Wall and Secretary, Department of Family and Community Services

[2005] AATA 803

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2005] AATA 803

ADMINISTRATIVE APPEALS TRIBUNAL      )

)               N2004/1324

GENERAL ADMINISTRATIVE  DIVISION		)              N2004/1325                N2004/1326
Re		WARWICK WALL

Applicant

And SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES

Respondent

DECISION

Tribunal Senior Member, Mrs Josephine Kelly

Date22 August 2005

PlaceSydney

Decision

1.    In proceedings N2004/1324, the reviewable decision is set aside and substituted for it is the decision that Mr Wall’s pension not be cancelled.

2.    In proceedings N2004/1325 the reviewable decision is set aside and substituted for it is the decision that Mr Wall had no debts as alleged.

3.    In proceedings N2004/1326 the reviewable decision is set aside and substituted for it is the decision that there was no disposal of assets and Mr Wall was not disentitled from receiving the disability support pension on that basis.   

[sgd] Senior Member, Mrs Josephine Kelly

CATCHWORDS

SOCIAL SECURITY – disability support pension – cancellation of pension – debt incurred – disposal of assets – shares in private pastoral company – pastoral property sold – property major asset of company - company retained to offset tax losses – three subsidiary companies established  – distribution of proceeds of sale to shareholders through subsidiaries – applicant had no involvement with the company once the property was sold - company maintained to benefit applicant’s mother – applicant held legal interest in shares only – beneficial interest in shares held by mother – decisions set aside

CASELAW

Hanrick and Secretary, Department of Family and Community Services [2]]3] AATA 549
Kintominas v Secretary, Department of Social Security (1991) 23 ALD 572
Kidner v Secretary, Department of Social Security (1993) 31 ALD 63
Secretary,Department of Social Security v Agnew [2000] FCA 59 (4 February 2000)

REASONS FOR DECISION

22 August 2005   Senior Member, Mrs Josephine Kelly      

Summary

1.        The family of Mr Warwick Wall (“Mr Wall”) owned a rural property called “Appletrees” which is north-west of Narrabri in New South Wales, from 1863 until it was sold in 1987.  Mr Wall’s father died in 1955, leaving his wife with three young children, Mr Wall, Philip and Helen. Mrs Wall was the sole beneficiary of her husband’s estate and in 1961 a family company called Appletrees Pastoral Company Pty Limited (“the Company”) was formed which purchased “Appletrees”.  Shareholdings were held on behalf of the children by their Aunt and Uncle until each reached majority, which occurred in 1965, 1971 and 1973 respectively. Thereafter the children each held one-third of the shares

2.        The principal questions before me are what happened to the proceeds of sale of “Appletrees” and what if any value Mr Wall’s shares in the Company had from 1994 when he began receiving disability support pension (“DSP”) until it was cancelled in 2001 and a debt of approximately $80,000 was raised in 2001 to 2003, and when his further DSP claim was refused in 2003. He transferred his shares to his mother on 6 March 2003 for no consideration. The Company was liquidated during that year.

3.        For the reasons that follow, I find that from 1988 when Mr Wall received his share of the proceeds of sale of “Appletrees” until he transferred his shares in the Company to his mother in 2003, he held only the legal interest in those shares. Mrs Wall held the beneficial interest. Therefore, they did not have a value for him for the purposes of the social security law. That conclusion means that he has succeeded in each proceeding before me. Each reviewable decision is set aside and another decision is substituted for it as set out below.

Background

4.         Mr Wall was born on 9 August 1944 and is 61 years of age. His health is poor and he received DSP from 17 November 1994 (D1-T4 at p31) until it was cancelled on 15 June 2001 because the value of his assets (the shares) determined by Centrelink was above the allowable limit (Exhibit D1 T16, p 90). The decision followed a data matching exercise with ASIC records. His case is that the shares had no value to him at the relevant dates and that in fact he had no beneficial interest in the Company from early 1988.

5.        There are three reviewable decisions of the Social Security Appeals Tribunal (“SSAT”) before me and the outcome of each depends on the value of Mr Wall’s shares at the relevant date.

Proceedings 

6.        In proceedings N2004/1324 the reviewable decision is that of the SSAT on 28 June 2002 which affirmed the decision of 7 September 2001, an internal review, to cancel disability support pension because of Mr Wall’s assets (“the cancellation decision”). The documents filed pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 (“the T-Documents”) relating to this decision are Exhibit D1.

7.        In proceedings N2004/1325 the reviewable decision is that of the SSAT of 2 July 2003 which affirmed the decisions of 2 July 2001 (debt A) and 5 February 2003 (debt B & C) to raise and recover debts in the following amounts:

Debt A)  $63,034.71 for the period 17 November 1994 to 28 August 2001 for the DSP.

Debt B)  $1,973.30 for the period 28 July 1992 to 2 November 1992 for jobsearch allowance.

Debt C) $15,520.20 for the period 3 November 1992 to 14 November 1994 for sickness allowance.

8.        The T Documents relating to this decision are Exhibit D2. I will refer to this matter as the “debt decision”.

9.        In proceedings N2004/1326 the reviewable decision is that of the SSAT of 1 March 2004 which affirmed the decision of 10 November 2003 to reject a claim for DSP pension because of the alleged disposal of assets when Mr Wall transferred his shares to Mrs Wall in March 2003 (“the disposal of assets decision”). The T-Documents relating to this decision are Exhibit D3.

10.      Exhibit D4 was a set of T documents put together following the issuing of summonses to various legal and financial advisers.

The Issues

11.      The were four issues raised by the parties:

·What was the value of Mr Wall’s shareholding in the Company at the relevant dates?

·Did his assets exceed the asset limit which precludes him from being eligible to claim the DSP?

·Did Mr Warwick Wall “dispose” of assets by transferring his shares in the Company to his mother?

·Should a debt be raised against Mr Wall for the sum of $80,528.51 for the DSP payments that he received while he was not eligible for the DSP?

12.      It was not disputed that the shares Mr Wall held were relevantly “assets” under the social security law. 

Evidence

13.      I heard oral evidence from Phillip, Mrs Wall, and Mrs Jo Crossing, the Company’s accountant for many years and also the accountant for Gerede Holdings Pty Limited and Philip.  Mr Wall was in hospital at the time of the hearing awaiting a heart transplant (Exhibit A1). There were various documents before me that Mr Wall had prepared including Exhibit D1 T45 p 367 to 370 and T46 pp 397 to 399. I advised the parties that if I felt it were necessary for me to hear evidence from Mr Wall, I would adjourn the hearing and attend the hospital. However, having heard the evidence, I decided that I did not need to do so to come to the correct and preferable decision, and neither party objected to that course.

14. I have already referred to the T-documents before me, Exhibits D1-D4. I had the benefit of the Respondent’s Statement of Facts and Contentions (Exhibit R1). In Mr Wall’s case, the following evidence was tendered: a facsimile from Mr Brian Daly, Mr Wall’s representative, which outlined what they considered to be the issues in the case (Exhibit A2), and affidavits from Mrs Wall (Exhibit A3), Mr Phillip Wall, (Exhibit A4) and Mr Daly (Exhibit A5).

Consideration of the Evidence

15.      The Company was formed in 1961 to protect “Appletrees” from the possible impact of death duties that were in force at that time. That is apparent from the letter from Mrs Crossing dated 20 August 2001 (D1 -T37 at p270) and which she repeated in oral evidence, Mrs Wall’s evidence, and from Mr Wall’s statement (Exhibit D1 T45 pp 367). Mrs Wall transferred ownership to her children so that there would be no death duties liability in the event of her death.   

16.      By the end of 1973, when each of Mr Wall, Phillip and Helen had attained their majority, each held 8445 shares. Mr Wall was also a director of the Company (D1-T32 at p229). This share distribution between them remained the same until March 2003. They were all directors of the Company from about the time they attained majority until the Company was deregistered, and Mrs Wall was a director from 20 September 1988 until deregistration (Exhibit D3 T33 p 152). 

17.      “Appletrees” was the Company’s largest asset. Phillip said in evidence that that the property was sold for approximately $5.2 million and after all the loans had been repaid there was $2.2 million for the shareholders. 

18.      The evidence, including oral evidence from Phillip and Mrs Crossing, establishes that when “Appletrees” was sold, three subsidiary companies were established, each of which was owned entirely by the Company (see Exhibit D1, -T45 at p348). The subsidiary companies were Gerede Holdings Pty Limited (“Gerede”), Fontas Holdings Pty Limited (“Fontas”) and Irthing Holdings Pty Limited (“Irthing”).  

19.      Gerede was registered on 3 February 1988 and from late February / early March 1988 the directors were Phillip and his wife Patricia until that company was liquidated in 2003. Philip said Gerede was liquidated at the same time as the Company was. When this subsidiary company structure was established, Philip owned a property, “Athelstone”, which he and his wife still operate.   

20.      Irthing was registered on 3 February 1988 and deregistered on 26 July  1996.  From 1988 until deregistration Mr Wall, Phillip and Helen were the directors (D1 T33 p 242).

21.      Fontas was registered on 3 February 1988 and deregistered on 10 July 1992 (D1 T33 p 246). The directors from late February 1988 until deregistration were Mr Wall, Philip and Helen (D1 T33 p 247).   

22.      The Company owned 1,000,000 $1 shares in each of Gerede and Irthing  (D1 T33 pp 238, 244).  The shares had a premium of 8 cents. There was no ASIC documentation evidence in relation to Fontas, however, I infer from the other evidence, including the Company’s financial records that the shareholding was the same.

23.      There were two reasons to establish the subsidiary structure. One was to retain the losses of $1.6 m held by the Company for tax purposes, including for the benefit of the shareholders, rather than liquidate it. It was necessary for the share ownership in the Company to remain the same to enable the tax losses to be used.  The second reason was to enable the proceeds of sale from “Appletrees” to be distributed to the shareholders tax free without liquidating the Company. All this is clear from the advice given by Peat Marwick Hungerfords in January 1988 (Exhibit D1, T45 pp 348 to 352) (“the tax advice”) and also from Mrs Crossing’s evidence, although she emphasised that the retention of the tax losses was to benefit Mrs Wall for her retirement rather than for the benefit of the shareholders (Exhibit D1–T37 at p 270)..

24.      Relevantly the tax advice states:

“I refer to recent discussions concerning the proposed distribution of capital profits derived by Appletrees Pastoral Co Pty Limited to shareholders prior to the liquidation of the company.

“Our advice has been requested as to the taxation implications of various proposed transactions which have the objective of enabling the distribution of surplus cash, tax free to certain shareholders whilst at the same time leaving the company intact. 

(Three options were discussed later in the advice).

…

“There is really no further use for the company and ideally the company would be liquidated and the capital profit distributed to each of the shareholders in the form of a tax free liquidator’s distribution. This course of action is not necessarily desirable at this point in time since it would involve a forfeiture of the company’s accumulated primary production tax losses. Accordingly, it would be preferred if the cash which is surplus to the requirements of each of the shareholders, could be invested through the company and the income thus sheltered from tax by the accumulated tax losses.”

25.      The advice comments that distribution to individual shareholders in the form of dividends prior to liquidation of the company would be taxable and goes on to discuss the tax implications of the establishment of subsidiary companies in which the Company invested funds and loans being made from those subsidiaries to shareholders of the Company. It concludes relevantly:

“As regards the third alternative, there would appear to be little risk of Section 108 applying since the loan would be out of the share capital of the subsidiary and not out of profits.  The possibility of the general anti-avoidance provisions of Part IVA being applied cannot be overlooked and it would be preferable if sound commercial (i.e. non-taxation) reasons can be established for creating this structure.” (D1-T45 at p 352).

26.      A later document dated 3 March 1988 purports to record the wishes of the Company’s shareholders “concerning group restructure” (Exhibit D1 T45 at p 346).  It notes that the Company has disposed of “Appletrees” creating surplus funds for investment and that the shareholders cannot agree on the Company’s future activities. It records that “PW” (I infer that is Philip) “pointed out the obvious advantages of continuing to farm through the company where they would be in a position to recoup past losses from these activities and from the investment of surplus funds”.  It notes “WW” and “HW”, which I infer refers to Mr Wall and Helen respectively, did not want all of the company funds to be involved in “primary production pursuits.” It was agreed that they should “acquire three wholly owned subsidiary companies to notionally separate business activities.” Each subsidiary would have an equal share in the capital and each shareholder would take responsibility for the management of one company. Philip would conduct primary production operations on “Athelstone” through a subsidiary and “The other shareholders may similarly conduct separate business activities”. There may be an  agreement later to amalgamate the business activities and surplus funds may be lent to the Company for joint investment or to individual shareholders.

27.      On the evidence, despite the directorships and shareholdings, I find that Mr Wall controlled Fontas, Philip and his wife controlled Gerede, and Helen controlled Irthing. Further, I find that neither Fontas nor Irthing ever operated.

28.      Exhibit D1, T45 at p 354 illustrates the group restructure and the division of the profits from the sale of “Appletrees” among Mr Wall, Philip and Helen, and how Mrs Wall benefited. The Company having subscribed $1,080,000 to each of the subsidiaries, loans in the same amount were then made to Helen and Mr Wall from Irthing and Fontas respectively. Mr Wall repaid a debt of $580,000 to the Company and made a gift to Mrs Wall of $100,000. He was left with $400,000 which the document stated was available to carry on business and indicates was loaned back to the Company for investment, however, I find that that was the sum he received from the proceeds of sale and it was not loaned back to the Company. He used those funds to support himself. Philip and Helen also gifted amounts to Mrs Wall so that she received a total of $500,000. 

29.      This conclusion is supported by Philip’s evidence (Exhibit A4):

“After the repayment of substantial bank loans, shareholders loan accounts and creditors, etc., the remaining assets were distributed to shareholders, namely Philip, Helen and Warwick Wall and our mother Irene B Wall. My brother, Warwick, had absolutely no further involvement in Appletrees Pastoral Co., whatsoever.”

30.      Mrs Wall’s evidence supports the first reason for the subsidiary structure.  She stated (Exhibit A3) that when “Appletrees” was sold:

“Discussions were held with the company accountants regarding the future of the company. It was recommended to retain Appletrees Pastoral Company Pty Limited owing to the fact that it had substantial tax losses (as a result of numerous adverse seasonal conditions throughout the seventies) which could be offset against the future income of the directors and shareholders.”

31.      She made similar remarks in oral evidence.

32.      Mrs Wall put $460,000 of the money she received into the Company at the time the subsidiaries were established. The Company owned an apartment at Manly which was transferred into her name without cost. She then got the benefit of the Company’s tax losses against her income from the funds invested in the Company’s name. 

33.      In June 1999 Mrs Crossing wrote to Mrs Wall, Helen and Mr Wall (Exhibit D4 T1). In her letter to Mrs Wall she said that she had met with Philip and Mr Locke, a solicitor, in relation to the Company. She wrote that the first and most important issue was the security of Mrs Wall’s investments as her children “effectively are the beneficial owners of your investments”, and raised the potential problem that if one of them died, the estate would be the beneficial owner of her investments as the shares would be an asset of the estate and dealt with in accordance with the person’s will.  The second “concern” was the increasing difficulties arising from the Taxation Office’s deeming loans from private companies to be dividends. Mrs Crossing stated: “Up until now this issue had not been so important as far as your loan is concerned because the company actually owed money to you, but in the future, as your continue to draw funds this will mean that you owe money to the company in stead” This would result, Mrs Crossing explained, “in the amounts you draw to live on being assessed to the shareholders of the company as a dividend.” Mrs Crossing noted that when “your funds were invested in” the Company, it had large taxation losses which she could utilise to have a tax free income. She continued “There were no real alternative ways of achieving this result. Today there are number of pension and annuity products which would be able to produce the same result.” Mrs Crossing suggested that Mrs Wall consult a financial planner and consider re-investing her funds in her own name in a way to ensure she had sufficient income and security. She recommended that “Helene’s” funds be treated in a similar way, and that the company be liquidated “next year” which would give Mrs Wall the time to consider options and work things out with her financial adviser. Mrs Crossing sent copies of this letter to the three children.

34.        Her letters to “Helena” and Mr Wall summarised her advice to their mother and quoted a cost of liquidating the company.  In the letter to Helen, she said:  “For the same reasons, I would suggest that you also transfer your investments from the company to your own name during the next twelve months”. In her letter to Mr Wall there was no reference to his having investments in the Company.

35.      It is clear from that correspondence and the correspondence from Mr Locke to Philip and his wife around the same time (Exhibit D4, T2) that in 1999 Mrs Crossing was strongly urging the liquidation of the Company and removing the cross-family interests, including in Gerede. The liquidation was postponed because of the cancellation of Mr Wall’s DSP and the issues that have arisen consequently.

36.      Shares in Fontas appear in the Company annual financial reports from 1995 to 2000 as a non-current investment worth $1,080,000 (D1-T20) In oral evidence, Mrs Crossing said that she had written it off as a bad debt of the Company.  That appears from the Financial Statements for the year Ending 30 June 2001 (Exhibit D4, T5 p 20).  She explained that before that she was unaware that it was not trading and when it was discovered, she encouraged it to be written off. 

37.      The evidence is quite clear and the Respondent did not contend to the contrary, that Mr Wall had no active role in the Company after the sale and did not invest in it. The evidence discloses no financial benefit such as income or a tax benefit being received by Mr Wall from the time he received his share of the proceeds of sale of “Appletrees” through the loan from Fontas, to the present. The Company did not operate a business such as a farm after the sale but held assets and liabilities for various members of the family, and Mrs Wall made drawings from it.  

38.      I find that the “loan” funds Mr Wall had the benefit of from Fontas were used in part to settle the financial arrangements with his wife when they were divorced.     Around the beginning of 1988 he paid his former wife $200,000 and invested $50,000 in a trust fund for his children and had an ongoing maintenance payment liability of $40 per week for his daughter until January 1989.  Another $600 lump sum was also paid for maintenance at the beginning of 1988. These payments were made pursuant to a maintenance agreement (Exhibit D4, T21). About that time he moved to Queensland where he set up a trucking business which failed.  I infer that he invested further funds from the monies he had received from the sale of “Appletrees” into that business and/or into a duplex he purchased in Queensland. In 1993 he suffered from angina and in 1994 he suffered a very serious heart attack and had surgery. He has been unable to work since at least 1994. In January 1995 Westpac demanded from Mr Wall $179, 634.73 in relation to a mortgage (Exhibit D4 T22).  The property that was the security was sold but did not satisfy the mortgage (Exhibit A3).  No suggestion was made by the Respondent that Mr Wall has had any significant assets apart from the shares since 1994 and there is no evidence to support such a proposition. I accept the evidence of Mrs Wall and Mr Wall that he has been dependent principally on his mother since his pension was cancelled. Initially he has also received assistance from a family friend (D3 T10 pp 80-102).

39.      The Company’s financial records in evidence from 1995 until its liquidation show that it had considerable net assets which suggests that Mr Wall’s shares did have a value during the period 1994 to 2003. That is also reflected on the share transfer of Mr Wall’s 8445 shares in the Company to Mrs Wall dated 6 March 2003.  Although the consideration was nil, the dutiable amount stamped on it was $686,747 and the duty payable was $4,120.90 (D3 – T35 at p165).

The  Arguments put on behalf of the Parties

40.      Before the SSAT in relation to the cancellation decision, it was submitted on behalf of Mr Wall that he held the shares on trust for Mrs Wall at all times. At the hearing before me it was conceded by Mr Daly, the Applicant’s representative, that there was no trust. However, whether that concession was correct needs to be considered in light of the evidence. Additional evidence relevant to this argument includes a letter that was written by Mr Godfrey Pembroke dated 23 January 2002 (Exhibit D1 T 45 p 356).  Mr Pembroke made the following points:

·He had been Mrs Wall’s Financial Advisor since 1994;

·At a meeting in 1994 with Mrs Wall and her solicitor he had been told that Company assets were solely for the benefit of Mrs Wall and all his advice has been based on that premise;

·.Mrs Wall has been the sole signatory on cheques and investment application forms and the sole recipient of investment distributions and realisations and utiliser of the previously accumulated tax losses;

·He had advised her not to apply for a Centrelink Part Age Pension because all of the Company’s assets belonged to her and she would therefore have no such entitlement; 

·To his knowledge none of “Warren” (sic), Philip or Helen had received any benefit from the Company in the past 8 years (1994-2002);

·He had assisted in the preparation of Mrs Wall’s will and had ongoing attendance to Helen’s financial affairs since 1996 and nothing in his dealings had indicated that Mr Wall had a financial interest in the Company

·.He believes the Company existed solely for the benefit of Mrs Wall and she had sole control.

41.      In the material that was provided on behalf of Mr Wall in relation to the disposal of assets decision prior to the hearing in the SSAT, is a letter from JMA Legal dated 24 October 2002 (D3 – T7 p77). It states:

“The market for shares in a private company is very different to that of shares in a public company. In this case, it is our view that there is no market for your shares in Appletrees and you could not sell them. The shares do not produce any income and they could not be used as security for a loan to provide you with living funds.”

42.      Mr Daly sought to rely on this to establish that the shares had absolutely no value and thus could not be considered an asset for social security purposes. With respect to Mr Daly, I do not accept this argument and I do not accept that evidence.  Although they may not be sold in the market place, that does not mean they have no value.

43.      The Respondent contended that the shares in the Company held by Mr Wall were relevantly his asset and relied on the Company’s Annual Financial Accounts for each financial year found in Exhibit D1 T20 to establish the value. Further, it was contended the those accounts show that the Company had a large amount of assets and as they were provided for tax purposes, the assets cannot be ignored for social security purposes and I ought not go beyond the face of those accounts.     

44.      My role is to determine the value of Mr Wall’s shares in the Company for the purpose of social security law. I am not concerned with Company’s tax position or that of any of its shareholders. I accept that if a complicated structure is established to manage financial affairs in order to take advantage of the legal consequences of those structures, the structure and its consequences cannot be ignored (Hanrick and Secretary, Department of Family and Community Services [2]]3] AATA 549 at paragraph 20.)       

45.      Below is a table prepared by the Respondent summarising the net assets that were listed for the Company for the years 1995 to 2002 and giving a calculation ascribing a value per share and a value for Mr Wall’s shareholding each year.

Net  Assets	Per Share (25,335 issued shares)	Mr Warwick Wall’s share: (8,445 shares)	T DOC Ref
30 June 1995	$2,821,090.00	$111.35	$940,363.33	D1 - T20/98
30 June 1996	$2,879,887.00	$113.67	$959,962.33	D1 - T20/117
30 June 1997	$2,922,587.00	$115.36	$974,195.67	D1 - T20/129
30 June 1998	$2,993,624.00	$118.16	$997,874.67	D1 - T21/179
30 June 1999	$3,040,548.00	$120.01	$1,013,516.00	D1 - T20/139
30 June 2000	$3,074,800.00	$121.37	$1,024,933.33	D1 - T20/170
30 June 2001	$2,061,472.00	$81.37	$687,157.33	D4 – T5/18
30 June 2002	$2,060,416.00	$81.33	$686,805.33	D4 – T9/31

The Liquidation

46.      The Company was liquidated on 21 May 2003 and deregistered on 27 August 2003 (Exhibit D3, at T33). The Respondent relied on a letter from JMA Legal dated 17 July 2003 which sets out the final accounts of the Company prior to liquidation (Exhibit D3 T22 at p127). This document shows:

Receipts

1. Repayment of loan from Irene Blanche Wall       $ 504, 302

2. Repayment of loan from Phillip Thomas Wall      $ 519,652

Total    $1,023,954

Payments

Nil     

Assets Available for Distribution

The following assets are available for distribution:

1. Cash  $1,023,954

2. Investment (Gerede Holdings)  $1,080,000

Total  $2,103,954

Liquidators’s Distribution

It was resolved to make the following distributions to the members on 21 May 2003

1. Irene Blanche Wall  $ 481,240

2. Phillip Thomas Wall  $ 542,714

Total  $1,023,954

It was resolved to make the following distributions in specie of the investment in Gerede Holdings Pty Ltd to the members on 21 May 2003

1. Irene Blanche Wall  $ 507, 581

2. Phillip Thomas Wall  $ 572,419

Total  $1,080,000

It was resolved to distribute the assets of the company to the members from the following accounts:

1. Paid up capital   $ 50,670

2. Accumulated Profits  $(1,017,819)

3. Capital Profits Reserve  $3,071,103

Total  $2,103,954

Having distributed all the assets of the company, IT WAS RESOLVED to finalise the liquidation of the company.

47.      I note that neither Fontas nor Irthing appears in the final accounts.

48.      The Respondent argued that this document shows that the company had assets because when liquidation occurred they were distributed to the then shareholders.  It further argued that while Mr Wall held the shares, they did indeed have the value disclosed in the Company’s accounts.

49.      Mrs Crossing gave oral evidence that no one received any money from the liquidation of the Company. What was described was a circulation of cheques to ensure that all the loans were repaid to the company so that it could be liquidated. Philip and Mrs Wall also gave evidence that they received no money when the liquidation occurred.  I accept that evidence.

Conclusion

50.      Equitable interests are relevant in the administration of the social security law:  Kintominas v Secretary, Department of Social Security (1991) 23 ALD 572 , Kidner v Secretary, Department of Social Security (1993) 31 ALD 63 and Secretary, Department of Social Security v Agnew [2000] FCA 59 (4 February 2000).

51.      In this case, I conclude on the evidence, that following the payment of the proceeds of sale of “Appletrees” to Mr Wall through Fontas in 1988, while he held the legal ownership of his shares, the beneficial interest was held by Mrs Wall. She invested her assets in the Company name and was able to take the benefit of the tax losses. Mr Wall did not. That he had no active role in the Company, received no benefit from his shareholding thereafter, and that his shares were transferred to Mrs Wall for nil consideration, supports that conclusion. I am satisfied that the purpose of the subsidiary structure from Mr Wall’s point of view was to get his share of the Company’s assets and allow his mother to benefit from the Company’s tax position for her retirement. 

52.      As found in Kintominas (at 582), and although in the context of a private company, Mr Wall “sought to retain no rights in and no capacity to dispose of or encumber” the shares without the consent of Mrs Wall. My view is that there was a constructive trust created in favour of Mrs Wall when Mr Wall took his proceeds of the “Appletrees” sale, but however the equitable principle is categorised, the shares were not “property with a value in the applicant’s hands capable of being converted into an assessable basis for reducing” his entitlement to a social security benefit (Kintominas at 582).

53.      Mr Wall’s shares in the Company were not assets, the value of which could be taken into account for the purpose of the assets test under the social security law.  

Decision

54.      In proceedings N2004/1324, the reviewable decision is set aside and substituted for it is the decision that Mr Wall’s pension not be cancelled.

55.      In proceedings N2004/1325 the reviewable decision is set aside and the substituted for it is the decision that Mr Wall had no debts as alleged.

56.      In proceedings N2004/1326 the reviewable decision is set aside and substituted for it is the decision that there was no disposal of assets and Mr Wall was not disentitled from receiving the disability support pension on that basis.   

I certify that the 56 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member, Mrs Josephine Kelly

Signed: Miss Sacha Keady

Associate

Date/s of Hearing  25 July 2005
Date of Decision  22 August 2005
Applicant Representative         Mr B. Daly
Advocate for the Respondent   Mr J. Larcombe
Advocate for the Respondent   Ms H. Schuster