THORP And SECRETARY, DEPARTMENT OF EDUCATION, EMPLOYMENT AND WORKPLACE RELATIONS
[2010] AATA 442
•14 June 2010
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2010] AATA 442
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2009/3736
GENERAL ADMINISTRATIVE DIVISION ) Re DOUGLAS THORP Applicant
And
SECRETARY, DEPARTMENT OF EDUCATION, EMPLOYMENT AND WORKPLACE RELATIONS
Respondent
DECISION
Tribunal Mr A Sweidan, Senior Member Date of Hearing 29 April 2010
Date of Decision 14 June 2010
Place Perth
Decision The Tribunal affirms the decision under review.
.......(sgd) Mr A Sweidan..........
Senior Member
CATCHWORDS
Social Security – Newstart Allowance - “asset hardship” provisions - whether loan to trust exists - whether unrealisable asset - decision under review affirmed
Legislation
Social Security Act 1991 ss9, 11, 1118, 1122, 1131 and 1132
Cases
Re Boyd v Secretary Department of Social Security (1994)
Re Dainty and Minister for Immigration and Ethic Affairs (1987) 12 ALD 416
Drake v Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60
Emilia Parchment and Secretary, Department of Social Security [1998] AATA 137
Minister for Immigration, Local Government and Ethnic Affairs v Roberts (1993) 41 FCR 82 at 86.
Secretary, Department of Employment, Workplace Relations and Dolores Vanderpluym [2007] FCA 876
REASONS FOR DECISION
14 June 2010 Mr A Sweidan, Senior Member Background
1.Applicant (Mr Thorp) seeks review by this Tribunal of a decision of the Social Security Appeals Tribunal (“SSAT”) made on 28 August 2009.
2.The SSAT affirmed an earlier decision of the respondent not to pay the applicant Newstart allowance under the “asset hardship” provisions of the Social Security Act 1991 (“the Act”).
Issues
3.The issues for determination by this Tribunal are:
3.1 Whether the Trustee of the DHAT Trust (“the Trust”) owes Mr Thorp $600,000; and if so:
3.2 Whether the debt can be treated as being no longer existing; or
3.3 Whether it can be treated as being an unrealisable asset.
Tribunal’s Findings
Issue 1 Does the trust owe Mr Thorp $600,000?
4.Mr Thorp contended at the hearing that the Trust owes him nothing because he has not made a loan to the Trust.
5.Mr Thorp is the Appointor, Trustee and one of the Specified Beneficiaries of the Trust
6.The Trust carried on business as Valhalla Games and Hobbies (“the business”).
7.On 16 December 2004 Mr Thorp completed a Centrelink MOD PT Private Trust form in regard to the Trust stating that it owed him $600,000.
8.On 19 December 2008 he lodged a further Centrelink MOD PT Private Trust form in which he again stated that the Trust owed him $600,000.
9.Another Centrelink MOD PT Private Trust form was lodged by him on 24 December 2008 again stating that the Trust owed him $600,000.
10.On 16 March 2009 Mr Thorp told a Centrelink authorised review officer that the $600,000 represented an accumulation of “cash injections” made over a period of time to keep the business of the Trust afloat.
11.He told the SSAT on 26 June 2009 that the business had been very profitable up until 2004 and he had retained the profits in the Trust. He estimated that the amount held in the Trust was $600,000.
12.At the SSAT hearing on 28 July 2009 Mr Thorp told the SSAT that he had put money in the Trust when he was running the business and that it owed him $600,000.
13.On 7 January 2010 Mr Thorp wrote to Centrelink stating that, following a conversation with his former accountant, he was now of the view that there was “no loan” from him to the Trust. He admitted at the hearing in this Tribunal on 29 April 2010, that this alleged advice had been given by the accountant without having access to any Trust records following the 1999/2000 financial year and without preparing further Trust tax returns or financial statements.
14.When asked about the $600,000 at the hearing in this Tribunal, Mr Thorp said that it represented money that he thought the Trust owed him from the years prior to 2000 when the business was doing well and he had not taken any money out of the Trust. He could not explain how he arrived at that particular figure but said he wanted an opportunity to distribute this amount to himself in the future when the business was successful again and needed to justify such future disbursements to the other Trust beneficiaries.
15.This was reiterated in the applicant’s closing submissions to this Tribunal.
16.When questioned about the Trust’s tax returns for the 2000 financial year, Mr Thorp explained that $83,905 was distributed to his brother, because his brother had a tax loss he could use to offset the distribution. He further explained that the general practice was that both his and his brother’s distributions were retained in the Trust to help expand the business. He said that he did not take a salary from the business and was supported by friends, as he has continued to be until the present date.
17.Mr Thorp asserts that the money owing to him by the Trust does not arise from a loan to the Trust by himself.
18.The Macquarie Dictionary defines a loan as being:
Noun 1. the act of lending; a grant of the use of something temporarily: the loan of a book.
.2. something lent or furnished on condition of being returned, especially a sum of money lent at interest.
19.S 10A of the Act characterises a loan as being:
(a)an advance of money; and
(b)the provision of credit or any other form of financial accommodation; and
(c)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; and
(d)a transaction (whatever its terms or form) which in substance effects a loan of money;
20.The Tribunal finds that the $600,000 which prior to the hearing, at the hearing and again in his closing submissions Mr Thorp has said the Trust owes him is a loan as defined in s 10A of the Act. In the Tribunal’s opinion is it clear that the sum of money in question represents salary and distributions Mr Thorp did not withdraw from the Trust because he used it to expand the business and also “cash injections” by Mr Thorp. It is clear from his own evidence that Mr Thorp ‘lent’ the money to Trust in the expectation that it would pay it to him at a future date and that this is still his expectation.
21.While no financial records of the Trust were produced by the applicant the Tribunal notes that undistributed amounts owing to beneficiaries are generally held in a trust in the form of a beneficiary loan account for accounting purposes, and it is reasonable to infer that when the Trust tax returns and financial statements are prepared the $600,000 would be accounted for as a beneficiary loan until payment is made.
22.S 11 of the Act defines an asset as being property or money owned by a person, including a loan.
23.S 1122 of the Act provides that the asset value of a loan is the amount of the loan that remains unpaid.
24.The Tribunal finds that the $600,000 owing to Mr Thorp by the Trust must be included in the value of his assets for purposes of the Act.
Issue 2
Can the amount owed to Mr Thorp by the Trust be treated as no longer existing?
25.Mr Thorp maintains that the loan, or money owing, cannot be paid by the Trust because it no longer owns any assets and that the business has ceased to trade.
26.The issue of whether or not the value of a loan can be diminished for Social Security purposes if the loan cannot be repaid, was considered in the Administrative Appeals Tribunal decision Re Boyd v Secretary Department of Social Security (1994), where the Tribunal stated:
(i)"... It was submitted that the actual implementation of s 1122 of the Act considered the possibility that some amounts are irrecoverable. The applicant's advocate conceded that the guidelines contemplate a loan that is irrecoverable in total rather than partially, but nevertheless the section could still be read widely. The applicant's representative argued that in the light of the company's continued losses, the applicant could not expect to recoup the total amount. At 1 July 1992, the shareholder's equity was approximately $40,000. It was submitted that additional value of goodwill would be at a minimum considering the continued losses of the business. Without allowing for any payments to be made to David Boyd, the maximum amount recoverable, it was argued, was $40,000. In the respondent's view, $126,170 was the amount remaining unpaid, and it was this sum therefore that represented the value of the loan. In the view of the Tribunal, s 1122 is clear in its effect. The value of the loan is that amount that "remains unpaid". There is no suggestion that those words may be interchanged with "remains recoverable". The "Guide to the Administration of the Social Security Act" does not expressly provide for part of a loan to be deemed irrecoverable. In accordance with Hughes (supra), the Tribunal finds that the legislation, whilst capable of producing unjust results in some circumstances, nevertheless intended loans made after 27 October 1987 to be valued at face value."
27.The Federal Court in Secretary, Department of Employment, Workplace Relations and Dolores Vanderpluym [2007] FCA 876 also concluded that for the purposes of s 1122 of the Act, so much of the loan that remains unpaid is to be included in the calculation of the assets:
“….As to the monies lent by Mr Vanderpluym to MMPL being the further advances, the remaining unpaid amount of those loans properly forms part of the assets of Mr Vanderpluym and is properly brought to account within the assets value limit calculation applicable to Mrs Vanderpluym….”
28.The Tribunal finds that the value of the debt owed to Mr Thorp by the Trust is $600,000.
29.The Tribunal considered whether the loan could be considered to no longer exist.
30.Chapter 4.6.5.65 of the Centrelink Guide to the Social Security Law (the Guide) lists the circumstances when a loan to a trust no longer exists, even though it has not been repaid. Of particular relevance to this matter is the circumstance where a loan can be forgiven as part of the process of an irreversible wind up.
31.Mr Thorp maintains that he does not want to wind up the Trust as he intends to restart his business in the future and wants to use the Trust losses for taxation purposes.
32.The Tribunal finds that the loan cannot be treated as no longer existing and must be included as part of applicant’s assets.
33.The Tribunal notes that in the applicant’s Amended Statement of Facts and Contentions he states that he is trying to act responsibly in his position as Trustee and for him to wind up the Trust whilst it had tax losses would be irresponsible and an act for which he could face legal action.
34.The Tribunal also notes that as a Trustee the applicant has a responsibility to keep proper records. No tax returns or financial statements have been completed since the 2000 financial year.
35.Mr Thorp asserts that Centrelink should regard the debt as being an unrealisable asset rather than a loan that no longer exists, because the Guide is a policy manual that has to be applied only by Centrelink and the policy in regard to a loan no longer existing is not reflected in the Social Security Act.
36.Whilst the Tribunal is not bound to apply policy guidelines (see Drake v Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60) the Tribunal will usually apply the guidelines unless there are cogent reasons in a particular case for not doing so: see Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634 at 639-645; Re Dainty and Minister for Immigration and Ethic Affairs (1987) 12 ALD 416 at 417; and Minister for Immigration, Local Government and Ethnic Affairs v Roberts (1993) 41 FCR 82 at 86.
37.There is no cogent reason to not apply the policy in this case.
Issue 3
Can the amount owed by the Trust be considered an unrealisable asset?
38.Mr Thorp contends that the amount owed to him by the Trust is an unrealisable asset because the main business of the Trust stopped trading in August 2008, there are no funds to repay the loan and the loan cannot be sold or borrowed against because no financial institution would lend the Trust money, even when it owned assets. He has not provided any documentary evidence to support this contention.
39.The Tribunal finds that the circumstances are similar to those reviewed by the Tribunal in the matter of Emilia Parchment and Secretary, Department of Social Security [1998] AATA 137 (4 March 1998).
40.In that case Ms Parchment maintained that her loan to her company had no value at the time she applied for payment of newstart allowance on 12 March 1997 because the ANZ Bank had cancelled its overdraft facilities. She said that the company had ceased trading and had no financial capacity to repay the loan.
41.The Tribunal in Parchment was unable to assess the company’s precise financial position as there were no current financial statements available. Ms Parchment was unwilling to sell the company because she would lose the use of her only form of transport, the company vehicle, would have to repay a loan and had been advised by her accountant not to wind up the business as she could claim a $12,000 per year tax loss when she resurrected her business.
42.The Tribunal in that case found that without the current financial statements there was insufficient evidence to determine the amount of the loan or whether or not it was unrealisable. It commented that it was possible the company would be able to generate sufficient profits in the future, which would enable it to repay the loan.
43.This matter is similar to that of Parchment. Applicant is unable to provide current financial statements for the Trust as neither these nor tax returns have been completed since the 1999/2000 financial year. Applicant does not wish to wind up the Trust as he intends to restart his business some time in the future and wants to use the tax losses for tax purposes. Further he intends to use the “loan” to justify distributions to himself when the business starts to make profit.
44.The Tribunal finds that the debt cannot be considered an unrealisable asset.
45.Applicant asserts that Centrelink should assess his financial circumstances and his entitlement to newstart allowance based on his unconfirmed statements. The Secretary asserts that this is unreasonable as not only are his statements inconsistent, there is insufficient information to decide whether or not he is qualified or entitled to payment of newstart allowance. The Tribunal agrees with the Secretary and notes the following in this regard:
45.1In his letter dated 19 November 1998 Mr Thorp wrote that he had limited success selling his goods on the Internet and that the move to business premises (in Balcatta) was an ‘enormous logistical task’, which points to there being a large amount of stock to be moved.
45.2This view is supported by information obtained from the Internet in relation to Mr Thorp’s subsequent move from the Balcatta premises to the premises in Osborne Park [SSOFC.Attachment 5:pp.20-31].
45.3On 1 October 2008 Mr Thorp sent an email to Lynn & Brown Lawyers which stated in part, that ‘A government stocktake done four years ago gave an ‘at cost’ stock-value of $755,000 and while a little of that stock has been sold….’
45.4In contrast, on 17 December 2009 in response to a questionnaire from Centrelink, Mr Thorp said that ‘sales between January 2006 and April 2008 at Balcatta were of some $’000s………There were minimal sales to June 2008 at Osborne Park’ [SSOFC.Attachment 10:pg.133].
45.5Documents from the Midland Bailiff, Lynn & Brown Lawyers and Prime Property Agency Pty Ltd [ST20:pp.193-201, ST21:pp202-212 and ST22:213-216] indicated the total value of goods removed from the Osborne Park premises as being around $90,000 [ST22:pg.213].
45.6Mr Thorp has not provided any credible explanation of the discrepancy in the stock figures.
45.7A letter dated 30 September 2008, written by the owners of the Osborne Park premises, states that Mr Thorp could remove his goods from the premises between 15 October 2008 to 17 October 2008 [ST24:pg.233]. At the hearing Mr Thorp failed to provide a credible reason for failing to remove his computers, business paperwork and stock.
45.8In a letter dated 19 November 2008 Mr Thorp wrote that he would have made a modest profit for 2001 and a loss for the years since. [SSOFC.Attachment 4:pg.16].
45.9The respondent wrote to the applicant on 16 April 2010 shortly prior to the hearing, asking him a number of questions regarding the business of Valhalla Games and Hobbies conducted by the Trust, including questions as to the assets of that business.
45.10The applicant’s response to those questions was to say “I can’t answer Questions 8 to 15 as those questions relating as they do only to a trading name have no meaning”. The Tribunal regards that response as disingenuous, to say the least, as it must have been obvious to the applicant that the respondent was seeking information regarding the business conducted by the Trust and the assets thereof.
45.11Mr Thorp gave evidence that the Trust has commenced legal action against the former landlords of the business premises in relation to the sale of the stock of the business.
46.The Secretary contends that Mr Thorp’s unreliable testimony casts doubt on the true state of his business and finances and that without recent Trust financial statements and tax returns, Centrelink is unable to make an assessment of Mr Thorp’s financial position. The Tribunal accepts this contention.
47.The Tribunal concludes that there is no reliable evidence to verify Mr Thorp’s claim that the Trust no longer owns any assets that could be sold to repay part or all of the debt. While the debt itself may not be able to be sold or borrowed against, it appears that the Trust may well have other assets and in particular stock that could be sold to repay part or all of the debt.
48.In addition, the Tribunal finds that Mr Thorp’s expressed intention to restart the business means that there is a possibility that the debt could be repaid in the future.
49.The Tribunal concludes that based on the available evidence, the debt owing by the Trust to Mr Thorp is not an unrealisable asset.
50.Accordingly the Tribunal finds that the $600,000 Mr Thorp maintains is owing to him from the Trust is in effect a loan and therefore an asset that must be taken into consideration when assessing his entitlement to payment of newstart allowance.
Decision
51.The Tribunal affirms the decision under review.
I certify that the 51 preceding paragraphs are a true copy of the reasons for the decision herein of Mr A Sweidan, Senior Member
Signed..........(sgd) Ms L Huynh..............................................
AssociateDate of Hearing 29 April 2010
Date of Final Submissions 4 June 2010
Date of Decision 14 June 2010
Applicant’s Representative Self Represented
Respondent’s Representative Ms M Conlon
Centrelink Legal Services Branch
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