 2020
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