Trakas and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs

[2008] AATA 785

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2008] AATA 785

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2007/2465

GENERAL  ADMINISTRATIVE  DIVISION		)
Re		DIMITRIOS TRAKAS

Applicant

And SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS

Respondent

DECISION

Tribunal Regina Perton, Member

Date3 September 2008

PlaceMelbourne

Decision The Tribunal sets aside the decision under review and remits the matter to the respondent to assess Mr Trakas’ claim for age pension in accordance with the direction that under s 1207X(1)(b)(ii) of the Social Security Act 1991, Mr Trakas’ asset attribution percentage is 0 per cent.

(sgd) Regina Perton

Member

SOCIAL SECURITY – age pension – assets test – former director and shareholder of private company – consideration of factors in Principles – effective control – attributable assets – decision set aside

Social Security Act 1991 ss 1123, 1124, 1207, 1207C, 1207N, 1207Q, 1207X, 1209E, Part 3.18

Social Security (Attributable Stakeholders and Attribution percentages) Principles 2000

REASONS FOR DECISION

3 September 2008 Regina Perton, Member     

1.      Dimitrios Trakas is an 82 year old widower with two adult children.  He received age pension from 9 July 1998 until 3 March 2003.  Then Centrelink, which administers age pension for the Department of Families, Housing, Community Services and Indigenous Affairs (the Department), cancelled his payments because his assets exceeded the then allowable limit.  At that time Mr Trakas was a director and shareholder of a private company, Sheldon Lodge Pty Ltd (Sheldon Lodge).  He subsequently resigned as a director and sold his shares in the company by 24 November 2005. 

2.      On 25 November 2005, Mr Trakas made a fresh application for age pension.  Centrelink rejected his claim on 4 July 2006 because his assets and attributable assets exceeded the amount at which age pension was payable. 

3.      In 2002, amendments to the Social Security Act 1991 (the Act) came into force which were designed to prevent people from using private companies and trusts to remove assets and income from the means-testing provisions for social security payments.  Prior to the introduction of the amendments, the assets of a private company were only attributed to a person for means-testing where the person actually remained in ownership of the company and/or had a right to ongoing income from the company.  The amendments introduced the concept of attributable assets in circumstances where a private company is controlled by associates of the person seeking the age pension.  The degree of control that a person may still have of a private company even after her/his resignation as a director or shareholder is taken into account.   

4.      The issue before the Tribunal is whether Mr Trakas’ assets and attributable assets prevent him from meeting the means-testing limit in relation to age pension.  The Tribunal has some discretion in deciding whether the company’s assets should still be attributed to him after his resignation as a director and the sale of his shares.

Background

5.      Mr Trakas and his wife purchased shops in Prahran and Malvern in 1970 and 1973 respectively.  In September 1990, they established Sheldon Lodge as a private company with 16 shares in total.  Mr Trakas held four shares, his wife four shares, his only daughter four shares and his only son four shares.  Mr Trakas, his wife and his daughter were appointed as directors and his daughter was secretary of the company.  In August 1995, Mr Trakas and his wife transferred, by deed of gift, the Prahran and Malvern properties to Sheldon Lodge.

6.      Mr Trakas was in receipt of age pension from July 1998.  In September 1999, while in Greece on holiday, Mrs Trakas died suddenly.  Her four shares in Sheldon Lodge were left to Mr Trakas.  In March 2003, Centrelink cancelled Mr Trakas’ pension on the basis that his assets exceeded the allowable limit for a single pensioner.

7.      In May 2003, Mr Trakas executed a deed disclaiming any interest in his late wife’s estate.  Her shares were transferred equally to their son and daughter.  Mr Trakas also transferred two of his four shares to his daughter for $46,000.  In October 2003, Mr Trakas transferred a third share to his son for $34,000.  Hence, by October 2003, Mr Trakas only held one of the sixteen shares in Sheldon Lodge.  He remained a director of Sheldon Lodge. 

8.      Mr Trakas sought an internal review of the decision to cancel his pension.  An authorised review officer (ARO) of Centrelink affirming the decision concerning cancellation in September 2003.  The Social Security Appeals Tribunal (SSAT) also affirmed the decision in February 2004.

9.      On 21 November 2005, Mr Trakas resigned as a director of Sheldon Lodge.  On 24 November 2005, he transferred his final share in Sheldon Lodge to his daughter for $36,000.  He made a fresh application for age pension on 25 November 2005.  The claim was rejected by Centrelink with an ARO affirming the refusal on 16 August 2006 and the SSAT also affirming the decision on 30 April 2007.  An application for review was lodged with the Tribunal on 8 June 2007.  There is no dispute between the parties that the value of the assets of Sheldon Lodge at the relevant date was $576,142; that Mr Trakas resigned as a director on 21 November 2005 with the resignation effective from 22 November 2005; and that Mr Trakas has not owned any shares in Sheldon Lodge since 24 November 2005.

Who controlled the company as from 24 November 2005?

10. Part 3.18 of the Act sets out the means test treatment of private companies. Section 1207 states, among other things, that Part 3.18 sets up a system for the attribution to individuals of the assets and income of private companies and private trusts. Section 1207N of the Act describes designated private companies that are covered by the Act. There is no dispute by the parties that Sheldon Lodge is a designated private company within the meaning of s 1207N.

11.     There is also no disagreement that Sheldon Lodge is a controlled private company pursuant to s 1207Q of the Act, on the basis that associates of Mr Trakas control the company. Section 1207C(1) states that relatives, including children, of a potential pension beneficiary, are associates. The control test for a private company is set out in s 1207Q(2) which states:

(2)For the purposes of this section, an individual passes the control test in relation to a company if:

…

(c)the company is sufficiently influenced by:

(i)the individual;

(ii)or an associate of the individual; or

…

12.     The Tribunal is satisfied that at the date of claim for age pension, Mr Trakas did not control the company himself but that his children did.  The Tribunal therefore finds that Sheldon Lodge is a controlled private company. 

13.     When a private company is a controlled private company, the assets of the company are attributed to the individual seeking the pension pursuant to s 1207X(1) of the Act:

(1)For the purposes of this Part, if a company is a controlled private company in relation to an individual:

(a)the individual is an attributable stakeholder of the company unless the Secretary otherwise determines; and

(b)if the individual is an attributable stakeholder of the company – the individual’s asset attribution percentage in relation to the company is:

(i)100%; or

(ii)If the Secretary determines a lower percentage in relation to the individual and the company – that lower percentage…

…

14. Section 1209E of the Act gives the Secretary authority to formulate decision‑making principles which are to be followed in making decisions concerning s 1207X. The Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000 (the Principles) have been gazetted pursuant to s 1209E. The Principles set out various factors to be taken into account by decision‑makers in determining whether a person should not be held to be an attributable stakeholder and for determining a lesser asset attribution percentage than the 100 per cent which is automatically applied under s 1207X of the Act.

Is Mr Trakas still an attributable stakeholder of Sheldon Lodge?

15.     Part 2 of the Principles (paragraphs 7 to 13) sets out the factors to be taken into account in determining whether Mr Trakas should not be considered an attributable stakeholder. 

16.     Paragraph 7 of the Principles considers the individual’s circumstances affecting the relationship with the company.  Sheldon Lodge was set up in 1990 with four shareholders being Mr Trakas, his wife and their two children, each holding four shares.  Mr Trakas and his daughter have been directors since the company’s inception.  Mr Trakas gradually reduced his shareholdings but he remained a director and shareholder until a few days before the claim for age pension was made.  His daughter, Angela Panagopoulos, gave evidence that she was working as well as raising a family; so Mr Trakas often attended to the administrative tasks required of a company director such as signing tax returns and the like.  However, on the date of the claim, he had no legal involvement with the company.  Nor was he entitled to any income from the company.  The evidence before the Tribunal was that Mr Trakas’ daughter was in effective control of the company at present; and that she had, for some time, been making the decisions about the company’s assets in conjunction with her brother, the only other current shareholder.

17.     Paragraph 8 requires consideration of the contribution of an individual to the company.  As at 25 November 2005, Sheldon Lodge owned two properties which had been gifted to it by Mr and Mrs Trakas in August 1995.  The properties had been in their joint names since the early 1970s.  Mr Trakas had run his business from one of them until his retirement.  The other had sustained considerable damage as a result of building works next door and had remained empty for a number of years.  Ms Panagopoulos had run a business from the latter property for a while but that business had folded.  This latter property is now rented out as a café.  From 1995 until Mr Trakas’ exit from the company, all of Sheldon Lodge’s assets, namely the two shops, had been gifted to the company by Mr Trakas and his late wife.  Recently, Sheldon Lodge has acquired a residential property in Dromana.  Mr Trakas’ home, which he owns outright, has never been part of the company’s assets.

18.     Paragraph 9 considers past benefits received from distributions by the company.  The evidence from Mr Trakas, Ms Panagopoulos and Mr Michael Trakas (his son) was that any income earned by Sheldon Lodge was distributed to them according to their shareholdings at the time.

19.     Paragraph 10 looks at future benefits likely to be obtained by the pension applicant.  The Tribunal is satisfied that Mr Trakas is not entitled to any future income or asset distribution as he is no longer a shareholder or director of the company. 

20.     Paragraph 11 looks at any other kind of benefit not covered by the previous two factors.  Mr Trakas received a benefit from the assets of the company while he was still a shareholder.  There is no evidence that he has received any benefit, legal or equitable, from the company since his resignation as a director and/or since the sale of his last share.  The company does not own his place of residence.  He has money in the bank as a result of the sale of his shares, which the Tribunal is satisfied he sold for market value.  The interest on the proceeds, some of which remains as part of his savings, could be argued to some extent to be a benefit; although he is using such savings to maintain himself in the light of not receiving any pension.  His daughter calls in regularly to check on him but there is no suggestion whatsoever that this is a benefit that arises from the company.

21.     In relation to paragraph 12, Mr Trakas is not an attributable stakeholder of any other company or trust. 

22.     In weighing up all the factors set out in Part 2 of the Principles, the Tribunal gives considerable weight to the contributions that Mr Trakas made to Sheldon Lodge.  The only assets of Sheldon Lodge until the date of his exit from the company as a director and shareholder were assets that he and his late wife gifted to the company.  Those gifts were made several years before the introduction of the attributable stakeholder provisions.  The Tribunal notes and accepts that from 25 November 2005 onwards, Mr Trakas did not receive any benefit from the company.  Nonetheless, given the source of the assets of the company and that his associates are now the beneficiaries of the company, the Tribunal is satisfied that Mr Trakas remains an attributable stakeholder of Sheldon Lodge pursuant to s 1207X(1)(a) of the Act.

What is Mr Trakas’ asset attribution percentage?

23.     Part 3 of the Principles (paragraphs 15 to 27) sets out the factors to be taken into account in determining whether Mr Trakas, as an attributable stakeholder, should have an asset attribution percentage lower than 100 per cent. 

24.     Paragraph 16 requires the decision-maker to consider whether there are relevant circumstances which include the extent to which the relationship between the individual and the company is affected by circumstances arising from the legal structure and administrative arrangements of the company; whether the individual can reasonably be expected to exercise effective control of the company; and if so, the extent of that control.  Sheldon Lodge comprises 16 shares, all of which are currently held by Ms Panagopoulos and Mr Michael Trakas.  Ms Panagopoulos undertakes the administration of the company as her brother now lives in the United States.  Ms Panagopoulos and Mr Michael Trakas confirmed Mr Trakas’ evidence that he has not had any role in the company since he resigned and sold his shares; and indeed, that his role had been diminishing for some years before that.  The Tribunal is satisfied that Mr Trakas has no control of the company now nor has he had since his exit from Sheldon Lodge.

25.     Paragraphs 17 to 21 are similarly worded to paragraphs 7 to 13.  Therefore, the analysis and findings in relation to paragraphs 7 to 13 also apply to paragraphs 17 to 21 and need not be repeated.

26.     Paragraph 22 requires the consideration of any other circumstances that affect the involvement of the individual with the activities or the administration of the company.  Since 24 November 2005, the company’s activities have been in the hands of Ms Panagopoulos and Mr Michael Trakas.  They have added to the assets of the company and it is only they who are entitled to any benefits from Sheldon Lodge.  There was no evidence of any involvement by Mr Trakas in Sheldon Lodge’s activities since his exit from the company.

27. In weighing up the various factors in deciding whether Mr Trakas’ asset attribution percentage should be less than 100 per cent, the Tribunal gives considerable weight to the company’s legal structure and administration. The Tribunal is satisfied that Mr Trakas has had no involvement in Sheldon Lodge since 24 November 2005. In light of evidence from Mr Trakas, Ms Panagopoulos and Mr Michael Trakas as well as the documentary evidence, the Tribunal is satisfied that Mr Trakas genuinely resigned as a director of the company before the claim for age pension and that he received market value for his shares. Given the timing of the gifting of the assets to Sheldon Lodge by Mr Trakas and that he received market value for the shares that he disposed of, the Tribunal is satisfied that s 1123 and s 1124 of the Act, concerning disposal of assets, do not appear to be applicable to Mr Trakas.

28.     Taking into account all the above matters, the Tribunal is satisfied that Mr Trakas’ asset attribution percentage should be 0 per cent as from the date of claim for age pension.

DECISION

29. The Tribunal sets aside the decision under review and remits the matter to the respondent to assess Mr Trakas’ claim for age pension in accordance with the direction that, under s 1207X(1)(b)(ii) of the Act, Mr Trakas’ asset attribution percentage is 0 per cent.

I certify that the twenty-nine [29] preceding paragraphs are a true copy of the reasons for the decision of:

Regina Perton, Member

(sgd)       Olympia Sarrinikolaou

Clerk

Date of hearing:  9 July 2008

Date of decision:  3 September 2008
Counsel for applicant:                  Mr R Knowles
Solicitor for applicant:                  GPZ Legal

Advocate for respondent:            Mr F Bakhtiar, Centrelink Legal Services