VHMP and Secretary, Department of Social Services (Social services second review) - [2023] AATA 3007

VHMP and Secretary, Department of Social Services (Social services second review) [2023] AATA 3007 (15 September 2023)
Division:GENERAL DIVISION
File Number(s): 2022/7235
Re:VHMP
APPLICANT

AndSecretary, Department of Social Services
RESPONDENT

DECISION
Tribunal:Emeritus Professor P A Fairall, Senior Member
Date:15 September 2023
Place:Sydney

The Tribunal sets aside the reviewable decision dated 3 August 2022 by the Social Services & Child Support Division of the Tribunal and remits the matter to the Secretary to recalculate the Applicant’s age pension from 6 October 2020.
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Emeritus Professor P A Fairall, Senior Member
Catchwords
SOCIAL SECURITY – age pension – testamentary trust – whether applicant an attributable stakeholder – income attribution percentage rate – whether trust invalid – where applicant is sole trustee and beneficiary – decision under review set aside and remitted for reconsideration
Legislation
Social Security Act 1991 (Cth)
Social Security (Attributable Stakeholder and Attributable Percentages) Principles 2017
Cases
Hoefl and Secretary, Department of Social Services (Social services second review) [2022] AATA 2130
Martin; Secretary, Department of Social Services and (Social services second review) [2022] AATA 406
McDonald and Secretary, Department of Social Services (Social services second review) [2022] AATA 4207
Pavkovic and Secretary, Department of Social Services (Social services second review) [2019] AATA 3737
Read v Commonwealth [1988] HCA 26
Snow and Secretary, Department of Social Services (Social services second review) [2022] AATA 365
Stephens-Ryan; Secretary, Department of Social Services and (Social services second review) [2020] AATA 961
Sullivan and Secretary, Department of Social Services (Social services second review) [2022] AATA 2890
Secondary Materials
HAJ Ford and WA Lee, Principles of the Law of Trusts (Thomson Reuters) (Loose-leaf Service)
Social Security Guide (Version 1.311)
REASONS FOR DECISION
Emeritus Professor P A Fairall, Senior Member
15 September 2023
INTRODUCTION

On 3 August 2022, the Social Services & Child Support Division of the Tribunal (AAT1) affirmed a decision made by an authorised review officer (ARO) of Services Australia (Centrelink) to reduce the Applicant’s age pension from 6 October 2020 (the reviewable decision). Age pension is payable under the Social Security Act 1991 (Cth) (the Act). The Applicant applied to the Administrative Appeals Tribunal (the Tribunal) for review of that decision.[1] The application was heard by videoconference on 16 May 2023. The Applicant was represented by her sister, and Mr T. Chang represented the Respondent.
[1] T2, 6.
In these administrative proceedings, the Applicant seeks to challenge the decision to reduce her age pension from 6 October 2020. This reduction occurred because Centrelink included as income under the income test an undiscounted capital gain triggered by the sale of certain shares. The shares were held in a testamentary trust established under her late mother’s will (the Will). She disclosed the income received in her tax return for the relevant year, with a 50% capital gains discount.
As a result, the Respondent treated the capital gain as income of the trust within the meaning of section 8 of the Act. The Respondent applied Part 3.18 of the Act relating to the attribution of trust income.[2] Part 3.18 requires the trust’s gross ordinary income to be brought into account for social security purposes in applying the income test, without any discounting for capital gains. The relevant income attribution percentage (IAP) rate was fixed by the Respondent at 100% under subparagraph 1207X(2)(e)(i) of the Act. The combination of these factors led to the reduction of the Applicant’s age pension entitlement.
[2] Hoefl and Secretary, Department of Social Services (Social services second review) [2022] AATA 2130, [39] et seq.
At all relevant times the Applicant operated on the footing that in relation to the trust, she was the sole trustee and the sole beneficiary. This view was shared by her sister, who represented her in these proceedings, and by the Respondent.
Following the hearing, the Tribunal raised with the parties the principle that a trust is terminated where one person becomes sole trustee and sole beneficiary.[3] The Tribunal requested any further submissions and evidence the parties wished to file on this point.
[3] HAJ Ford and WA Lee, Principles of the Law of Trusts (Thomson Reuters) (Loose-leaf Service) at Chapter 5, [5.530]. The relevant Chapter is written by Professor Ford. See Snow and Secretary, Department of Social Services (Social services second review) [2022] AATA 365, [28], [36].
In post-hearing submissions filed on 25 August 2023, the Respondent submitted that if the Tribunal were to find that the trust is invalid, it would be appropriate to remit the matter to the Respondent for recalculation of her age pension from the date of claim, 10 August 2018. If the trust is invalid, the income and assets received by the Applicant should be assessed as her personal income and assets.
I am satisfied that the trust as identified in the Will and assessed by the Respondent is invalid, and that the matter should be remitted to the Respondent for reconsideration. I set out my reasons below.
Key provisions of the Will
Paragraph 4.1 provides for the appointment of five named individuals (the testator’s children) as trustees under the Will.
Paragraph 4.2 provides that the trustees shall hold the balance of the estate together with any income on trust.
Paragraph 4.3 provides for division of the estate into one or more equal parts with each part being described as a “Trust Fund”.[4] The Trustees are required to “hold and dispose” of the divided parts as follows – “one part (each part being a “Trust Fund”) shall be held on trust (“Trust”) for each of my children who survive me”.
[4] The use of defined terms in the drafting of the Will is confusing. The term “Trust Fund” is assigned in paragraph 4.2 to the entire estate. Paragraph 4.3 then redefines the term to refer to each part of the estate. It also refers, confusingly, to “my estate referred to in paragraph 4.3. (sic)”. In paragraphs 4.2 and 4.3(a), the words “on trust” are followed by words in parenthesis. In 4.2 the words are “(the “Trust”), in 4.3 the word is simply “(Trust)”. It is not clear what the words in parenthesis add to the meaning of the paragraph, apart from underlining, somewhat repetitiously, that the estate or part thereof is held on trust.
Paragraph 4.3(b) contains a fairly standard per stirpes clause and has no present relevance.
Paragraph 4.4 states:
4.4 In respect of each Trust created under paragraph 4.3 above, my Trustees may from time to time in my Trustee’s absolute discretion... pay all or part of the capital or income of the Trust Fund to any one or more of the following:
(a)the relevant Child or Grandchild (the “Relevant Persons”);
(b)the Relevant persons’ spouse;
(c)any child or children of the Relevant Person (including an adopted or stepchild];
and
(d)any grandchild or grandchildren of the Relevant Person
(together jointly referred to as the “Beneficiaries”) without any obligation to make payment to all or any of such persons or to ensure equality between payments to such persons.
The Respondent described the effect of these provision as follows:
5. … The Will provided for the creation of a trust, that the Trustees shall divide the estate into one or more equal parts (Trust Funds) with each Trust Fund being held on trust by each of the surviving children…
6. The Secretary prefers the view that the Will created 5 separate trusts, consistent with the representations the Applicant made to the ATO, and also notes the statement provided by the Applicant with her application for review at the AAT1 (T22/233) which stated:
“The … Trust deed was set out in …. [the] will dated 8th February 2006. The will stipulated that assets were to be divided into five trusts one for each of [the testator’s] 5 children with the children being the sole trustee of each trust.”
7. The Secretary further notes that under question 24 of the ModPT form (Annexure A) that the Applicant is listed as the only trustee of the Trust.
8. Therefore, the Secretary maintains the position stipulated at 6.30 of the Secretary’s SFIC that the Applicant was the sole trustee of one of 5 Trusts created by the division of the Estate amongst the testator’s surviving children, and this was a valid trust that should be attributed 100% to the Applicant.
In short, the parties agree that the Will creates five distinct trusts and that this was the intention of the testator.
There is a difficulty with this interpretation. If at any point any of the testator’s named children became or becomes the only potential beneficiary, then the trust must instantly cease to exist.[5] Moreover, if the “Relevant Person”[6] did not have a spouse or offspring or stepchildren at the time of the testator’s death, the trust would be invalid from the outset.[7] There can be no trust over property if the person for whose benefit the property is held is also the person who decides unilaterally and free from any fiduciary obligation when to realise or enjoy those assets.
[5] HAJ Ford and WA Lee, Principles of the Law of Trusts (Thomson Reuters) (Loose-leaf Service) at Chapter 5, [5.530]. The relevant Chapter is written by Professor Ford. See Snow and Secretary, Department of Social Services (Social services second review) [2022] AATA 365, [28], [36].
[6] The term “Relevant Person” is used in paragraph 4.4 to mean the relevant child or grandchild.
[7] Snow and Secretary, Department of Social Services (Social services second review) [2022] AATA 365.
The operative part of paragraph 4.3 indicates that each of the children is a Trustee of the entire estate and that they will “hold and dispose of such parts as follows” – one part for each of the children and their spouse, child or grandchild. There is nothing in the Will to indicate that the joint trusteeship is to end as soon as this disposal occurs, still less that each of the original trustees is to continue as a sole trustee of “their” share of the original estate. There is no clear indication that this was the testator’s intention.
There is no express power of appointment of each child as sole trustee of their respective “trust”. Paragraph 4.4 refers to the power to distribute as being vested in “my Trustees …in my Trustees’ absolute discretion”.
But is there a valid trust of the entire estate?
I turn to consider whether the trust of the entire estate can be identified as the relevant trust, thus engaging the attribution principles in Part 3.18 of the Act.
The Applicant gave evidence at the hearing she was the only beneficiary under the terms of the trust between 2017 and 2020.[8] While this may be so, it does not follow that she was the only potential beneficiary, because the trustees (whether acting jointly or individually) had an absolute discretion regarding the distribution of trust assets between a class of specified beneficiaries.
[8] Transcript, 16 May 2023, 14-15.
The Respondent notes that the Applicant declared in the ModPT form[9] that at the relevant date there were eight beneficiaries beside herself, including four grandchildren and four great grandchildren of the testator. The identified individuals clearly fall into the categories of beneficiaries identified in paragraph 4.4 of the Will. No evidence was put to the Tribunal to suggest that the Applicant was the sole surviving member of this group. Indeed, the Applicant’s sister and representative in these proceedings is identified as a beneficiary in the ModPT form.
[9] Annexure A to the Secretary’s SFIC.
I am therefore not satisfied that the Applicant is the sole beneficiary of the Trust established under the Will, despite her evidence that she was the only person who received any payments under the Trust over the period 2017 to 2020.
Although the Will might conceivably be construed to avoid invalidity under the sole trustee-beneficiary doctrine, this would be entirely at odds with the way the Applicant has managed her inheritance. There is no evidence that any of the trustees acted jointly in relation to “their” share of the trust property. Indeed, there is no evidence before the Tribunal as to the nature of the estate, whether it was to be held by the original joint trustees as joint tenants or tenants in common, or whether it was practical to divide it into five distinct parts. There is no specified time frame within which the division should occur.
The Secretary assessed the IAP rate at 100% on the false premise that the Applicant was both sole trustee and sole beneficiary. Because this percentage was not contested at the hearing, the Tribunal did not hear evidence as to the factors relevant to determining the appropriate rate. Moreover, it does not appear from the materials before the Tribunal that this issue was considered by the original decision-maker, the ARO or the AAT1.
According to the Social Security Guide, paragraph 4.12.2.10, where there are multiple stakeholders of a controlled private trust, a decision-maker should attribute the income of the structure to the stakeholders in the percentage determined by the level of control exhibited by the individuals.[10] Assuming for the moment that the testamentary trust was validly constituted with five named trustees, a proper resolution of this matter requires consideration of the decision-making principles contained within the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2017 (Cth) (the Principles).
[10] See Sullivan and Secretary, Department of Social Services (Social services second review) [2022] AATA 2890.
In determining the applicable attribution percentage, a decision-maker must take the Principles into account.[11] The Tribunal did not hear evidence relating to these issues. The matter was not raised before the Tribunal or before any of the previous decision-makers. The case proceeded on the basis that the relevant IAP rate was 100%.[12]
[11] Sullivan and Secretary, Department of Social Services (Social services second review) [2022] AATA 2890, [21]-[32].
[12] See, for example, McDonald and Secretary, Department of Social Services (Social services second review) [2022] AATA 4207, [37] et seq.
I am not persuaded that the Will establishes five distinct trusts, each with a single trustee. Treating the Will as creating one trust with multiple trustees is also problematic, for the reasons given above. Unfortunately, the Will as drafted is replete with errors. These include misnumbering (4.3); non-unique defined terms (4.2 and 4.3(a)); and references to non-existent paragraphs (4.4 referring to 4.8).
The Applicant’s sister provided a submission to the Tribunal dated 1 September 2019 relating to the response of the law firm that handled the estate to the issues raised in these proceedings. According to her statement, the firm conceded that the way the Will was constructed was “unusual and they had not seen that particular wording and that it was not the way they would normally construct a Will for a Testamentary Trust”. The Tribunal is mindful of the fact that other members of the testator’s family have an interest in the validity of the trust or trusts established under her will. It would not be appropriate to make further comment.
Other matters were raised in the hearing, such as whether the capital gain was properly classified as income under section 8 of the Act, and whether the capital gain was correctly calculated. Given that this matter will be remitted for reconsideration by the Respondent, I do not think it necessary to express a view on this matter.[13]
[13] The Respondent relies upon the dissenting judgment of Brennan J (as he then was) in Read v Commonwealth [1988] HCA 26 in relation to the construction of a different statutory definition for an expansive application under section 8. See also Pavkovic and Secretary, Department of Social Services (Social services second review) [2019] AATA 3737, [8]-[18]; Martin; Secretary, Department of Social Services and (Social services second review) [2022] AATA 406, [13] et seq; Stephens-Ryan; Secretary, Department of Social Services and (Social services second review) [2020] AATA 961, [15]-[23].
As noted above, the Respondent submitted that if the Tribunal were to find that the trust was not valid, it would be appropriate to remit the matter to the Respondent for recalculation of her age pension from the date of claim, 10 August 2018. If the trust is invalid, the income and assets received by the Applicant should be assessed as her personal income and assets.
I am satisfied that the trust as assessed is invalid. The Tribunal accepts the Respondent’s submission that under those circumstances the correct and preferable decision is to remit the matter to the Secretary for reconsideration on the basis that the declared capital gain on the sale of shares held by the Applicant is not income from a trust.
However, I am not satisfied that it is appropriate to remit the matter for recalculation of the Applicant’s age pension from the date of claim. The scope of this review is limited to the AAT1 decision to affirm the ARO’s recalculation of age pension from 6 October 2020. Further, as a matter of procedural fairness, the Tribunal did not receive any submissions from the Applicant on this point.
DECISION
The Tribunal sets aside the reviewable decision dated 3 August 2022 by the Social Services & Child Support Division of the Tribunal and remits the matter to the Secretary to recalculate the Applicant’s age pension from 6 October 2020.

I certify that the preceding 32 (thirty-two) paragraphs are a true copy of the reasons for the decision herein of Emeritus Professor P A Fairall, Senior Member

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Associate
Dated: 15 September 2023

Date(s) of hearing: 16 May 2023

Date final submissions received: 1 September 2023

Applicant: In person

Solicitors for the Respondent: Mr T. Chang, Services Australia

Date(s) of hearing:	16 May 2023
Date final submissions received:	1 September 2023
Applicant:	In person
Solicitors for the Respondent:	Mr T. Chang, Services Australia