"WBC" and "WBN" and Secretary, Department of Family and Community Services
[2005] AATA 749
•5 August 2005
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2005] AATA 749
ADMINISTRATIVE APPEALS TRIBUNAL)
) No W2002/249-250,) W2002/421-423,
) W2002/344-345,
) W2002/363
GENERAL ADMINISTRATIVE DIVISION ) Re “WBC” and “WBN” Applicant
And
SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES
Respondent
DECISION
Tribunal Mr M Allen, Member Date5 August 2005
PlacePerth
Decision The decision of the Tribunal is as follows:
(a) The reviewable decisions in proceedings W2002/345, W2002/249 and W2002/363 are affirmed.
(b) All the other reviewable decisions are set aside and the matters are remitted to the respondent for reconsideration in accordance with the following directions:
(i) Mr and Mrs A were home owners for the purpose of asset testing at all times;
(ii) The principal homes of Mr and Mrs A (and the relevant periods of time) are as set out in para 49 of the attached reasons for decision;
(iii) The values of real estate assets for asset testing purposes are as set out in para 67 of the reasons for decision;
(iv) 1000 D Class shares, 1000 E Class shares and 2 preference shares are assets of Mr A at all relevant dates;
(v) 1000 H Class shares are assets of Mrs A until May 2002 but 1000 M Class shares are not assets of Mrs A;
(vi) Shares in the Company prior to 1 January 2002 and the assets of the Company after that date are to be valued according to the net asset backing method;
(vii) The net asset value of the Company at 30 June 1991 to 30 June 2001 is as set out in para 122 of the reasons for decision;
(viii) If a recalculation of Mr A and Mrs A’s entitlement to benefits under the Social Security Act 1991 (“the Act”) reveals an overpayment, then the amounts of such overpayments should be recovered. However, under s 1237AAD of the Act there is to be a waiver of part of the debts, so that the amount of overpayment recovered is no more than it would have been if the amounts borrowed from the Company and Perpetual Trustees Victoria had been deducted from the value of the Wangara land and the Woodvale shop respectively. For the Wangara land the relevant period is 25 October 2000 to 24 June 2001 and for the Woodvale shop the period is 3 August 2001 to 28 June 2002.
.................(sgd M Allen)...........
Member
CATCHWORDS
Social Welfare – social security payments - review of decisions of SSAT to affirm decisions of respondent to suspend and cancel benefits, to attribute assets and to raise and recover debts - applicants have shareholding interests in a family company with a history of dealings in shares thereof – overpayments raised after taking account of value of shares – findings that applicants did not provide information and documents requested by the respondent – consideration of what shares in the family company were owned by the applicants and other members of the extended family – consideration of how assets and shares in the company are to be valued – consideration of real estate assets of the applicants and extent to which some of those assets could be disregarded as their principal home - consideration of whether applicants were homeowners for all or part of the period – consideration of whether the value of some assets should be reduced by the amount of money borrowed to finance the purchase thereof – finding that one applicant should be an attributable stakeholder to the extent of 100% in the assets of the company - conclusion that respondent should now recalculate the entitlements of the applicants in the light of the Tribunal’s decision – consideration of whether on the assumption that the recalculation would show that overpayments had occurred, whether recovery of the overpayments should be waived or deferred – finding that it was not appropriate to waive the debts under s 1237A(1) of the Social Security Act 1991 – appropriate to waive part of the debt under section 1237AAD because of special circumstances relating to the application of a beneficial instruction – other decisions under review set aside and matter remitted for reconsideration in accordance with directions.
Administrative Appeals Tribunal Act 1975 – ss 35, 37, 41, 43
Social Security (Administration) Act 1999 – ss 68, 72,. 81, 192
Social Security Act 1991 – ss 11, 1118, 1121, 1207B, 1207C, 1207N, 1207Q, 1207X, 1209E, 1223, 1237, 1237A, 1237AAD
Re Secretary, Department of Social Security v Hales (1998) 51 ALD 695
Re Beadle and Director General of Social Security (1984) 6 ALD 1
Re Boscolo and Secretary, Department of Social Security (1999) 53 ALD 277
Re Secretary, Department of Family and Community Services and Meyer [2004] AATA 240
REASONS FOR DECISION
5 August 2005 Mr M Allen, Member 1. In these proceedings the applicants (who are husband and wife, and whom I will refer to individually as Mr A and Mrs A) seek review of a number of decisions of the Social Security Appeals Tribunal (“SSAT”) upon review of various decisions made by delegates of the respondent between November 2001 and July 2002. Details of the various decisions made by delegates and the SSAT are set out at paras 5 - 12 below.
2. The hearing of the matter proceeded a number of days. The applicants were represented by Mr A and the respondent was represented initially by Mr Ellis and subsequently by Ms Bradley, both of whom were or are Centrelink officers. Oral evidence was given by Mr A and Mrs A, and on their behalf by Mr A’s son from a previous marriage (whom I will refer to as Mr B) and by one of Mr A’s brothers (whom I will refer to as Mr C). Oral evidence was given on behalf of the respondent by Ms Jacqueline Hearne and Mr Omar Bahemia, both of whom are Complex Assessment Officers with Centrelink.
3. The Tribunal received into evidence the documents filed in all the proceedings pursuant to s 37 of the Administrative Appeals Tribunal Act 1975(“the AAT Act”), details of which are set out in paras 5 - 12 below (“T documents”). The Tribunal also received into evidence Exhibits A1-A47 tendered by the applicant and Exhibits R1-R3 tendered by the respondent.
Background
4. The background to all the matters in contention is that in 1996 Mr A and Mrs A applied for a disability support pension (“DSP”) and parenting allowance (“PA”) – subsequently parenting payments (“PP”) - respectively. Both were granted the benefits and began receiving payment of them. In late 2001 Centrelink began reviewing the position of Mr A and Mrs A in the light of information then at hand and made a series of decisions that are under review in the present proceedings. The following is a summary of all the matters, the reviewable decisions for which I will hereafter refer to as decisions 1 – 8.
Decision 1 – Tribunal proceedings W2002/250 – Applicant: Mrs A
5. On 30 November 2001 a delegate decided that the assets of Mr A and Mrs A exceeded the allowable limit and cancelled Mrs A’s PP for that reason. That decision was affirmed by an Authorised Review Officer (ARO) on 20 March 2002 and on 20 June 2002 the SSAT affirmed the decision, finding that as at 30 November 2001 the value of the Mr and Mrs A’s combined assets was $223,641.00, which exceeded the allowable assets value limit of $200,500.00. The T documents for this matter are referred to as 1T1 – 1T14. Specifically, the SSAT concluded that Mrs A owned a shop in Woodvale (“the Woodvale shop”) valued at $110,000; that the value of a mortgage over Mr and Mrs A’s home could not be deducted from that value; and that the value of shares owned by Mr and Mrs A in a proprietary limited company (which I will refer to as “the Company”) was $133,641 – based on the net assets of the Company on a per share basis as shown in the balance sheet of the Company at 30 June 2000 rather than on Mr A’s estimates of the value of the Company’s assets (1T2).
Decision 2 – Tribunal proceedings W2002/344 – Applicant: Mr A
6. On 6 December 2001 a delegate decided to reduce the rate of DSP payable to Mr A for the same reason as the cancellation of Mrs A’s PP referred to above. On 20 March 2002 an ARO affirmed that decision and determined that the value of the combined assets was $255,526.00. On 20 June 2002 the SSAT varied the decision by finding that the value of the assets was $223,641.00 (for the same reasons as in decision 1) and it was that amount that should be used in calculating Mr A’s rate of DSP as at 6 December 2001. I note that when the SSAT reviewed decisions 6, 7 and 8 in September 2002 it concluded that its decision of June 2002 was incorrect. The T documents for this matter are referred to as 2T1 – 2T66.
Decision 3 – Tribunal proceedings W2002/345 – Applicant: Mr A
7. In December 2001 Centrelink decided to attribute 100% of the assets and income of the Company to Mr A with effect from 1 January 2002 and to pay DSP to him on that basis. The consequence of this was that Mr A’s DSP payments were reduced. The effect of this attribution was that the combined asset total of Mr A and Mrs A was taken to be $313,676.00. The decision was affirmed on 15 May 2002 by an ARO and on 20 June 2002 the SSAT affirmed the decision. The T documents for this matter are referred to as 3T1 -3T19. The SSAT concluded that Mr A had been for several years, and remained, the “informal controller” of the Company (3T2).
Decision 4 – Tribunal proceedings W2002/249 – Applicant: Mr A
8. On 7 May 2002 Centrelink decided to suspend payment of the DSP payable to Mr A because of an alleged failure by Mr A to provide information and documents that had been requested by Centrelink in March 2002. On 3 June an ARO affirmed the decision and on 20 June 2002 the SSAT affirmed the decision. The T documents for this matter are referred to as 4T1 – 4T10.
Decision 5 – Tribunal proceedings W2002/363 – Applicant: Mr A
9. On 10 July 2002 Centrelink decided to cancel Mr A’s DSP payments because he had failed to provide the information previously requested by Centrelink. That decision was affirmed by an ARO on 31 July 2002 and by the SSAT on 17 September 2002. The T documents for this matter are referred to as 5T1 – 5T21.
Decision 6 – Tribunal proceedings W2002/421 – Applicant: Mrs A
10. On 22 May 2002, (amended by an ARO on 5 August 2002), Centrelink decided to raise and recover a debt due by Mrs A of $9643.50 for PA and $21,580.83 for PP in respect of the period from 1 July 1996 to 20 November 2001. On 27 September 2002 the SSAT affirmed that there were recoverable debts due by Mrs A but the amount of the debts was to be recalculated taking account of the changes to the value of Mr and Mrs A’s assets as referred to in decision 8 below. The T documents for this matter, and for decisions 7 and 8, are referred to as 8T1 –8T18.
Decision 7 – Tribunal proceedings W2002/422 – Applicant: Mr A
11. On 22 May 2002, (as amended by an ARO on 5 August 2002), Centrelink decided to raise and recover a debt of $10,582.59 from Mr A in respect of DSP payments made in the period from 25 July 1996 to 23 April 2002. On 27 September 2002 the SSAT affirmed that there was a recoverable debt from Mr A but the amount of the debt was to be recalculated to take account of the changes made to Mr A’s and Mrs A’s assets referred to in decision 8 below.
Decision 8 – Tribunal proceedings W2002/423 – Applicants: Mr A and Mrs A
12. On 22 July 2002 (as amended by an ARO on 5 August 2002), Centrelink decided to value the combined assets of Mr A and Mrs A as set out in a schedule that was attached to the SSAT decision in the matter. At its hearing of the appeals lodged by Mr and Mrs A in relation to decisions 6, 7 and 8 the SSAT took the opportunity to review (see 8T2 at pg 8):
(a)the value of the combined assets of Mr and Mrs A between July 1996 and July 2002;
(b)having regard to those values, whether Mr A or Mrs A had been overpaid DSP, PA or PP in the periods from 27 July 1996 to 23 April 2002 (in case of Mr A) and 1 July 1996 to 20 November 2001 (in the case of Mrs A) – and, if so, by how much;
(c)if any overpayments had occurred, were the amounts debts that could be recovered;
(d)if there were legally recoverable debts, should the recovery of any part of them be waived or written off.
13. A schedule to the SSAT decision (at 8T2 pg 9) set out the assets of Mr and Mrs A at various dates between June 1996 and February 2002 under the hearings:
· Interest in [the Company]
· Land
· Financial
· Other
The SSAT noted that the figures shown as “financial” and “other” assets were not in dispute except that Mr and Mrs A contended that the items set out as “other” had been purchased with funds from the Company (which showed as shareholders funds in the balance sheet of the Company) and, hence, there would be double counting if Mr and Mrs A were taken to have as assets both a portion of the Company’s shareholders funds and the other assets.
14. The SSAT’s principal conclusions were:
(a)Mrs A purchased a property in Koondoola (“the Koondoola property”) for $70,000 in 1994 financed by a mortgage over that property and over a property in York (“the York property”) also owned by Mrs A and which was for some years the family home. No separate allocation of amounts secured over the two properties was made and an amount of $38,616 was paid to the mortgagee when the Koondoola property was sold in April 2004. The SSAT regarded the value of Mrs A interest in the Koondoola property as $31,384 ($70,000 less $38,616) rather than $40,384 over the period of ownership. The balance of the borrowings over the years could not be offset against the value of the Koondoola property because it was not represented by a mortgage over that property.
(b)The amount of the mortgage over the York property could not be offset against the value of the Woodvale shop for the same reason. I note that this is consistent with the decision made by the SSAT in relation to the Woodvale shop in June 2002 (see decision 1 at para 5 above).
(c)1000 M Class shares in the Company were held by Mrs A as trustee for the infant son of Mr and Mrs A, were fully within the control of Mrs A, and should be considered as an asset of hers.
(d)From at least July 1996 until at least 29 November 2001 Mr A owned 3000 C, D and E Class shares and 2 preference shares in the Company. The SSAT concluded that, from 1July 1996 until 6 May 2002, Mr A owned 37.5% of the shares in the Company and Mrs A owned 25% of the shares. From 6 May 2002 Mrs A owned 1002 shares and from 13 June 2002 Mr A owned only 2 preference shares.
(e)Any loans owned by Mr A to the Company could not be regarded as an encumbrance on his shares. However, when valuing Mr A’s shares in the Company allowance should be made for any loans due to the Company by Mr A. On the evidence, however, and in the absence of balance sheets for the company for years after 2000, the SSAT was not prepared to conclude that Mr A had borrowed $85,000 from the Company in October 2000 to fund the purchase of a property in Wangara (“the Wangara property”) secured by an unregistered mortgage over that property – and so no reduction could be made to the value of Mr A’s shareholdings in the Company in relation to such a loan.
(f)The net asset value of the Company at various times between 1 July 1996 and 30 June 1999 was to be determined by the amounts contained in tax returns for those years and in the years thereafter until April 2002 from the amount shown in the balance sheet as at 30 June 2000. Consequently, between 31 August 2000 and 31 December 2001 the value of Mr A and Mrs A’s shares in the Company was $142,080 rather than $131,624.
(g)Mr A has formally and informally controlled the Company for some years and continued to substantially control it after 1 January 2002 – and 100% of the Company’s assets should be attributed to Mr A from 1 January 2002.
(h)Mr and Mrs A had been overpaid, although the precise amounts of the overpaid had to be redetermined in the light of the SSAT’s decisions. These overpayments were debts due by Mr and Mrs A that were recoverable.
(i)Recovery of the debts should not be waived or deferred because there had been no administrative error and no special circumstances could be identified.
15. In addition to the T documents and exhibits referred to above, a number of documents were attached to various documents filed by the parties at various times before and after the hearing. Where appropriate reference will be made to some of those documents.
16. On 24 September 2002 Member Carstairs ordered that, pursuant to s 42(2) of the AAT Act, the decisions of the SSAT made in relation to decisions 1 and 5 should be stayed pending the decision of the Tribunal on the ultimate hearing of the matters or pending further order of the Tribunal – but that the SSAT decisions made in relation to decisions 2, 3 and 4 not be stayed.
17. On 6 June 2003 Deputy President Hotop ordered that, pursuant to s 35(2)(a) of the AAT Act, the hearing in all the proceedings except W2002/345 should take place in private and made directions regarding the persons who could be present. No explanation was provided to me as to why a similar order was not made in relation to proceedings W2002/345, but in fact all eight matters were heard together and in private and, accordingly, in the preparation of these reasons for decision I have not treated proceedings W2002/345 differently.
18. The decisions in dispute all stem from a period in late 2001 and the first half of 2002 when Centrelink was attempting to obtain information from the applicants in anticipation of the commencement of amendments to the Social Security Act 1991 (‘the Act”) dealing with how the income and assets of certain types of trusts and companies should be taken into account in the application of income and assets tests that are relevant to the assessment of eligibility for certain social security benefits. The applicants had not previously informed Centrelink of any connection with the Company and Centrelink had become aware of the existence of the Company, and the involvement of the applicants in it, by matching its data with that of the Australian Securities and Investments Commission (“ASIC”).
19. It can be seen from the summary of the various decisions under review set out above that there is considerable overlap between the issues raised in them. Apart from decisions 4 and 5, they involve consideration of issues such as the nature and valuation of the assets of the applicants, and whether the applicants should be regarded as homeowners for all or part of the relevant period. Decisions 4 and 5 can be conveniently dealt with prior to addressing the other matters.
Decisions 4 and 5
20. Section 192 of the Social Security (Administration) Act 1999 (“the Administration Act”) relevantly empowers the respondent to require a person to give information or produce a document that is in the person’s custody or under the person’s control if the respondent considers that the information or document may be relevant to a number of matters, including questions of whether a person is qualified for a social security payment, and whether such a payment is payable and the rate at which such a payment should be made.
21. Section 68 of the Administration Act relevantly empowers the respondent to give a person to whom a social security payment is being paid a notice that requires the person to inform the respondent of certain information or give statements about matters that might affect the payment of a social security payment. Section 72 of the Administration Act sets out the formal requirements of such a notice.
22. Section 81 of the Administration Act relevantly provides that if a person does not comply with the notice given under s 68 then a social security payment receivable by that person may be cancelled or suspended. Similarly, if a person has a partner and the partner fails to comply with the notice given under s 68 then social security payments otherwise payable to that person may be cancelled or suspended.
23. It was not in dispute in the proceedings that the respondent gave notices to Mr A by letter dated 15 March 2002 (5T4) in which he was advised that information was sought to help the respondent make the right decision about his DSP. He was asked to provide the following:
“Copies of the financial statements and tax returns for [the Company] for each financial year from 1990 to 1998. Copies of your and your wife’s personal tax returns for each year from 1990 to 1999.
24. On 14 April 2002 Mr A queried whether the respondent still required that information (5T5) and he was advised by letter dated 16 April 2002 (5T6) that the information was still provided and the request was repeated in the same terms as set out above.
25. On 24 April 2002 Centrelink received a letter dated 23 April 2002 from a firm of chartered accountants (“the Accountants”) that acted as accountants for the Company but did not attend to the accounting and taxation affairs of Mr A and Mrs A. The accountants advised Centrelink that “at [Mr A’s] request we have forwarded to him the financial statements and income tax returns of [the company] for the years ended 30 June 1994 to 30 June 1999 inclusive. [Mr A] has advised us he will forward these documents and his personal documents to your office together.”
26. By letter dated 30 April 2002 Mr A informed Centrelink that he had “…been given access to and I enclose true copies of taxation returns and financial statements supporting same of [the Company] for 1996, 1997, 1998 and 1999. The company only keeps records for the previous six years plus current records… I have no access to any earlier documents you seek.” The applicant did not enclose personal taxation returns for himself and Mrs A, but nothing turns on that in these proceedings.
27. In fact Mr A provided Centrelink only with the company’s taxation returns and the profit and loss statements. He did not provide copies of the balance sheets showing assets and liabilities for the relevant years, despite receiving them from the Accountants.
28. On 20 June 2002 Mr A gave evidence to the SSAT (in relation to decision 4). The SSAT reasons for decision (4T2) record that Mr A said that:
· when he received the documents from the Accountants he had destroyed those prior to the 1995/96 year as they were over 6 years old;
· “he had not been asked to provide balance sheets”; and
· “he had provided all the documentation produced by the accountants in response to Centrelink’s request.”.
29. Mr A also gave evidence to the SSAT on 28 August 2002 (in relation to Decision 5). The SSAT’s Reasons for Decision in that matter (5T2) record that Mr A “did not accept that the term ‘financial statements’ included balance sheets”. However, Mr A also told the SSAT that at the time he received the records from the Accountants he had been in a stressed personal state and had made “a hasty assessment that the records he had been given were only working copies” and had destroyed them all. The SSAT subsequently sought to clarify with Mr A when he had received the records from the Accountants and when he had destroyed them. Mr A informed the SSAT that he received the records between 24 and 30 April 2002 and destroyed them between 9 and 11 May 2002.
30. The SSAT noted (5T2) an entry in Centrelink’s file relating to Mr A in which a Centrelink officer recorded Mr A as saying “he could not produce the documents again because they were with his son at Jandakot and he would not drive there in his dodgy car”. The SSAT also noted a file note made by a Centrelink officer of a telephone conversation with Mr A on 27 May 2002 in which Mr A was recorded as having said that “he was worried that, if he provided the papers it would reinforce Centrelink’s opinion that he does have control over the company.” The SSAT concluded that Mr A had given various reasons for not producing a complete set of financial statement, that balance sheets were necessarily an integral part of a company’s financial statements, and, accordingly, affirmed the decision under review at that time.
31. During the course of the hearings of the present proceedings Mr A produced the full sets of financial statements that he received from the Accountants in 2002 and offered as an explanation that he must have been mistaken about destroying them at the time - and that he had found them only shortly before in a box that he had not looked at for some time.
32. The applicants have contended that unambiguous requests for information and documents were not made to them and that this was the cause of the failure to comply with the requests. Mr A said that a request for “financial statements” did not include a request for “balance sheets”.
33. The applicants have not contended that the requests made by Centrelink did not comply with the Administration Act and there is no dispute that Mr A received the requests. In the light of the evidence referred to above I am satisfied that Mr A had the requested documents in his custody and control from the last week of April 2002. For reasons best known to himself he chose to destroy the early years requested and to not provide balance sheets, although he did provide other information. In the light of the various other explanations that he gave at the time, I do not accept his explanation that he believed that he had destroyed all the documents. I consider that he made a decision to not to provide an important component of the information requested of him. The information was relevant to Centrelink’s assessment of his eligibility to social security payments and the rate of any such payments. The request for “financial statement” of the Company obviously, in my opinion, included a request for the relevant balance sheets, which are a vital part of any consideration of the value of shares in a company. Decisions made to suspend and cancel the benefits of the applicants in such circumstances were, in my opinion, entirely justified and I affirm the decisions under review, i.e. decisions 4 and 5.
Real Estate Assets
34. In dispute of the proceedings was whether the assets of Mrs and Mrs A for the purposes of applying the assets tests should include various properties that they owned at various times. The issues for determination included whether Mr and Mrs A should be regarded as not being home owners for any periods of time; what were their principal places of residence at various times; and whether it was possible to deduct from the value of certain properties amounts owed by Mr and Mrs A – which they contended were amounts borrowed by them for the purpose of acquiring the assets.
35. The properties referred to in the evidence that are relevant in relation to these issues can be briefly summarised as follows:
· the York property: purchased by Mr A in 1990 and transferred to the name of Mrs A in March 1993. It was for a period of time the family home (although the periods when it was used as such was in dispute) and was sold in December 1999.
· the Koondoola property: purchased by Mrs A in April 1994 and sold in March 2001.
· the Alexander Heights property: purchased by the Company in October 1995 and sold in October 2000. In the contract for purchase the Company was described as purchasing as trustee for Mr and Mrs A.
· the first Edgewater property: purchased by Mr A as trustee for Mrs A in December 1999 and sold in April 2001.
· the second Edgewater property: purchased by Mr A as trustee for Mrs A in May 2001 and sold in September 2001.
· the Woodvale property: purchased by Mr A in September 2001 and continued to be owned by them thereafter.
· the Wangara land: vacant land purchased in October 2000 by Mr A and sold in June 2001.
· the Woodvale shop: purchased by Mrs A in August 2001 and sold in July 2002.
36. The significance of whether or not a person is a home owner derives from the fact that if members of a couple are not home owners then the assets value limit that they may have before loosing entitlement to benefits the subject of the assets test is a greater amount than applies to members of a couple who are home owners.
37. Section 11(4) of the Act deals with determining whether a person who is a member of a couple is a home owner. Section 11(4)(b) relevantly provides that such a person is a home owner if:
“i. the person, or the person’s partner, has a right or interest one residence that is:
(A) the person’s principal home; or
(B) the partner’s principal home; or
(C) the principal home of the both of them; and
ii. the person’s right or interest, or the partner’s right or interest, in the home gives the person or the person’s partner reasonable security of tenure in the home”.
38. Section 11(4)(c) relevantly provides that a person (whether a member of a couple or not) is a home owner if;
“i. the person has sold the principal home not more than 12 months previously; and
ii. the person is likely to apply some or all of the proceeds of the sale in acquiring another residence that is to be the persons principal home”.
39. At issue at the proceedings was whether there were any periods of time in which Mr and Mrs A were not home owners.
40. It is clear from the evidence that at all times Mr and Mrs A owned at least one residential property, although there was a short period of time (a few days) in April / May 2001 when there was a change over from the first Edgewater property to the second Edgewater property. It is clear from the evidence that Mr and Mrs A lived variously at the York property, the Koondoola property, the Alexander Heights property, the first Edgewater property, the second Edgewater property and the Woodvale property. With the exception of the Koondoola property and the Alexander Heights property (which I will refer to below) each of the other properties was (even if the times are in dispute) the principal home of Mr and Mrs A and their the right or interest that one or both of them had in the properties (as registered owner or a person who was contracted to purchase) in the various properties gave them, in my opinion, reasonable security of tenure in those properties. For the reasons referred to below, I have concluded that the Koondoola property was never the principal home of Mr and Mrs A, but that does not affect the issue of whether Mr and Mrs A were home owners.
41. There was dispute as to the periods of time that Mr and Mrs A lived in the Alexander Heights property, and whether or not they had an interest in that property to satisfy the requirements of s 11(4). I have noted above that the property was purchased by the Company as trustee for Mr and Mrs A. Mr A said in his evidence that, at the time the Alexander Heights property was purchased, the intention was the York property would be sold soon after and that the proceeds of sale would be used to pay the Company the amount that it had used to purchase the Alexander Heights property - and at that stage the property would be transferred in to the name of Mr and Mrs A. However, the York property had not sold quickly and that intention had not been able to be put in to effect.
42. In his oral evidence, Mr B agreed that the Alexander Heights property had been purchased at a time when Mr A had told him that he needed to live in Perth for medical reasons and that the Company had agreed to buy the Alexander Heights property as trustee for Mr and Mrs A pending the sale of the York property.
43. In the circumstances I am satisfied that when the Alexander Heights property was purchased either Mr or Mrs A were the beneficial owners thereof (but with an obligation to pay money to the trustee in due course) or there was an agreement between them and the Company that they would be entitled to purchase the Alexander Heights property from the Company upon payment of an agreed price. I am also satisfied from Mr B’s evidence that the understanding at the time was that the Alexander Heights property was purchased with the intention of it being a home for Mr and Mrs A for an indefinite period. Having regard to all that evidence I am satisfied that Mr and Mrs A had a right or interest in the Alexander Heights property and that right or interest gave them reasonable security of tenure in that property for whatever period they chose to live in it.
44. Accordingly, I am satisfied that at all times between 1996 and 2002 Mr and Mrs A should be regarded as home owners for the purposes of the assets test.
45. The next issue to be determined is what were the principal homes of Mr and Mrs A in the relevant period. The significance of this question is that, by virtue of s 1118(1)(b) of the Act the principal home of a person who is a member of a couple is to be disregarded in calculating the value of the person’s assets for the purposes of the Act. It is necessary, therefore, to consider and determine the identity of the principal homes of Mr and Mrs A and the periods concerned.
46. The recollections of Mr A and Mrs A regarding the precise periods they spent at various addresses was by no means clear. There is no doubt that the York property was the principal home at least until April 1994. The Koondoola property was purchased in April 1994 and the intention was to renovate it and sell it at a profit, and to use the proceeds of sale to purchase a restaurant that Mrs A would operate. Thereafter the family adopted a lifestyle of spending some days each week at the Koondoola property (and later at the Alexander Heights property) and some days at the York property. Mrs A said initially in her oral evidence that they lived at the Koondoola property for about a year and a half but her evidence subsequently became confused. What is clear is that as soon as the Alexander Heights property was purchased in November 1995 the family moved to that address and spent increasing periods there until approximately December 1999 when the York property was sold. At that time the arrangement that the proceeds of sale of the York property would be used to pay the Company for the cost of purchasing the Alexander Heights property was reconsidered and in its place a decision was made to use the proceeds of sale from the York property to purchase the first Edgewater property – which was purchased in December 1999 and the family lived in that property until April 2001 when it was sold and they moved to the second Edgewater property, moving from there to the Woodvale property in September 2001.
47. The main area of disputation between the parties concerned whether the York property remained the principal home of Mr and Mrs A during the periods up until December 1999. As I have noted above, the family was spending some time in Perth and some time in the York property.
48. Bearing in mind that on a number of occasions in his evidence Mr A said that his health deteriorated substantially from 1994 and that it was necessary for him to live in the city so as to obtain better medical treatment; and Mrs A’s evidence was that she preferred to live in Perth (but Mr A preferred York); I consider it probable that Mr and Mrs A spent increasing amounts of time away from the York property. However, the respondent has submitted that it would have no objection if the York property was regarded as Mr and Mrs A’s principal home until the date of purchase of the Alexander Heights property. This would mean that the Koondoola property would not be regarded as the principal home at any time. On the evidence I consider the respondent’s view appropriate. I am satisfied that from the time that the Alexander Heights property was purchased Mr and Mrs A and their children spent more time at that address than at the York address and, as noted above, this was likely to have been increasingly important as Mr A’s health deteriorated. I accept that, as is apparent from a medical report that was submitted by Mr A with his closing submissions that relates to his period in hospital in April / May 1996 and his subsequent treatment as an out patient, that he did suffer major health problems in 1996. However, I also accept the evidence of Mr and Mrs A (which the respondent did not really dispute), that during 1997 they spent most time at the York property and that their son attended pre-primary school in York that year. I find, however, that the family returned to the Alexander Heights property at the end of 1997 and remained there as their principal home until they moved to the first Edgewater property in December 1999.
49. In summary, and for the reasons set out above, I consider that the following were the principal homes of Mr and Mrs A:
· the York Street property – until 7 November 1995 and for the whole of 1997.
· Alexander Heights property – from 7 November 1995 until the end of 1996, for the whole of 1998, and 1999 until 12 February 1999.
· the first Edgewater property – from mid December 1999 until 11 April 2001.
· the second Edgewater property – from 11 April 2001 until 3 September 2001.
· the Woodvale property – from 4 September 2001.
50. The value of those properties for those periods of time should be disregarded for the purposes of the application of the assets test.
51. The next issue to be addressed is whether the value of a number of the real estate assets should be reduced by the value of loans that Mr A and Mrs A contended were taken out to fund the purchases of assets.
52. Section 1121(1) of the Act deals with the effect of a charge or encumbrance over assets on the value of the assets for asset testing purposes. If there is a charge or encumbrance over a particular asset of a person, then the value of the asset is to be reduced by the value of the charge or encumbrance. However, that rule does not apply to a charge or encumbrance over an asset to the extent that (as provided for in s 1121(2)):
“(a) the charge or encumbrance is a collateral security: or
(b) the charge or encumbrance was given for the benefit of a person other than the person or the person’s partner.”
53. By virtue of s 1121(3) the rule referred to above does not apply to a charge or encumbrance over assets the value of which is to be disregarded under s 1118.
54. Section 1121(4) relevantly provides that if there is a charge or encumbrance over assets that consist of assets whose value is to be disregarded under s 1118 and other assets, then the amount to be deducted under s 1121(1) is to be calculated in accordance with the formula set out s 1121(4) – the effect of which is that the value of the charge or encumbrance is to be reduced by the proportion that the value of the “other assets” bears to the value of all the assets that are the subject of the charge or encumbrance.
The York property
55. As noted above Mr A owned this property from 1990 and transferred it in to the name of Mrs A in March 1993. At that stage the property was unencumbered.
56. In September 1994 a building society approved an investment loan for Mrs A for the purpose of purchasing the Koondoola property for $70,000, with security to be by way of a registered first mortgage over the Koondoola property and over the York property as collateral security. The York property was sold prior to the Koondoola property and at the time of its sale the building society required $22,544 to be paid to it to release the mortgage over the York property.
57. For the periods that the York property is to be considered the principal home of Mr and Mrs A its value must be disregarded. For the periods when it was not the principal home – i.e. from 7 November 1995 until 31 December 1996 and from 1 January 1998 until its sale on 23 December 1999, its value must be brought to account and because the charge over it was by way of collateral security to secure the loan taken out by Mrs A for the purposes of the purchase of the Koondoola property, and because the value of the Koondoola property was never to be disregarded under s 1118(1) (because it was never the principal home of Mr and Mrs A), the value of the charge over the York property cannot be deducted from the value of the York property. I observe, however, that the respondent has indicated that it is prepared to reduce the value of the York property by the amount that was required by the building society to release that property from the mortgage – the effect of which was to reduce the value of the York property from $55,000 to $32,456 for the period when it was not the principal home. That is a concession that favours the applicants and I would not disturb it.
The Koondoola property
58. This property was purchased for $70,000 by Mrs A as noted above with funds borrowed from the building society. When sold there was an amount of $38,616 owing under the mortgage and it is appropriate to reduce the value of property by that amount. The respondent has done so and, in my opinion, that is the correct treatment.
The Alexander Heights property
59. The respondent has never attempted to include the value of this property within the assets of Mr and Mrs A because it has taken the view that it was not an asset of theirs, even though it was for periods of time their principal home. I regard this as the appropriate treatment for that property.
The two Edgewater properties and the Woodvale property
60. The respondent has not attempted to include the values of these properties as assets of Mr and Mrs A because it regards them as being their principal home of Mr and Mrs A during the periods that they owned these properties and therefore excluded from asset testing purposes.
61. For the reasons that I have set out above I have concluded that Mr and Mrs A were home owners in respect of the periods in which they owned these properties and I agree that the value of them should be disregarded. Accordingly, whatever amounts may have been borrowed for the purchase of these properties and secured over them cannot be deducted from the values.
The Wangara Land
62. According to exhibit A9 this property was purchased by the Company as trustee for Mrs A but Mr A said in his oral evidence that he became the purchaser because Mr B did not want the property to be owned by Mrs A. He also said that when the sale of the Alexander Heights property by the Company was finalised some of the sale proceeds had been used to pay for the Wangara land and that this should be taken to be a loan by the Company to him.
63. There is no documentation in relation to such a loan and nothing to indicate that any such loan was secured by way of a charge or encumbrance over the Wangara land. Nevertheless, I am satisfied that some or all of the purchase price for the Wangara land came from the Company. However, because the loan (if one existed) was not secured by way of charge or encumbrance over the Wangara land no deduction from the value of that property can be made. In this context it was contended by Mr A that the loan by the Company to him was secured by way of a lien that the Company has over all its shares to secure any amounts outstanding by a shareholder to that company. Even if such a contention is correct (about which I express no concluded view – but it appears to be incorrect because the relevant Article of Association of the Company appears to apply to shares that are not fully paid up) it is apparent that any charge or encumbrance in respect of the loan that is said to have been made would have been over the shares in the Company rather than over the asset in question, i.e. the Wangara land. Accordingly, the value of such a loan could not be deducted from the value of that property. Apart from the dispute regarding the deduction of the purported loan, there is no dispute between the parties as to the actual value of the Wangara land.
The Woodvale shop
64. This property was purchased by Mrs A for a price of $110,000 and was sold in July 2002 for $106,000. The respondent has accepted a valuation of $110,000 from the Australian Valuation Office.
65. It is contended on behalf of the applicants that this property was purchased by way of a loan from the Company secured over the Woodvale property because the actual funds for the purchase of the Woodvale shop came from the sale proceeds of the second Edgewater property and the Wangara land – which should otherwise have been paid to the Company.
66. It is apparent from exhibit A13, however, which is the minutes of a meeting of the directors of the Company in December 2001, that Mr A had borrowed money from Perpetual Trustees Victoria, also secured over the Woodvale property, for the purpose of financing the purchase of the Woodvale shop. Although the Woodvale shop was purchased in August 2001 it was not until July 2002 that Mrs A informed the respondent that the Company had registered a mortgage over the Woodvale shop on 28 June 2002 to secure an amount of $75,000 loaned by the Company to her. In all the circumstances I agree with the respondent’s contention that the value of the Woodvale shop between 3 August 2001 and 28 June 2002 should be taken to be $110,000 and that after that date until 17 July 2002 (when the shop was sold for $106,000) the value should be taken to be $31,000 (i.e. the sale price less the amount secured).
67. In summary, I consider that the following values are applicable to the properties in dispute. The York property should be valued at $32,456 for the periods from 7 November 1995 to 31 December 1996 and from 1 January 1998 until 23 December 1999. The Koondoola property should be valued at $31,384 from 1 July 1996 to 11 April 2001; the Wangara land should be valued at $85,000 from 25 October 2000 to 24 June 2001; and the Woodvale shop should be valued at $110,000 from 3 August 2001 to 28 June 2002 and at $31,000 from 28 June 2002 to 17 July 2002.
Ownership of Shares in the Company
68. Much of the evidence in the proceedings, and many of the points in dispute, relate to the extent to which the applicants had, or should be regarded as still having, some interest in the ownership and assets of the Company. The issues are relevant to the question of the applicants’ assets prior to and after 1 January 2002.
69. It was not in dispute that the Company was established by Mr A’s father in 1970 for the purpose of estate planning and for the purpose of benefiting Mr A and his siblings and their children, i.e., the grandchildren of Mr A’s father. At the time of its establishment Mr A’s father held the one A Class share on issue, by virtue of which he was the governing director of the company. At that time Mr A’s mother held one B Class share, and on the death of Mr A’s father in 1986 Mr A’s mother also became the owner of the A Class share and became the governing director of the company.
70. At the time of its establishment in 1970 the following additional shares were issued:
· 1000 C Class shares to Mr A’s brother, Mr C.
· 1000 D Class shares to Mr A.
· 1000 E Class shares to another brother of Mr A, whom I will refer to as Mr D.
· One share in each of the F, G and H Classes were issued to Mr B and two other grandchildren of Mr A’s father.
71. In 1976 allotments of one share in each of the I, J, K and L Classes were made to four other grandchildren of Mr A’s father.
72. What happened in 1991, following the death of Mr A’s mother, and thereafter was a matter of great dispute in the proceedings. According to the Company’s register of shareholders (which was maintained by the Accountants until at least 2000) the following occurred:
(a)In 1991:
· The A Class and B Class shares by Mr A’s mother converted to 5 percent non-cumulative preference shares and were transferred to Mr A.
· The 1000 Class C shares previously held by Mr C were transferred to Mr A pursuant to an agreement dated 18 August 1991.
(b)In 1992:
· The 1000 E Class shares previously held by Mr D were transferred to Mr A. The one Class H share previously held by a child of Mr D was transferred to Mrs A and a further 999 Class H shares were issued to Mrs A.
· 1000 M Class shares were issued to the oldest child of Mr A and Mrs A (who was at that time less than one year old).
· A further 999 shares in each of Classes F, G and L were issued to Mr B and two other children of Mr A respectively, taking their shareholdings to 1000 shares each.
73. When Centrelink commenced its examination of Mr A and Mrs A’s interest in the company, Mr A was shown as the beneficial owner of 1000 shares each in Classes C, D and E and two preference shares, and Mrs A and the son of Mr A and Mrs A held 1000 Class H and M shares each. This position was reflected in many returns made by the Company (signed by Mr A) to ASIC.
74. Mr A contends that the above ownership position does not accurately reflect what happened in 1991 and 1992 because an error was made by the Accountants, who handled share registry matter for the Company, by registering in Mr A’s name the Class C and Class E shares rather than in the name of Mr B – as should have occurred because of the circumstances in which the transfers occurred. Mr A gained control of the Company’s register of shareholdings in 2002 and in 2003 (see para 82 below) made various alterations to the records referred to above to show that Mr B became the registered holder of all the Class C shares in 1991, all the Class E shares in 1992 and all the Class D shares in 1998.
75. The applicant’s evidence was that at the time of his mother’s death in 1991 a dispute arose between he, Mr C and Mr D concerning the terms of his mother’s will and concerning a perceived attempt by Mr D to gain control of the Company. Mr C gave evidence in which he referred to conversations he had had with his father prior to his death in 1986 to the effect that his father wanted control and ownership of the Company to eventually rest with Mr A’s son, Mr B - who was the first and favourite grandchild of Mr A’s father and mother. Mr C said that after his mother died and the dispute referred to above arose he discussed the situation with Mr A and during 1991 signed a transfer of his 1000 C Class shares that was presented to him by Mr A.
76. I pause at this point to note that Mr A and his son, Mr B, bear exactly the same given and family names - although, for some years, Mr A used a different family name but has now reverted to his original family name.
77. The transfer that Mr C signed (exhibit A5) names as the transferee the name that was borne by both Mr A and Mr B. Nevertheless Mr C was definite that the transaction in 1991 was intended by him to be a transfer from him to Mr B. Mr C said that he had no interest or involvement in the company since 1991 and was surprised to learn that his children remained shareholders - because he had understood that they had also ceased to have any interest in the company. Mr B confirmed that the signature of the transferee on exhibit A5 was his. He said in his evidence that he had discussed the situation of the Company with Mr A and Mr C in 1991, but had only a vague recollection of changes to shareholdings at the time. He thought there had been a transfer of shares from Mr C to himself and perhaps from Mr D to Mr C – “… or something like that.” He could not recall exactly what shareholding changes had occurred – but he recalled that the arrangement generally was that he would become a larger shareholder in and a director of the Company and play a major role in its affairs thereafter. He was 29 years of age at the time. Mr A was to be the only other director from that time.
78. Mr A and Mr C both gave evidence of an agreement being reached between the three brothers in February 1992 by way of compromise of the Supreme Court proceedings. Exhibit A 38 is a Deed dated February 1992 made between Mr A, Mr C and Mr D, one of the terms of which is that Mr D would transfer his shares in the company for no consideration to “…. [Mr A] or his nominee, [Mr A] to pay the stamp duty assessed on the transfer.” No similar provision was made in relation to the shares previously held by Mr C, presumably reflecting his prior transfer of them. The Transfer form was signed by Mr B as transferee.
79. Exhibit A4 is a transfer of share form in relation to the 1000 E Class shares held by Mr D in which the name of the transferee is the same name as that borne by Mr A and Mr B. The transfer is again signed by Mr B as transferee.
80. In relation to the Class C shares, Exhibit A3 is a share transfer form in respect of 1000 shares, a class of which is not specified, that purports to date from 3 September 1988 and which describes Mr A by his current name (with the word “senior” added) and also by the name he used for some years as the transferor and Mr B as the transferee. The form is signed by both Mr A and Mr B but no date of signing is specified.
81. Mr A said in evidence that he gifted the shares to Mr B as a birthday present in 1988, but that his mother, as governing director of the Company, had refused to register the transfer and that he had thereafter held the shares “in escrow” for Mr B – by which, I presume, he meant “in trust”. The evidence is inconsistent with Mr A’s statement to Centrelink in April 2002 (2T pg 193) that he sold the shares to Mr C in 1988 for $2000. Mr B said in his evidence that he acquired shares by transfer from Mr A after his grandmother’s death in 1991.
82. Exactly what happened to the transfer forms (Exhibits A3, A4 and A5) in the early 1990s is not clear, but, as I have noted above, Mr A became and remained the registered owner according to the share register of the Company until after Centrelink commenced its examination of the situation. In June 2003 Mr A arranged for the three transfer forms to be stamped for duty on the basis that they were associated with the Deed of Settlement of the Supreme Court action and thereafter the register of the company was amended to record that Mr B became the owner of the 3000 class C, D and E shares previously registered in the name of Mr A.
83. Many aspects of the evidence given by Mr A in these proceedings was longwinded and, at times, confusing. Equally, the documentary material produced to Centrelink over the years and to the Tribunal during the course of the proceedings was often contradictory and difficult to follow. I accept the evidence of Ms Hearne that in a number of telephone conversations she had with Mr A she gained the impression that he was trying to explore possible scenarios regarding share ownership with a view to identifying the most advantageous outcome. In the circumstances the Centrelink officers had, in my opinion, good cause to be suspicious of Mr A’s versions of events, particularly as they changed over time.
84. However, I have had the benefit of the evidence from Mr B and Mr C, which Centrelink did not have. Mr C, in particular, had no financial interest in these proceedings or in the Company. His version of the events that concerned him is independently verified by the Deed of Settlement. The evidence of Mr B and Mr C about the history of the Company and the circumstances in which the shares previously owned by Mr A, Mr C and Mr D became the property of Mr B corroborates the evidence of Mr A. In my opinion the evidence establishes that Mr A’s father always intended that Mr B would be involved in the ownership and operation of the Company.
85. I am satisfied that Mr C intended and expected that his C class shares would be transferred to Mr B in 1991. Without evidence from Mr D it is impossible to know to whom he intended to transfer the E Class shares. My assessment of the evidence concerning the dispute in 1991/92 leads me to a conclusion that Mr D did not know or care who would end up with his shares. Mr B’s evidence on this point is too vague, and Mr A’s evidence has been too contradictory, to enable a conclusion that there was an intention in 1991/92 that Mr B would become the owner of the Class E shares.
86. On the evidence before me I am not prepared to conclude that the registration of the Class C and E shares in Mr A’s name was an error by the Accountants due to confusion over the names shared by Mr A and Mr B. On balance, particularly in the light of how events unfolded over the years and the absence of any action by Mr A to rectify the register of shareholders over the years, I conclude that Mr A took advantage of the situation and chose to treat the 3000 shares (Class C, D and E) as his own because it enabled him to ensure control of the Company remained with him and Mr B. In this regard I consider the issue of additional shares to Mrs A, Mr B, the infant son of Mr and Mrs A, and to the other two children of Mr A in 1992 to reinforce that view.
87. However, on the evidence I am prepared to find that Mr B and Mr C intended that Mr B would become the owner of the 1000 C class shares – and that the failure of Mr A to ensure those shares were transferred to Mr A rather than to himself means that circumstances exist in which Mr A should be regarded as holding those shares a trustee for Mr B.
88. In the circumstances I conclude that the 1000 C class shares in the Company should not be regarded as an asset of Mr A after 1991, but that the Class D and E shares were an asset of Mr A prior to and at 1 January 2002. In my opinion, on the evidence they remain his assets.
89. From 1992 Mrs A held 1000 H Class shares in her own right and 1000 M Class shares were registered in the name of her son. In May 2000 she sold 499 share of the Class H shares to Mr B, and also executed a transfer of 499 M Class shares to Mr B on behalf of her son. The decisions under review in relation to assets are not affected by those disposals. Prior to 1 January 2002 the 1000 H Class shares should be considered an asset of Mrs A.
90. The respondent and the SSAT concluded that the 1000 M Class shares owned by the infant son should also be considered an asset of Mrs A because, it was said, she was a trustee of the shares and in fact exercised full control over them – including making the decision (presumably with Mr A) to sell 499 of them. The respondent contends the existence of the trust relationship – but contends also that the son as a minor is “legally…unable to own or trade in property” (see volume 1 of respondent’s final submissions).
91. There is no principle of law that a minor cannot be the legal or beneficial owner of property. Trusts are frequently created to facilitate an arrangement whereby one person holds legal ownership of property for the benefit of another. I note in relation to the present case that Article 5 of the Company’s Articles of Association (see exhibit A34 at pg 95) authorises the directors to “allot or otherwise dispose of [shares in the Company] to such persons (including a minor or minors) on such terms etc…” and also that a share transfer can be signed on behalf of an infant by a parent of the infant. There is, therefore, in principle, nothing to prevent the infant son of Mr and Mrs A being the legal and beneficial owner of the shares in question.
92. As the authors of Social Security and Family Assistance Law (The Federation Press and Welfare Rights Legal Centre, 2001) observe at p 124:
“It is well established, through a series of Federal Court and Tribunal decisions, that property held by a person as trust is not included in their assets or the purposes of the assets test.”
See also the authorities referred to at p 124.
93. As the authors also note, many of the cases involving trusts concern whether a trust relationship is established on the facts.
94. In the present case Mr and Mrs A’s son was issued the shares and became the registered (i.e. the legal) owner thereof in 1992. That occurred at the same time as other shares were issued to Mrs A and to other children of Mr A. That, and the absence of other evidence that all of those allottees were not to be the beneficial owners as well as the legal owners, leads me to the conclusion that Mr and Mrs A’s son was, from the beginning, both legal and beneficial owner of the 1000 Class M shares. Article 23 of the Company’s Articles of Association provides that an instrument of transfer of shares must be signed “by or on behalf of” a transferor and the fact that Mrs A subsequently signed a transfer on behalf of her son would not, in my opinion, give rise to a trust. However, even if that were to be the case, any interest Mr or Mrs A may have in the shares could only be as a trustee and, as noted above, are not to be regarded as an asset of theirs for that reason.
95. It follows that at no time prior to or after 1 January 2002 were any of the Class M shares an asset of Mr or Mrs A. The circumstances in relation to those shares pursuant to which Mr A may have been able to control them may, of course, be relevant to the issue of what, if any, part of the assets of the Company should be attributed to Mr A after 1 January 2002.
The Attribution of Assets and Income of the Company
96. As foreshadowed above, on 1 January 2002 significant changes were made to the rules pursuant to which the assets of social security recipients in private companies or trusts were to be assessed. These new rules are set out in Part 3.18 of the Act. The purpose of the changes was to better ensure that all of the resources available to a person were taken in to account rather than focussing on the way the person may have structured or held the resources.
97. For the assets or income of a private company to be attributed to an individual, the company must first be a “designated private company”. Section 1207N(a) relevantly provides that a company will be a designated private company if it meets at least two of the specified conditions – namely consolidated gross operating revenue of less than 10 million dollars, consolidated gross assets of less than 5 million dollars, and fewer than 50 employees. I am satisfied that the Company satisfies all three of those requirements and is, accordingly, a designated private company.
98. The next requirement is that the company must be a “controlled private company” in relation to an individual. Section 1207Q(1) relevantly provides that a company is a controlled private company in relation to an individual if the company is a designated private company and the individual passes the control test or the source test. Section 120Q(2) relevantly provides that an individual passes the control test in relation to a company if the aggregate of the direct voting interests in the company of the individual and of any associates of the individual is 50 percent or more.
99. Section 1207C defines who are the associates of an individual and specifies that “a relative of the individual” is an associate. Section 1207B(1) relevantly provides that a relative of a person means any of the spouse or parents of the person. It follows that Mrs A , Mr B and all of Mr A’s children are his relatives and hence his associates. More than 50 percent of the shares in the company are held by Mr A, Mr B, Mrs A, and the children of Mr A and Mrs A, and, accordingly, Mr A will pass the control test in relation to the company. It follows that the Company is a controlled private company in relation to Mr A.
100. The third requirement for the assets or income of a company to be attributed to the individual is that “the individual must be an attributable stakeholder of the company”. Section 1207X(1) relevantly provides that if a company is a controlled private company in relation to the individual then the individual is an attributable stakeholder of the company unless the respondent otherwise determines. The respondent has not so determined in the case of Mr A in relation to the Company.
101. If an individual is an attributable stakeholder of a company then the individuals “asset attribution percentage” and “income attribution percentage” in relation to the company is 100 percent or a lower percentage if the respondent determines a lower percentage in relation to the individual and the company concerned. The respondent has not determined such lower percentages in the case of Mr A. It follows that Mr A’s asset attribution percentage and income attribution percentage in relation to the Company is 100 percent unless the Tribunal, standing in the shoes of the respondent, determines that lower percentages should be applicable.
102. Section 1207X(5) relevantly provides that in making a determination under s 1207X (i.e. whether the person concerned is an attributable stakeholder of a company or whether a percentage lower than 100 should apply in the attribution of assets and income) the respondent “… must comply with any relevant decision making principles”. In exercising it review jurisdiction the Tribunal must equally comply with any such principles.
103. Section 1209E(1) empowers the respondent to formulate decision making principles that must be complied with when making decisions under s 1207X amongst others. Acting in accordance with that power the respondent has made the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000 (“the Principles”).
104. For the purpose of determining whether a person is not an attributable stakeholder of a company the Principles set out a number of matters that must be considered, including the relationship between the individual and the company having regard to the reasons why the individual would otherwise be an attributable stakeholder and the circumstances set out in the Principles. In particular, consideration must be given to whether the effect of one or more of the circumstances specified in the Principles provides a sufficient basis on which to determine that the individual is not an attributable stakeholder of the company. I refer below to the circumstances identified in the Principles.
Circumstances affecting relationship with Company
105. It is not necessary to set out in detail the circumstances specified in sections 7 – 13 of the Principles. In relation to s 7 of the Principles the legal structure of the Company has been referred to above. The administrative arrangements of the Company have not, on the evidence, significantly altered since 1992, even though Mr A resigned as a director of the Company in 2002 and Mr B’s partner (now his wife) was appointed as a director. Mr A has throughout the period been the Company’s secretary and it is abundantly clear from the evidence of Mr B that he has been content, since 1992, to permit Mr A to have the day to day management of the affairs of the company. This has continued since 2002 even though Mr A has been only the Company’s secretary since that time. It was clear from Mr B’s evidence that he knows little or nothing about the actual day to day operations of the company. He was unable to say whether the company has a bank account or who were the signatories to that account. He was not even sure whether Mr A was the Company’s secretary or whether his wife was.
106. Mr B was at pains to say that he has, since 1992, exercised a power of veto over the decisions made on behalf of the company by Mr A, but my assessment of the evidence of Mr A, Mrs A and Mr B is that Mr A has essentially made whatever decisions he wished concerning the affairs of the Company, including decisions about purchasing properties or applying the Company’s funds to contribute to the purchase of properties by Mr or Mrs A. It is apparent from the evidence, in my opinion, that Mr B has in essence allowed Mr A to operate the company without constraint. Mr B expressed some dissatisfaction with the present state of affairs of the Company – in which the only asset of any significance is money owed by Mr A to the Company – and he said that his intention is to wind the Company up but he would not try to do so until the money was repaid by Mr A. No steps have been taken to attempt to recover the money from Mr A and nothing that Mr B said in evidence gave me any reason to believe that he would take any initiative to bring matters to a head. It is my assessment that Mr B was content to leave matters as they are because, although he is unhappy with the way Mr A has managed the affairs, at least Mr A’s young children from his marriage with Mrs A have a home in which to live.
107. Having regard to the above evidence I consider that the relationship between Mr A and the company is such that Mr A has in the past and can reasonable be expected to continue for the time being to exercise effective control the company,
108. Section 8 of the Principles refers to whether the individual has made a contribution to the company, including the value of the contribution, the proportion that its value has added to the total assets of the company, the effect of the contribution on the financial position of the company, and whether the individual received consideration for the contribution. In this regard, the evidence of Mr A and Mr B was that in 1992 when the shareholdings of the company were reorganised and Mr A and Mr B became directors, the assets of the company consisted of shares in listed public companies with a value of approximately $150,000 - $200,000. At that time a decision was made that the shares would be sold and the proceeds used to embark upon property development activities - because Mr A was knowledgeable in that area. Thereafter Mr A embarked upon a number of property transactions, some on his own account and some involving the company, culminating in the transactions referred to above. In that sense, Mr A has made a contribution by way of his time and whatever expertise he may have had in the area of property development. There is no evidence that he has ever contributed capital to the Company or made any other sort of contribution. So far as it was possible to gauge from the uncertain evidence, whatever efforts Mr A has made on behalf of the company were not made for reward – i.e. he was never paid a salary or wages for his time.
109. Section 9 of the Principles deals with whether the individual has received in the past benefits from the company as a result of distributions of capital or income. As noted above, there have been no payments of salary or wages to Mr A and the Company has made no distributions of capital or income in any formal sense.
110. Section 10 of the Principles deals with whether it is reasonably foreseeable that an individual may benefit in future from distributions by the company of capital or income. It is unlikely in the foreseeable future that any distribution of income will be made by the Company and a distribution of capital will only occur if the Company were to be wound up – as Mr B has indicated as is his intention - although the timing of such an event is unspecified. The Articles of Association of the Company, consistent with the objectives of Mr A’s father when he established the Company, permit the directors to realise assets and distribute the proceeds to shareholders and, in so doing, are not obliged to treat all the classes of shares equally. It seems that the Company’s constituent documents were organised in this way from the outset so that the directors could from time to time make specific payments to the individuals who held the various classes of shares. It follows, and Mr B said that he was aware of this possibility, that the existing shareholders of the Company could be treated unequally if the company were ever wound up. This was a matter that he would need to give very careful consideration to having regard to all the obligations that may be due to the various shareholders.
111. The timing of any winding-up, and the amount that might be available for distribution to shareholders if that were to occur, appears on the evidence to be entirely dependent upon the ability of Mr A and Mrs A to repay the amount now due by them to the Company – which is approximately $200,000. Mr B was not prepared to predict how any surplus on winding-up would be distributed and I make no findings about that. It remains the case, however, that on a winding up Mr A may benefit directly by virtue of the Class D and E shares and, indirectly, by virtue of distributions that could be made to Mrs A’s Class H shares and their son’s Class M shares.
112. Section 11 of the Principles requires consideration of any other kind of benefit (other than those previously mentioned) that the individual receives or derives from the assets or income of the Company. In the present case it is apparent that Mr A has, in substance, treated the assets of the Company as his own from the point of view of using funds of the company to fund or part fund the acquisition of assets by Mr A or Mrs A and by having the Company purchase the Alexander Heights property for the benefit of Mr A and Mrs A. The funds advanced for that purchase have been applied for the benefit of Mr and Mrs A since that property was sold and used in the purchase of subsequent houses in the name of Mr and Mr A rather than (as was the case with the Alexander Heights property) in the name of the Company. In the circumstances, it is my view that Mr A has and continues to receive substantial benefits from the relationship with the company – given its role in the ultimate funding of the present property in which the family lives.
113. Section 12 of the Principles requires consideration of whether the individual is an attributable stakeholder of any other company or trust. This is not applicable in the present case.
114. Section 13 of the Principles requires consideration of any other circumstance that affects the involvement of the individual with the activities or the administration of a company. I observe in this context that, in my opinion, Mr A has for all practical purposes treated the Company as his own and, notwithstanding that Mr B was a fellow director and major shareholder, has been permitted to do so by Mr B. Overall, it seems that in 1992 the Company had significant assets that Mr A had played no part in the acquisition of and which could have been utilised for the benefit of the shareholders at that time or subsequently. I am prepared to accept that Mr A and Mr B made the decision in good faith to focus on property development as a way of furthering the Company’s interests – but it is my view that, for the reasons I have referred to above, Mr A has managed the affairs of the Company in such a way that he (and indirectly Mrs A and their children) have been the only persons connected with the Company who have gained any benefit from the Company’s funds. Although, in a formal sense, the applicant’s only role in the Company at the present time is as company secretary, he has been able to exercise effective control of the Company for many years and continues to do so. There is no prospect of any winding up of the company – with any consequential benefit for all or some share holders – until such time as Mr A and Mrs A can organise their affairs to repay the money owed to the Company. In my judgement that is unlikely to occur in the near future. In all the circumstances I am not satisfied that the circumstances of Mr A’s relationship with the Company provides any sufficient basis upon which to determine that he should not be an attributable stakeholder of the Company.
115. The next question that must be considered is whether a determination should be made that Mr A’s asset attribution percentage in relation to the Company should be a percentage lower than 100 percent. In relation to assets, the Principles set out, in ss 15 – 22, considerations that must be taken in to account and which, in essence, are not materially different to those considerations set out in the Principles relevant to the question of whether or not the person should be considered not to be an attributable stakeholder. All of the discussion above regarding that question is equally applicable to the question of whether an attribution percentage lower than 100 should be applied in relation to assets. For the reasons I have given above, it is my view that Mr A and his present family are the only people who have gained any benefit from the assets (and indirectly such income as the Company has had) of the Company and they are the only people likely to so benefit in the near future. At some point in the future the Company may be wound up and at that point Mr B and his present wife will have to determine how to distribute any surplus funds. When that might occur and whether there will be in fact any surplus is largely dependent on Mr A and the out workings of his relationship with Mr B. In all the circumstances of Mr A’s past and present relationship with the Company I do not consider that any sufficient basis has been established on which a determination should be made that a percentage lower than 100 percent should be specified as the asset attribution percentage of Mr A in relation to the Company. I would affirm the decision under review to that effect – ie Decision 3.
The Value of the Company
116. The final issue that must be determined is what is the value of the Company, both before and after 1 January 2002, because that value must be taken into account when calculating the value of Mr and Mrs A’s shares in the Company and the value of the attributed assets.
117. It is apparent that the respondent and the SSAT considered in all the relevant decisions that the value of the Company should be calculated by reference to its net asset backing. The respondent maintained in these proceedings that that was the correct way to approach the value of the Company.
118. Both the applicants and the respondent referred to the Guide to Social Security Law (“the Guide”), a publication of the Department of Family and Community Services to guide the administration of social security legislation, including the Act. Part 4.7 of the Guide deals with the assessment of trusts and private companies for asset testing purposes prior to 1 January 2002. Part 4.7.2.20 relevantly provides that the net asset backing method should be used where no market for shares exists, although it refers to an exception where the shares do not carry rights to participate in capital distribution – in which case some other method of valuing shares may be used. More specifically, Part 4.7.2.20 refers to the net asset backing method being used where the benefit recipients (or their close associates) control the company through special rights or via an outright majority share holding, where the shares entitle the majority shareholders to the equivalent majority of assets and confer equivalent voting rights on the customer, and in several other circumstances. The same part of the Guide sets out that the circumstances in which the net asset backing method may not be appropriate include where the benefit recipient inherited or was given the shares in circumstances where they could not reasonably understand what they were being given, the shares did not in themselves confer control, or the sole or dominant purpose of the recipient being issued with the shares was to comply with requirements of the law regarding minimum share holding numbers.
119. In such situations, if the recipient has no influence over the controller or the majority shareholder, then consideration should be given to whether the recipient is or is not an active director of the company, whether the shares could be taken from the recipient at any time, or the company’s constituent documents prevent the sale of shares at will. If any one of such circumstances exists then alternative valuation methods could be used - including the last sale price that was free of any undue influence or the amount that would be paid or potentially could be paid if the customer’s shares were to be “called away” from him or her. The Guide emphasises that the “guiding principle” is to choose a method of valuation that best reflects the beneficial interest in the assets that the recipient holds as a result of holding the shares at the time the assessment was made.
120. In the present case there are a number of aspects regarding the Company that are relevant to the question of valuation method. These include that any transfer of shares can only occur with the approval of the directors, and that prior to or at the time of winding up of the Company the directors may distribute the Company’s funds to any one or more classes of shares to the exclusion of any other class. The circumstances of the Company have been, since its inception, that the shares have only been held by members of Mr A’s extended family and no arms-length market exists for them. As explained above, the current directors are Mr B and his wife, and Mr A has contended that there can be no expectation that on a winding up Mr B would distribute the funds in any particular way.
121. Notwithstanding those points, in my opinion the net asset backing method of valuing the Company’s shares prior to 1 January 2002 remains the most appropriate valuation method. The applicants and their close associates hold a majority of the issued shares with comparable voting power and control of the board of directors. The net asset backing method best reflects the possible entitlements of the associated shareholders who hold shares other than preference shares. The preference shares that are held by Mr A have no entitlement to participate in any distribution on winding up and for that reason I consider that they should be valued at their par value of $1 each.
122. As noted above, the respondent and the SSAT initially relied upon tax returns provided by Mr A to assess the net assets of the Company – but that Mr A has subsequently provided financial statements for the Company that provide balance sheets for the years ended 30 June 1996 through to 30 June 2001 (exhibits A39 to A43). The net asset position of the Company as shown in the balance sheets in each of these years is as follows:
1996 $277,495
1997 $264,198
1998 $255,373
1999 $231,801
2000 $227,329
2001 $213,300
123. The value of the ordinary classes of shares in the company in the relevant years should be determined (after excluding the preference shares) by dividing those net assets by the number of ordinary shares on issue at the relevant times. The per share amounts so derived should be regarded as assets of Mr A and Mrs A for asset testing purposes for the classes of shares that I have concluded are their assets.
124. For the reasons given above I have affirmed the reviewable decisions 3, 4 and 5. I have also observed that many of the other decisions, and the issues involved in them, overlap. I have arrived at a number of different conclusions regarding the assets of Mr A and Mrs A to those of the respondent and the SSAT. It will now be necessary for the respondent to recalculate the entitlements to Mr A and Mrs A to social security payments since 1996 in the light of the conclusions I have reached. That may or may not result in a conclusion that Mr A and/or Mrs A have been overpaid beyond their entitlements. If the result of the recalculation is that there have been overpayments then, by virtue of s 1223 (1) of the Act any amount that was paid to Mr or Mrs A is a debt due to the Commonwealth. On the assumption that such overpayments will have occurred I must therefore consider whether recovery of any part of such debts should be waived or deferred in accordance with the Act.
Should the Debts be recovered
125. French J observed in Secretary, Department of Social Security v Hales (1998) 51 ALD 695 at 695, 696 as follows:
“From time to time in the administration of social security benefits overpayments occur. Sometimes these are the result of innocent non-compliance with the requirements of the law which can be affected by the stress associated with the circumstances that led to the receipt of benefits in the first place. The taxpayer is entitled to expect that in the ordinary course money paid to people which they are not entitled to receive will be recovered, albeit in a way appropriate to the circumstances which led to the overpayment and the circumstances of the persons concerned. However, the confining of a recovery regime by rigid rules, particularly in this area of the law, is likely to be productive of unfair or harsh outcomes in some of the great variety of fact situations that can arises. There are provisions in the Act which recognise that reality. They relate to the writing off and the waiver of debts otherwise due to the Commonwealth.”
126. Section 1237(1) of the Act grants to the Secretary, and hence to this Tribunal by virtue of s43(1) of the AAT Act, the ability to waive the Commonwealth’s right to recover the whole or part of a debt due from a debtor only in the circumstances described in a number of specified sections of the Act. Two waiver sections are relevant in the current proceeding, namely s1237A and s1237AAD.
127. Section 1237A(1) of the Act provides that (subject to the proviso in s1237A(1A) that is not relevant in the present case) the Secretary “…must waive the right to recover the proportion of a debt that is attributable solely to an administrative error made by the Commonwealth if the debtor received in good faith the payment or payments that gave rise to that proportion of the debt.”
128. Secondly, in certain circumstances a debt may be waived in the exercise of a discretion to do so. Section 1237AAD of the Act is as follows:
1237AAD. The Secretary may waive the right to recover all or part of a debt if the Secretary is satisfied that:
(a)the debt did not result wholly or partly from the debtor or another person knowingly:
(i) making a false statement or false representation; or
(ii) failing or omitting to comply with a provision of this Act or the 1947 Act; and
(b)there are special circumstances (other than financial hardship alone) that make it desirable to waive; and
(c)it is more appropriate to waive than to write off the debt or part of the debt.
129. In relation to the mandatory waiver possibility under s 1237A, Mr A did not specifically contend that this is applicable. He did, however, assert that there has been an administrative error by the respondent in asking ambiguous questions of Mrs A in relation to whether she was a shareholder or a director of a company. It was contended that because Mrs A was not fluent in English, and because at the time the various returns were completed Mr A was very unwell and not really in a position to assist her, it was not surprising that inaccurate responses were given.
130. I do not agree with that contention. The respondent’s forms will often be completed by people who are not fluent in English and who may not have access to advisors who can assist in the completion of forms. Uncertainty about what to put in a form does not, in my opinion, constitute administrative error on the part of the respondent – but even if it were to be regarded as administrative error a fundamental requirement of s 1237A is that the debt must be “attributable solely” to administrative error. The circumstances of this case are, in my opinion, such that it cannot be said in any way that the administrative error referred to by Mr A is the sole cause of the debts arising. I am satisfied, principally because of the way Mr A chose to manage the affairs of the Company and the affairs of the family, that the family’s circumstances have been complicated and the relationship between Mr A and Mrs A and the company obscured. I find that s 1237A is not applicable.
131. In relation to the discretionary waiver possibility under s 1237AAD Mr A contended on behalf of himself and Mrs A that special circumstances did exist that would justify waiving all of the debt. He referred to advice that was said to have been given by the respondent’s staff that investment properties could be purchased and the value ignored if the borrowings used to make the investment were secured over the property; that all rental income from investment properties had been returned accurately to the respondent; the forms completed by Mrs A were ambiguous (the reasons referred to above); the shares in the Company that are taken to be assets could not be realised; the net asset value of the Company should not be used for the valuation of the shares; that the family’s financial position has deteriorated over the years because of the problems with the respondent; that Mrs A had been motivated to establish a business and had lost the opportunity to do so; that Mr A is in poor health and has been for some years; and that the review proceedings in relation to all the reviewable decisions has taken a long time to complete – due in large part because of a delay after the commencement of the hearing when the Centrelink officer handling the matter went on long service leave and subsequently retired.
132. What should be regarded as special circumstances is an issue that confronts this Tribunal regularly. Reference is frequently made, with approval, to the decision of the Tribunal in Re Beadle and Director General of Social Security (1984) 6 ALD 1 at 3, that one should look for circumstances that are unusual, uncommon or exceptional. They need not be unique, but they must have a particular quality of unusualness that permits them to be described as special. In Re Boscolo and Secretary, Department of Social Security (1999) 53 ALD 277 at 281, 282 French J described the core of the requirement as being that there be something unusual or different to take the matter out of the ordinary course, but without requiring that the case be extremely unusual, uncommon or exceptional.
133. In assessing whether circumstances are sufficiently special to make desirable the waiving of a debt that would otherwise be recoverable, regard must be had to the totality of the circumstances rather than focus on each individual item in isolation. In this case I accept the evidence that Mr A has had health problems and is now in receipt of an aged pension. Mrs A has extensive family responsibilities that prevent her from working and she is not fluent in English. I am satisfied that the family is not in comfortable financial circumstances. On the other hand, I have concluded that Mr A treated the Company by regarding its assets as available for his dealings in property (both in relation to the family’s residences and in relation to investment properties) and much of the difficulties are due entirely to his failure to keep the Company’s affairs at arms length from those of the family’s. Inevitably, this has resulted in confusion for the respondent and in no small measure I consider that to be due to Mr A’s attitude towards providing reliable information to the respondent. He has shifted ground on many occasions in his dealings with the respondent and that has, justifiably, resulted in the respondent taking a sceptical attitude to his assertions of fact.
134. In my consideration of the decisions under review for the purpose of determining how the entitlements of Mr A and Mrs A under the Act should be determined I have, necessarily, been obliged to apply the provisions of the Act. That has resulted in the value of some assets being brought to account without the deduction of amounts borrowed even though Mr and Mrs A borrowed money for the purpose of acquiring those assets. I refer specifically to the use of $85,000 of the company’s money for the purchase of the Wangara land and the borrowing from Perpetual Trustees Victoria for the purchase of the Woodvale shop (see para 66 above).
135. Although the Act requires the value of money borrowed for the purchase of an asset to be deducted from the asset only if the amount borrowed is secured as a charge or encumbrance over the asset, the Guide referred to above at 4.6.6.30 states that “if a customer has an unsecured loan and provides evidence that the loan was specifically obtained to purchase the asset, the outstanding amount of the loan is deducted from the value of the asset.” As Senior Member Dwyer noted in re Secretary, Department of Family and Community Services and Meyer [2004] AATA 240 at [67], this interpretation in the Guide is more beneficial than the provisions of the Act. Although the provisions of the Act must be applied when considering whether an overpayment arises, in the circumstances of the exercise of the discretion under s 1237AAD, it would be unusual, uncommon, or exceptional not to apply the policy reflected in the Guide. Accordingly, I consider that, in the exercise of the discretion, it would be appropriate to waive a part of the debt due by Mr A or Mrs A so that the amount of overpayment recovered be not more than it would have been if the section headed “Unsecured Loans” in para 4.6.6.30 of the Guide to Social Security law had been applied to the benefit of Mr A and Mrs A in relation to the amounts borrowed from the Company (for the Wangara land) and Perpetual Trustees Victoria (in relation to the Woodvale shop).
136. On the evidence before me I see no basis upon which the writing off (i.e. deferral) of recovery of the debts would be preferable to a waiver in the manner I have concluded should occur, nor are the circumstances of the matter such as to allow the debts to be written off under s 1236 of the Act.
137. My decision is as follows:
(a)The reviewable decisions in proceedings W2002/345, W2002/249 and W2002/363 are affirmed.
(b)All the other reviewable decisions are set aside and the matters are remitted to the respondent for reconsideration in accordance with the following directions:
(i)Mr and Mrs A were home owners for the purpose of asset testing at all times;
(ii)The principal homes of Mr and Mrs A (and the relevant periods of time) are as set out in para 49 above;
(iii)The values of real estate assets for asset testing purposes are as set out in para 67 above;
(iv)1000 D Class shares, 1000 E Class shares and 2 preference shares are assets of Mr A at all relevant dates;
(v)1000 H Class shares are assets of Mrs A until May 2002 but 1000 M Class shares are not assets of Mrs A;
(vi)Shares in the Company prior to 1 January 2002 and the assets of the Company after that date are to be valued according to the net asset backing method;
(vii)The net asset value of the Company at 30 June 1991 to 30 June 2001 is as set out in para 122 above;
(viii)If a recalculation of Mr A and Mrs A’s entitlement to benefits under the Social Security Act 1991 (“the Act”) reveals an overpayment, then the amounts of such overpayments should be recovered. However, under s 1237AAD of the Act there is to be a waiver of part of the debts, so that the amount of overpayment recovered is no more than it would have been if the amounts borrowed from the Company and Perpetual Trustees Victoria had been deducted from the value of the Wangara land and the Woodvale shop respectively. For the Wangara land the relevant period is 25 October 2000 to 24 June 2001 and for the Woodvale shop the period is 3 August 2001 to 28 June 2002.
I certify that the 137 preceding paragraphs are a true copy of the reasons for the decision herein of Mr M J Allen.
Signed: ..............(sgd J Rainey).............................
AssociateDate/s of Hearing 11 June 2003, 11 February 2004,
18 February 2004, 13-14 May 2004Date of Decision 5 August 2005
Solicitor for the Applicant Self representedSolicitor for the Respondent Ms Rhonda Bradley
Service Recovery Team Centrelink
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