The Executor of the estate of the late Peter Sweeney; Secretary, Department of Social Services and (Social services second review)
[2022] AATA 3152
•26 September 2022
The Executor of the estate of the late Peter Sweeney; Secretary, Department of Social Services and (Social services second review) [2022] AATA 3152 (26 September 2022)
Division:GENERAL DIVISION
File Number(s): 2021/0224
Re:Secretary, Department of Social Services
APPLICANT
AndThe Executor of the estate of the late Peter Sweeney
RESPONDENT
Decision
Tribunal:Mrs J C Kelly, Senior Member
Date:26 September 2022
Place:Sydney
The reviewable decision is set aside and in substitution it is decided that Mr Sweeney’s Aged Pension was properly cancelled on 20 May 2020 with effect from 10 September 2018.
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Mrs J C Kelly, Senior Member
Catchwords
SOCIAL SECURITY – Age Pension cancellation – whether assets hardship test applicable – whether assets exceeded Pension Assets Test limit – whether shareholder loans were assets – whether there was intention that loans be repaid – whether Tribunal has jurisdiction after death of Respondent – decision under review set aside and substituted
Legislation
Administrative Appeals Tribunal Act 1975 (Cth) ss 25(1), 27, 30(1A), 43
Corporations Act 2001 (Cth) ss 180, 181, 286, 1305
Social Security Act 1991 (Cth) ss 9(1), 11, 1064, 1122Social Security (Administration) Act 1999 (Cth) s 179
Cases
Andreatta and Commissioner for Superannuation (1991) 23 ALD 326
Ashley Pauling; Secretary, Department of Social Services [2018] AATA 870
Bates and Secretary, Department of Employment [2016] AATA 250
Boyd and Secretary, Department of Social Security [1994] AATA 580
Bysouth and Secretary, Department of education, Employment and Workplace Relations [2010] AATA 59
Gorton and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2012] AATA 127
Hayirli and Secretary, Department of Social Services [2020] AATA 554
Mavris and Commissioner of Taxation [2018] AATA 4130
Secretary, Department of Social Services and Bennett [2019] AATA 5828
V120/00A v Minister for Immigration and Multicultural and Indigenous Affairs [2002] FCA 264Wendy Halliday as the Administrator of the Estate of Late Ashley Pauling; Secretary, Department of Social Services and [2018] AATA 3865
Secondary Materials
Social Security Guide ss 1.1.L.65, 4.6.2.20
REASONS FOR DECISION
Mrs J C Kelly, Senior Member
26 September 2022
Introduction
Mr Peter Sweeney’s Aged Pension (‘AP’) was cancelled on 20 May 2020 with effect from 10 September 2018.
Mr Sweeney sought review of that decision by an Authorised Review Officer (‘ARO’) who affirmed the cancellation decision. In doing so, the ARO explained that his AP had been assessed under the normal income and assets test and his total combined assets of $2,675,179 exceeded the Pension Assets Test limit of $869,500 for couple homeowner. Mr Sweeney then applied to the Tribunal for review of that ARO’s decision.
On 10 December 2020, the Social Services & Child Support Division of the Tribunal (‘AAT1’) decided that:
(a)the sum of $1,906,950 is not a loan to SST Consulting Services Pty Ltd (‘SST’);
(b)the loan of $388,905 to Carlton Developments Pty Ltd (‘Carlton’) no longer exists; and
(c)the loan of $169,405 to the Manyana Centre Unit Trust (‘Manyana’) no longer exists.
AAT1 set aside the decision under review and sent the matter back to the Chief Executive Centrelink for reconsideration in accordance with those findings.
The Applicant, the Secretary, Department of Social Security, applied for review of the AAT1 decision on 15 January 2021.
On 23 February 2021, the Tribunal stayed the decision of AAT1.
Mr Sweeney was the Applicant in the matter before AAT1. He was the Respondent in this current matter. He died on 28 August 2021. On 20 October 2021 the Respondent’s solicitor sent an email to the Tribunal attaching a Notice of Ceasing to Act of the same date. On 10 November 2021, Mrs Sweeney, the executor of the estate, advised the Tribunal that she did not wish to continue with this matter and did not wish to respond to the Secretary's appeal but requested that the Tribunal provide her with a copy of its decision. On 11 November 2021 Mrs Sweeney provided a copy of Mr Sweeney’s death certificate and his will that appointed her as his executor.
Mr Sweeney’s death caused the Applicant to raise a preliminary issue at the beginning of the hearing: whether the Tribunal has jurisdiction to hear and determine the matter.
Does the Tribunal have jurisdiction to determine the matter?
The Applicant referred to a number of cases where the Tribunal has had to address whether and/or how it could proceed to determine a matter after an applicant’s death: Andreatta and Commissioner for Superannuation (1991) 23 ALD 326; Bates and Secretary, Department of Employment [2016] AATA 250; Mavris and Commissioner of Taxation [2018] AATA 4130.
The relevant principle arising from Andreatta is:
Where the statutory entitlement that is the subject of the proceeding does devolve upon the death of an applicant, thenthe person to whom the statutory entitlement devolves must make application pursuant to ss. 30(1A) AAT Act to be made a party to the proceeding. Unless and until such application is made the Tribunal will have no jurisdiction to review the decision.
It follows that where the statutory entitlement does not devolve upon the death of the applicant, that is the end of the matter.
The decision in V120/00A v Minister for Immigration and Multicultural and Indigenous Affairs [2002] FCA 264 was referred to in Mavris. That case concerned the operation of the Migration Act 1958 (Cth). The deceased’s wife and children were also applicants for visas and had informed the Tribunal that they would appear at the hearing in the absence of the main applicant who had died. Kenny J closely examined the provisions of the legislation. She found that the deceased had been the sole applicant for review of the decision refusing him a protection visa and as a matter of statutory construction, his death extinguished his review entitlement.
In Bates, the applicant had applied for review of a decision made regarding an advance he claimed under the Fair Entitlements Guarantee Act 2012 (Cth) but died before the matter was heard. His son and his mother wished to continue the application. Deputy President Forgie decided not to follow Andreatta. She found that the principles relating to the survival of causes of action and devolution of rights do not apply in the Tribunal. The right of review is a statutory right, and the matter is to be decided by reference to persons who may apply to the Tribunal for the review of the relevant decision pursuant to sections 25 and 27 of the Administrative Appeals Tribunal Act 1975 (Cth) (‘the AAT Act’) and any other relevant statute which conferred a right of review (in that case the Fair Entitlements Guarantee Act 2012).
Deputy President Forgie decided that the personal representative or a person entitled to administer the estate was entitled to apply to be a party.
The matter of Ashley Pauling; Secretary, Department of Social Services [2018] AATA 870, was an application by the Secretary in the General Division of the Tribunal to set aside a decision of the Social Services and Child Support Division of the Tribunal (‘SSCSD’) that decided a preclusion period be halved. The applicant before the SSCSD had died before the matter had been decided. The basis of the Secretary’s application was that the SSCSD had no jurisdiction to hear the matter unless there was a successful application by the applicant’s representative to be made a party to the proceedings pursuant to section 30(1A) of the AAT Act. The preliminary question addressed by the General Division of the Tribunal was whether a representative who had been appointed by the administrator of the estate was properly a party to the proceedings pursuant to section 30 of the AAT Act. The Tribunal held that he was not and that the appropriate person to apply to become a party was the administrator.
The substantive question about jurisdiction was decided in the matter of Wendy Halliday as the Administrator of the Estate of Late Ashley Pauling; Secretary, Department of Social Services and [2018] AATA 3865. Deputy President McCabe and Dr Bygrave decided that there was a reviewable decision before the General Division of the Tribunal and therefore there was jurisdiction.
In Mavris and Commissioner of Taxation [2018] AATA 4130, the applicant had died while the decision was reserved. The subject of the case was an objection decision regarding certain assessments of luxury car tax and penalties. Although the Commissioner advised the Tribunal of the applicant’s death by email before the decision was published, the Member had not been advised as a result of an administrative oversight. The Commissioner’s view was that upon the applicant’s death, the Tribunal no longer had jurisdiction to review the application or make a decision until a party with standing was joined in the proceedings. The Tribunal was notified, by counsel and the accountant who had appeared for the applicant at the hearing, that it was unlikely that any person would apply to be joined as a party to the proceedings.
Senior Member Lazanas decided that the Tribunal had jurisdiction to make the decision it had made. In summary, it had jurisdiction to review the reviewable decision; both parties had presented their cases; there was nothing further required from the parties; the Tribunal proceeded to do what was required under the AAT Act (sections 2A, 25 and 43), made a decision, and published written reasons for that decision. Further, its review function was in accordance with the Taxation Administration Act 1953 (Cth) which set out the framework for taxation review and appeals in Part IVC.
This is a different case. It is the death of the Respondent that is relevant, not the death of the Applicant. The Applicant has the statutory right of review of the AAT1 decision pursuant to section 179 of the Social Security (Administration) Act 1999 (Cth) and sections 25(1) and 27 of the AAT Act. The Respondent was legally represented and participated in the proceedings before his death, providing evidence, including a statement. After his death, his executor was aware of the matter and advised that she did not wish to take part, including at the hearing.
The executor has made it clear that she does not wish to apply to be made a party to the proceedings pursuant to section 30(1A) of the AAT Act, to be represented at the hearing pursuant to section 32 of the AAT Act, to participate in the hearing pursuant to section 35 of the AAT Act, or to present a case to the Tribunal pursuant to section 39 of the AAT Act. There is no procedural unfairness to any person if the Tribunal proceeds with the hearing and determination of the matter pursuant to section 43 of the AAT Act.
The Tribunal has jurisdiction to review the decision of AAT1.
The substantive issue
The issue in this matter is whether Mr Sweeney’s AP was properly cancelled on 20 May 2020 because his assets exceeded the Pension Assets Test limit.
The first question is whether the loans to SST, Carlton and Manyana were correctly assessed as loans under the assets test.
The Applicant posed a second question, whether the decision to cancel the AP under the assets hardship test provisions was correct. Given my conclusion on the first question, I would put it differently. It is clear that the inheritance received by Mrs Sweeney meant that the assets hardship test was no longer satisfied.
Background
The genesis of this case was the grant of AP to Mr Sweeney under the asset hardship provisions in the Social Security Act 1991 (Cth) (‘the SS Act’) on 10 August 2016.
On 12 October 2016, Mr Sweeney informed Centrelink that:
(a)his shareholder loan of $1,904,130 to SST was an unrealisable asset because SST had no assets to repay the loan, it had no potential generate income, and he could not borrow against the shareholder loan;
(b)the shareholder loan to Carlton was “uncollectable”, and Carlton did not have sufficient assets to pay back the loan; and
(c)he and his wife had a net attributable asset valued at $131,941 in Manyana as trustee for Manyana Centre Unit Trust.
On 17 March 2020, Centrelink sent Mr Sweeney a request for information.
On 9 April 2020, Mr Sweeney informed Centrelink in an “Income and Assets Update” form that he and Mrs Sweeney had $197,540 invested in bank accounts, did not “have money on loan to another person or organisation”, and were not involved in a private trust.
With the form, Mr Sweeney provided documents relating to SST, Manyana and Carlton. The financial statements for SST for the year ending 30 June 2019 showed the company’s total non-current liabilities of $5,203,010, which included a loan by Mr Sweeney to the company with a balance of $1,906,950 for the years ending 30 June 2018 and 30 June 2019. He provided a contract for purchase of land relating to Manyana and related correspondence from lawyers.
On 14 May 2020, Mr Sweeney informed Centrelink of Mrs Sweeney’s inheritance and that the value of their combined savings was $165,526.37.
On 20 May 2020, a delegate decided that the assets hardship rules no longer applied to Mr Sweeney because he had readily available funds of $203,206. The delegate applied the normal assets test which took into account the loans to SST, Carlton and Manyana and cancelled Mr Sweeney’s AP.
On 9 July 2020, an authorised review officer (‘ARO’) affirmed the original decision to cancel Mr Sweeney’s AP, because the assets hardship rules no longer applied to Mr Sweeney and his combined assets of $2,675,179 (which included the three loans) exceeded the assets test limit of $869,500 for a homeowner/member of a couple.
Evidence
Mr Ian Pratt, Chartered Accountant, Ms Elizabeth Norman, accountant, Mr Sweeney, and his younger brother, Mr Paul Sweeney, provided statements in the proceedings about the history of the business which Mr Sweeney established and SST.
Mr Sweeney ran a business from 1982 which moved from Alexandria to Port Botany in about 1986. His first accountant set up funds used to operate the business as loan accounts. That practice continued when Mr Pratt took over the accountancy work about 40 years ago. He handled Mr Sweeney’s accounts for ten years and since then, Ms Norman, an employee, has prepared the accounts, although Mr Pratt signs off on the company accounts in which Mr Sweeney is a shareholder. The business was conducted through various related companies with each having a specialist role.
The business was sold in the late 1990s. There were originally five shareholders, including Mr Sweeney and Mr Paul Sweeney. Mr Pratt recalled that two left in the late 1980s but could not recall when another left. To the best of his recollection, neither of those men received any money from the company by way of repayment of their loan accounts. Another shareholder joined the company when those three men left and remains a shareholder.
Mr Pratt considered that it was not unusual for a shareholder in a small to medium size business to sell their shares in a business and move on without having their loans to the company repaid, particularly when the company is not in a position to repay its loans. Many small business owners are conscious of the state of finances within their business and never expect money, which has been recorded on the balance sheets of the company as a loan, to be repaid if the company has no capacity to repay it.
Mr Pratt did not recall ever being told to record as loans the various monies recorded as loans on the balance sheets of the various companies in which Mr Sweeney was a shareholder. It was usual accounting practice. Mr Sweeney was the business manager of the business.
Mr Pratt said that a shareholder could have requested that the sums recorded as loans be listed as capital advances instead, which a company has no obligation to repay. He never had such a discussion.
Mr Pratt explained that when an accountant makes a solvency statement in relation to a company, they are stating that the company is in a position to meet its current liabilities recorded on the balance sheet in relation to a 12-month period. It does not include “non-current liabilities” such as loans from associated parties.
Mr Pratt stated that none of the directors’ loans were repaid when the business was sold. The loans of the three surviving shareholders were transferred to the balance sheet of SST. Mr Sweeney derives no tax advantages from having director’s loans and writing off the loans would have no tax implications other than to increase his capital loss carried forward.
A company search dated 11 April 2020 shows that SST was registered on 3 July 1998. The shareholders from 1998 were Mr Sweeney, Mr Paul Sweeney and the third shareholder. On 11 April 2020, the delegate sent a further request for information to Mr Sweeney because it appeared he was no longer eligible for AP.
To the best of Mr Pratt’s knowledge, the third shareholder in SST is no longer actively involved in SST. Mr Sweeney’s ability to work was restricted by his ill health and he no longer earned income from SST. Mr Paul Sweeney is still working.
Ms Norman recalled that her dealings in relation to the business were with Mr Sweeney. In the late 1990s, the business was badly affected by high interest rates and the companies were unable to service their debts. She believes that led to the sale of the business. During the last few years of operation, the group of companies were trading at a loss and it was not uncommon for shareholders to meet expenses on behalf the various companies. She set out some payments Mr Sweeney made personally to enable “his” companies to lodge their annual returns and keep trading.
Ms Norman received a trial balance prepared by a bookkeeper engaged by the group of companies. She recalled that sometimes various expenses paid on behalf of the company were recorded as loans.
After the sale of the business, the group of companies was kept open for a period of years to allow potential creditors to come forward. The various companies were wound up over a period of years and their loan accounts were consolidated into SST. Ms Norman understood that was the company through which Mr Paul Sweeney conducts his business.
To the best of her knowledge, the third shareholder ceased involvement in the business. Mr Paul Sweeney is still working but Mr Sweeney was not because of ill-health.
Ms Norman explained that the proceeds of sale of the business were insufficient to repay various business debts and Mr Sweeney had to negotiate with creditors. She recalled that Mr Sweeney employed a solicitor who specialised in taxation law following the sale to ensure that all legal obligations were met.
According to Mr Sweeney, Mr Kevin Monroe was engaged to advise how to best consolidate all the companies into one entity. Over a period of years, the various companies were wound up with their loan accounts being consolidated into SST.
According to Mr Sweeney, the SST revenue losses have been fully applied by Pitkin Carrying Service, Paul Sweeney’s transport company. The capital losses of about $4.992 million remain to be drawn against any future capital gains. Those losses are of no value to anyone other than Mr Paul Sweeney who does not want the company wound up.
Mr Paul Sweeney wrote that he conducts no business through SST and the accumulated losses within SST may be of use to him as an off-set against any profit which Pitkin Transport may make.
The evidence before AAT1 was that the two shareholders other than Mr Sweeney continued to use the company for their own business activities and did not want it wound up, and that Mr Sweeney had no capacity to force the dissolution of the company.
In a document dated 24 March 2020, provided in response to request for information from Centrelink, Mr Sweeney provided financial statements for SST for the year ending June 2019 and stated: “no activity on my behalf”. The notes to the financial statements listed three “associated loans”, including the one to Mr Sweeney.
In a further response to a request for information dated 13 May 2020, Mr Sweeney attached a letter from SST’s accountant confirming that the asset value is nil and that Mr Sweeney had not received any dividends and is highly unlikely to do so.
AJ Spratt, not to be confused with Mr Pratt, is the Director of an audit and assurance services company with a similar name to Mr Pratt’s accounting firm. Mr Spratt wrote a letter dated 25 August 2020 in relation to the AAT1 Appeal. He wrote that the amount of $1,906,950 owed to Mr Sweeney by SST dated back to the incorporation of the company in 1998. Funds were advanced to establish the company and further sums were advanced up to 2007 to fund the operations. The company has no cash in the bank and does not own any assets that could be realised to repay any of the “loan amount”.
At the second hearing before AAT1, Mr Sweeney said that when the business began (in the early 1980s) there were no bank facilities available to them and the five partners each contributed to the necessary working capital that the then accountant recorded as loans, which continued when Mr Pratt took over the accountancy work. Additional sums were required to fund litigation in 1987 and 1988 when the business was subject to union black bans. The three partners who left in 1998 were not repaid the money they had contributed. There was no formal documentation or contract in relation to any of the contributions and there was no arrangement for the repayment of money which he had regarded as an investment. When the business was sold in 1999, his share of the capital remaining after the payment of debts was invested in the operations of Carlton.
Manyana
Mr Sweeney provided to Centrelink documents relating to the sale of Manyana Centre Pty Ltd to Manyana Capital Pty Ltd in October 2018 for $990,000. Payments were made to various government and private bodies. The sum of $69,53.82 was to be paid to Manyana Centre Pty Limited.
The balance sheet as at 30 June 2017, showed a loan to Mr Sweeney of $169,405.
Carlton
The most recent evidence about Carlton was an electronic lodgement declaration for the 2016 financial year showing total income of $79,792 and total deductions of an equivalent sum. Losses carried forward from 2011-12 and before were $343,828.
Before AAT1, Mr Sweeney said that he was in the process of winding up Manyana and Carlton but had been unable to complete the process because some creditors would not consent. AAT1 said that the two entities represented development projects undertaken by Mr Sweeney after the sale of SST, which I understand to mean the sale of the business operating at Port Botany.
The Applicant’s contentions
The Applicant contends that the amount of $1,906,950 recorded in SST Consulting Services’ balance sheet for the year ending 30 June 2019, as a loan by Mr Sweeney:
(a)is a loan for the purposes of section 1122 of the SS Act; and
(b)is an asset with a value of $1,906,950, less any amounts lent before 27 October 1986, for the purposes of the assets test in Module G in section 1064 of the SS Act.
The amount of $1,906,950 was not a gift, an investment, or any other transaction.
The current value of a loan, or loans, by Mr Sweeney to SST Consulting Services made after 27 October 1986 exceeds $1,000,000 which exceeds the assets value disqualifying limit for AP to be paid.
The amount of $388,905 recorded as a shareholder loan by Mr Sweeney to Carlton Developments on 12 October 2016 for the purpose of applying the hardship rules:
(a)was a loan for the purposes of section 1122 of the SS Act until 22 February 2021; and
(b)was an asset with a value of $388,905 for the purposes of the assets test in Module G in section 1064 of the SS Act, until 22 February 2021.
The amount of $169,405 recorded in Manyana Centre's balance sheet for the year ending 30 June 2017, as a loan from Mr Sweeney:
(a)was a loan for the purposes of section 1122 of the SS Act until 8 February 2021; and
(b)was an asset with a value of $169,405 for the purposes of the assets test in Module G in section 1064 of the SS Act, until 8 February 2021.
Mr Sweeney's AP was properly cancelled on 20 May 2020 because his assets exceeded the allowable limit in the assets test for AP.
The Respondent’s contentions
From the material provided by Mr Sweeney and the details of the submission made by Mr Sweeney’s solicitor to AAT1, the principal contention was that the cash advance to SST should not be regarded as a loan for social security purposes because there was never any intention that the money advanced would be repaid.
Supporting submissions were:
(a)The SS Act intends to place social security recipients on an equal playing field.
(b)Where a loan is not recoverable, and Mr Sweeney holds a one third share of the company with a combined debt in excess of $5 million, it is effectively a loan to himself. He is unable to wind up the company because of other directors. He is placed on an uneven playing field to those with similar private resources of approximately $200,000.
(c)The SS Act should be construed beneficially. Section 1122 is to be interpreted in light of the Social Security Guide section 4.6.2.20 where the asset is not readily accessible and the value attributed is less than face value of the loan. In this case, the value is $0.
The loans to Carlton and Manana no longer existed because they were being wound up.
Consideration
Section 1064 of the SS Act provides for the rate of AP and includes both an income and assets test. The applicable test is that which produces the lower rate of pension. The assets test applies in this case. It is in Module G of section 1064.
Section 9(1) of the SS Act defines a “financial asset” to include a “financial investment” which includes a loan that has not been repaid in full.
Section 11 sets out assets test definitions. An “asset” is property or money.
Section 1122 of the SS Act provides:
If a person lends an amount after 27 October 1986, the value of the assets of the person for the purposes of this Act includes so much of that amount as remains unpaid but does not include any amount payable by way of interest under the loan.
AAT1 questioned Mr Sweeney about how much had been loaned in relation to the SST loan before 27 October 1986. He thought between $800,000 and $900,000, which if taken into account, reduced the loan to more than $1,000,000, which was still above the asset limit.
There is no relevant statutory definition of “loan”. Some of the cases have referred to the ordinary meaning of the word, for example Bennett[1] at [32]. Section 1.1.L.65 of the Social Security Guide includes a definition for payments subject to assets testing provisions:
[1] Secretary, Department of Social Services and Bennett [2019] AATA 5828.
To be a loan there MUST be:
·an actual lending of money or an asset (1.1.A.290) of a particular value, AND
·a clear intention to repay.
A loan is:
·an advance of money, or
·the payment of an amount for, on account of, on behalf of or at the request of a person where there is an obligation, whether expressed or implied, to repay the amount.
The evidence of AJ Spratt is inconsistent with the other evidence with respect to funding being provided to SST from 1998 to 2007. The weight of the evidence leads to the following findings.
The loans now shown in the financial records of SST have existed in part since before 27 October 1986 and increased over the operating life of the business that was sold at the end of the 1990s. At least $1 million dollars of loans have come into existence since 1986.
With respect to Mr Pratt’s evidence about there being no intention to repay, I give that little weight. He was not a party to the “loan” agreements. He has not been the accountant dealing with the loans since about 1990. Mr Sweeney was managing the financial affairs of the business and the accountant’s role was to prepare records reflecting his management and the bookkeeper’s records.
For almost 40 years, the sums owed to the shareholders have been recorded as loans in the financial records of the various companies from time to time and were consolidated in the financial records of SST in about 1998 to 2001. The consolidation was on the advice of Mr Kevin Morgan, who was a solicitor who specialised in taxation law. It is clear that the recorded loans may be beneficial to any of the shareholders who is running a business, currently to Mr Paul Sweeney, and at the time of the AAT1 hearing, to the third shareholder as well. Mr Sweeney was unable to benefit from the loan because he was not running a business.
Many cases have held that the fact that a business recorded a sum of money as a loan binds the parties to that characterisation.[2] There is a contrary argument in this case. The length of time the loans have been so recorded in the financial records of the various companies, most recently in the records of SST, and not repaid, may be considered to weigh in favour of the Respondent’s argument that there was no intention that the “loans” be repaid.
[2] Boyd and Secretary, Department of Social Security [1994] AATA 580 at [29], [38]; Bysouth and Secretary, Department of education, Employment and Workplace Relations [2010] AATA 59 at [34]; Gorton and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2012] AATA 127 at [98]; Secretary, Department of Social Services and Bennett [2019] AATA 5828 at [26]; Hayirli and Secretary, Department of Social Services [2020] AATA 554 at [20].
That there is a taxation advantage to retaining the loans to SST for shareholders operating a business must be considered.
Mr Sweeney has changed his position with respect to the loans. When he applied for AP, he said that they were unrealisable loans and gained the benefit of the asset hardship rules. When his AP was cancelled, he claimed that they were not loans because they were not to be repaid, with the consequence that they would not be taken into account when the usual assets test was applied.
The Applicant pointed to a number of provisions of the Corporations Act 2001 (Cth) in support of its argument.
Sections 286(1)(a) and (b) require a company to keep written financial records that ‘correctly record and explain its transactions and financial position and performance’ and ‘would enable true and fair financial statements to be prepared and audited’. A person commits an offence of strict liability if the provision is contravened.[3]
[3] Corporations Act 2001 (Cth) ss 286(3) and (4).
Section 1305 provides that a company’s ‘books’, which includes financial records, are admissible in evidence in any proceedings, including in the Tribunal, and are prima facie evidence of the matters therein.
As a director of SST, Mr Sweeney had personal obligations of care and diligence, and good faith, pursuant to sections 180 and 181 of the Corporations Act.
I have concluded that the loans to SST should not be characterised as other than loans for the following reasons: the obligations of companies and directors under the Corporations Act require that transactions be correctly recorded; Mr Sweeney changed his position about that characterisation when his AP was cancelled; and the authorities support the conclusion. Finally, I can see no provision in the SS Act that permits a distinction to be drawn between transactions described as loans in a company’s financial records because of the different tax consequences for different shareholders.
Mr Sweeney’s loan to SST is at least $1 million which exceeds the assets value disqualifying limit for AP to be paid.
Given my conclusion in respect of SST, it is unnecessary to consider Carlton and Manyana. Mr Sweeney’s assets exceeded the assets test limit and AP was properly cancelled.
While the outcome may seem harsh for Mr Sweeney, the asset hardship test provisions of the SS Act provide relief where they apply.
Decision
The reviewable decision is set aside and in substitution it is decided that Mr Sweeney’s Aged Pension was properly cancelled on 20 May 2020 with effect from 10 September 2018.
I certify that the preceding 90 (ninety) paragraphs are a true copy of the reasons for the decision herein of Mrs J C Kelly, Senior Member
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Associate
Dated: 26 September 2022
Date(s) of hearing: 30 November 2021 Solicitors for the Applicant: Dr Stephen Thompson, Sparke Helmore Lawyers
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