"WBP" and "WBQ" v Secretary, Department of Families, Community Services and Indigenous Affairs
[2007] AATA 34
•22 January 2007
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2007] AATA 34
ADMINISTRATIVE APPEALS TRIBUNAL )
)No W2004/351; W2005/7
) W2006/64
GENERAL ADMINISTRATIVE DIVISION ) Re "WBP" AND "WBQ" Applicants
And
SECRETARY, DEPARTMENT OF FAMILIES, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS
Respondent
DECISION
Tribunal Mr A Sweidan, Senior Member Date22 January 2007
PlacePerth
Decision The Tribunal affirms the decisions under review in each of these matters.
............[Sgd A Sweidan]............
Senior Member
CATCHWORDS
SOCIAL SECURITY – financial hardship rules – disability support pension – parenting payment
LEGISLATION
Social Security Act 1991 s 1129(1), s 500I, s 1131(1), s 11, s 1118(1), s 55, s 44(1), s 80(1)
CASES
WBC and WBN and Secretary, Department of Family and Community Services [2005] AATA 749
Duk Kyong Kang and Secretary, Department of Family and Community Services (2004) 81 ALD 738
Saunders and Department of Family and Community Services [2002] AATA 1256.
Repatriation Commission v Hall (1988) 78 ALR 687
Ragless and Secretary, Department of Family and Community Services [2005] AATA 1299
Clifford Sayer and Donna Sayer and Secretary, Department of Family and Community Services [2003] AATA 891
Loren and Secretary, Department of Family and Community Services [2004] AATA 595
Albert Lawrence Harrison and Eva Lillian Harrison v Repatriation Commission 95 1607 AAT
Repatriation Commissioner v Harrison and another (1997) 956 FCA
REASONS FOR DECISION
22 January 2007 Mr A Sweidan, Senior Member BACKGROUND
1. The applicants referred to as “WBP” and “WBQ” have applied for review of decisions made by the Social Security Appeals Tribunal on 22 September 2004 (application W2004/351), 2 November 2004 (application W2005/7) and 24 February 2006 (application W2006/64).
2. These three applications were heard together, together with another application W2005/6 in which the Tribunal has given a separate decision which will be handed down together with the decisions in these three matters.
3. It is convenient firstly to set out in relation to each of these three matters the relevant parts of the respondent’s Statements of Facts and Contentions which the Tribunal now proceeds to do as follows:
W2004/351
“Decision under review
1.This is an application to the Administrative Appeals Tribunal (AAT) for review of a decision made by a the Social Security Appeals Tribunal (SSAT) on 22 September 2004 to affirm the decisions to refuse the applicant’s claim for consideration under the assets hardship rules.
issue
2.Did the applicant meet the criteria of the “access to financial hardship” rules in section 1129(1) of the Social Security Act 1991 (the Act)?
facts
3.In 1996 the applicant and his wife applied for Disability Support Pension (DSP), Parenting Allowance (PA) and Parenting Allowance (PGA), which was later renamed Parenting Payment (PP).
4.Centrelink granted these payments.
5.In 2001, Centrelink began reviewing their financial position and made a number of decisions reducing, suspending and cancelling these payments.
6.In 2002, Centrelink reinstated DSP payments to the applicant.
7.On 18 May 2003, Centrelink suspended the applicant’s DSP payments for failing to provide information regarding his assets.
8.On 19 October 2003, the applicant turned 65 years of age.
9.On 24 October 2003, he claimed age pension, which was rejected on 19 December 2003.
10.The applicant’s DSP was restored on 31 March 2004 following his lodgement of the required information and arrears were paid.
11.On the same day, Centrelink calculated the applicant’s assets to be more than $212,500.00 and therefore reduced his rate of DSP according to Module G of section 1064 of the Act.
12.The applicant’s DSP was then transferred to an age pension which was paid to him at the same reduced rate as the DSP.
13.On 3 June 2004, the applicant lodged a claim for consideration under hardship form (T20) with Centrelink.
14.On 8 June 2004, a Centrelink officer refused this application.
15.The applicant requested a review of this decision and on 10 June 2004, a Centrelink officer affirmed the decision of 8 June 2004.
16.Following further requests by the applicant for review, on 27 July 2004, a Centrelink Authorised Review Officer (ARO) reviewed and affirmed the decision to reject a claim under the assets hardship provisions.
17.On 4 August 2004, the applicant lodged an application for review with the SSAT.
18.On 22 September 2004, the SSAT also affirmed the decision to reject a claim under the assets hardship provisions.
Joint hearing of other applications
19.The determination of the present application is related to three applications made to the AAT by the applicant.
20.The AAT will hear this application together with the following:
20.1W2005/6, regarding a failure to comply with the respondent’s requests for information;
20.2.W2005/7 regarding the cancellation of the applicant’s wife’s parenting payment; and
20.3W2006/64, regarding a cancellation of age pension due to the assets test.
21.As a result, some of the issues in this matter will depend in part on the AAT’s findings in the joined proceedings.
Related AAT decision
22.In WBC and WBN and Secretary, Department of Family and Community Services [2005] AATA 749 (5 August 2005), the AAT reviewed 8 decisions made by the SSAT in 2002 and 2003 to affirm decisions to reduce, suspend and cancel certain payments to the applicant and his wife.
23.The AAT also determined that the applicant controls Jean Arthur Pty Ltd (the Company) by operation of s 1207C of the Act (WBC and WBN at [115]).
24.The AAT also held that the applicant’s asset attribution percentage and income attribution percentage in relation to the Company is 100 per cent by operation of s 1207X(1) of the Act (WBC and WBN at [99], [101], [106], [107] and [115]).
25.The AAT’s decision about the applicant’s control of the company is paramount to this application.
Legislation and Policy
26.The financial hardship test in s 1129(1) of the Act allows a person to be exempted from the assets test in certain circumstances.
27.It is essentially designed to assist those who are considered to be in financial hardship because of the assets test.
28.Section 1129 provides as follows:
Access to financial hardship rules—pensions
1129(1)If:
(a)either:
(i)a social security pension is not payable to a person because of the application of an assets test; or
(ii)a person’s social security pension rate is determined by the application of an assets test; and
(b)either:
(i)sections 1108 and 1109 (disposal of income) and 1124A, 1125, 1125A, 1126, 1126AA, 1126AB, 1126AC and 1126AD (disposal of assets) do not apply to the person; or
(ii)the Secretary determines that the application of those sections to the person should, for the purposes of this section, be disregarded; and
(c)the person, or the person’s partner, has an unrealisable asset; and
(d)the person lodges with the Department, in a form approved by the Secretary, a request that this section apply to the person; and
(e)the Secretary is satisfied that the person would suffer severe financial hardship if this section did not apply to the person;
the Secretary must determine that this section applies to the person.
29.According to this section, a pensioner with an unrealisable asset whose payment rate is reduced by the asset test may request that s 1129 of the Act apply to him.
30.If the person meets s 1129(1), then the unrealisable asset is excluded from calculating the pension rate pursuant to s 1130(1).
31.Under ss 11(12) and 11(13) of the Act, an unrealisable asset is one that the applicant:
· cannot sell or realise; or
· cannot reasonably be expected to sell or realise;
· and cannot use as a security for borrowing; or
· cannot reasonably be expected to use as a security for borrowing.
32.Further, the decision maker must be satisfied that the person would suffer severe financial hardship if s 1129 did not apply.
33.While severe financial hardship is not defined in the Act in respect of this section, some guidance can be found in the Guide to Social Security Law at 1.1.S.120.
34.The Guide considers someone to be in severe financial hardship when:
otheir total income is LESS than the applicable pension or benefit payment, AND
otheir readily available funds are LESS than:
§$6,000.00 for singles,
§$10,000.00 couples, AND
othey CANNOT reasonably be expected to sell or borrow against assets to improve their financial position.
contentions
35.The issue to be determined by the SSAT was solely whether the applicant satisfied the hardship test under s 1129 of the Act.
36.The SSAT did not err in disregarding the issue of control of the Company pending an AAT decision.
37.The respondent concedes that the applicant meets ss 1129(1)(a), (b), and (d) of the Act for the purposes of the hardship test.
38.However, the respondent contends that the applicant does not meet subsections (c) or (e) and is therefore not eligible for an exclusion of assets in calculating his pension rates.
Unrealisable asset (s 1129(1)(c))
39Given the decision by the AAT that the applicant exercises control over the Company, the assets attributable to him as at the date he lodged his claim for consideration under hardship were $249,794 (T1 p6).
40.The respondent contends that this figure, as determined by the SSAT, is correct.
41.The respondent further contends that the loan by the Company to the applicant in the amount of $189,301.00 (T15 p146) was an asset of the Company and therefore, by virtue of the control test, was an asset of the applicant.
42.The respondent refers the Tribunal to s 1122 of the Act, which states:
“If a person lends an amount after 27 October 1986, the value of the assets of the person for the purposes of this Act includes so much of that amount as remains unpaid but does not include any amount payable by way of interest under the loan.“
43.There are a number of decisions by the AAT which attribute the amount of an unpaid loan towards the assets of a person (Re Duk Kyong Kang and Secretary, Department of Family and Community Services (2004) 81 ALD 738, Re Saunders and Department of Family and Community Services [2002] AATA 1256.
44.The respondent contends that no distinction should be made between amounts outstanding to natural persons and those outstanding to companies.
45.The question then arises as to whether this asset was realisable, ie whether the loan could have been repaid by the applicant.
46.The respondent contends that the loan could have been repaid by the applicant in one of the following ways:
46.1The applicant could have sold his house in Carramar, which he estimated to be worth around $500,000.00 at the time of the SSAT decision (T1 p5). Under corporations law, the Company could enforce such an action to recover its loan, even though the Act exempts the principal residence as an asset;
46.2The applicant appears to have made repayments of the loan between 2001 and 2003, as evidenced by the Company financial statements. On 30 June 2001, his debt to the Company was $204,886.00 (T14 p126) and on 30 June 2003 his debt was only $189,301.00 (T15 p148). The respondent contends that this is clear evidence that the loan can be repaid and that consequently the asset can be realised.
46.3The applicant could also have sold the property at 2532 Great Northern Highway, Bullsbrook, to discharge the mortgage of $45,000.00 to Black Hole Investments and repay part of the loan to the Company.
47.In light of the above, the respondent contends that the Company’s assets should be regarded as readily available funds and not as an unrealisable asset.
48.The respondent further submits that, given the applicant’s deemed control of the company, the loan was fictional, because it was essentially a loan to himself.
49.If a person loans himself money, the loan amount remains in his asset pool. No liability has been incurred and thus no liability can be deducted from assets.
Severe financial hardship
50.Before an asset can be disregarded under the financial hardship provisions, the applicant must show that he will suffer “severe financial hardship” if the asset is not disregarded.
51.“Severe financial hardship” is not defined in the Social Security Act in relation to Part 3.12 and the general provisions relating to the asset test.
52.The Full Court of the Federal Court in Repatriation Commission v Hall (1988) 78 ALR 687 at 694 commented that severe financial hardship does not require ‘proof of destitution’.
53.The respondent contends that the applicant was far from destitute at the time of lodging the application and was not suffering severe financial hardship.
54.The respondent draws the Tribunal’s attention to 1.1.S.120 of the Guide to Social Security Law.
55.In referring to this section of the Guide, the respondent supports the SSAT’s decision that severe financial hardship cannot be applied if the applicant is holding commercial property that can reasonably be sold.
56.The applicant would not have met the third limb of the test in 1.1.S.120, because he could have “reasonably been expected to sell or borrow against assets to improve his financial position.”
57.The respondent contends that the applicant, in his control of the Company, had its assets at his disposal and that section 1129 could not be used in these circumstances to benefit the applicant.
58.The respondent refers the Tribunal to Re Ragless and Secretary, Department of Family and Community Services [2005] AATA 1299. Here, the applicant was held to be the attributable stakeholder of the trust and was not held to be in financial hardship, because the trust held assets which the applicant could use.
Section 1208B deductions
59.The applicant contends that the SSAT failed to determine that section 1208B of the Act allowed for previous tax losses of the Company to be taken into account in assessing the income of the Company.
60.The respondent contends that although prima facie such a deduction would be allowable under the Income Tax Assessment Act 1997 (Cth), the AAT in Re Clifford Sayer and Donna Sayer and Secretary, Department of Family and Community Services [2003] AATA 891 held that previous tax losses were not eligible deductions under 1208B of the Act.
61.The AAT made reference to the Social Security and Veterans’ Entitlements Legislation Amendment (Private Trusts and Private Companies—Integrity of Means Testing) Act 2000. This act set up a system in the Act for the attribution to individuals of the assets and income of private companies and private trusts (sections 1207Y and 1208E ).
62.The AAT in Sayer held at [23] that the intention of Parliament in enacting the above amendments was that such losses would be ineligible deductions.
63.The respondent contends that the same principle applies to this application and that the Company’s previous years’ tax losses are ineligible deductions.
Conclusion
64.The respondent submits that the SSAT’s decision should be affirmed because the applicant did not meet the financial hardship provisions of s 1129(1) of the Act.”
W2005/7
Decision under review
1.This is an application to the Administrative Appeals Tribunal (AAT) for review of a decision of the Social Security Appeals Tribunal (SSAT) dated 2 November 2004 affirming decisions of Centrelink Officers on 30 March 2004 to cancel the Parenting Payment Partnered (PPP) of applicant WBQ, and a decision made on 6 May 2004 that she was not eligible for PPP under the asset hardship test.
issues
2.Should the applicant’s PPP have been cancelled?
3.Was the applicant entitled to PPP under the asset hardship test?
facts
4.In 1996 the applicant and her husband applied for a number of pensions and benefits , including Disability Support Pension (DSP), Parenting Allowance (PA) and Parenting Allowance (PGA), which was later renamed Parenting Payment (PP).
5.Centrelink granted these payments, including Parenting Payment Partnered (PPP) to The applicant.
6.In 2001, Centrelink began reviewing their financial position and made a number of decisions reducing, suspending and cancelling these payments.
7.On 30 March 2004 Centrelink wrote to The applicant advising her that her PPP had been cancelled because the value of her and The applicant’s husband’s assets exceeded the allowable limit.
8.On 6 April 2004 The applicant sought a review of this decision and submitted an application for consideration under the assets hardship rules which was received by Centrelink on 13 April 2004.
9.On 6 May 2004, this claim was reviewed by the Centrelink Officer who made the original decision. The Centrelink Officer affirmed this decision and refused the application under the assets hardship test.
10.On 1 June 2004 the applicant requested the decision be reviewed by a Centrelink Authorised Review Officer (ARO).
11.On 27 July 2004 the ARO affirmed the decision to cancel her PPP and refuse her application under the assets hardship test provisions.
12.The decision was subsequently reviewed by the SSAT
13.On November 2004 the SSAT affirmed the decision under review.
14.The SSAT decision was based on the determination that the assets owned by Mr and The applicant exceeded in total the threshold for payment of PPP of $217,500 on 29 March 2004.
15.Both the respondent and the applicant agree that she was partnered to her husband at the time the original decisions were made. The applicant and her husband state that they have since separated. These new circumstances were considered by Centrelink in a separate claim made by the applicant. As a result the separation is not relevant to the merits review of the original decisions.
…
LEGISLATION AND POLICY
Assets value limit
23.Section 500I of the Social Security Act 1991 (Cth) (the Act) states that parenting payment is not payable if the person’s parenting payment rate would be nil.
24.Section 500Q of the Act provides:
500Q Assets test—payment not payable if assets value limit exceeded
500Q(1)Parenting payment is not payable to a person if the value of the person’s assets exceeds the person’s assets value limit.
500Q(4)For the purposes of subsection (3), if the person is partnered (partner getting neither pension nor benefit):
(a) the value of the person’s assets includes the value of the partner’s assets; and
(b) the value of assets of a particular kind of the person includes the assets of that kind of the partner.
25.At the time of the original decision, the assets value limit for a partnered home-owner was $212,500.00.
Financial Hardship Test
26.The financial hardship test in s 1131(1) of the Act allows a person to be exempted from the assets test in certain circumstances.
27.It is essentially designed to assist those who are considered to be in financial hardship because of the assets test.
28.Section 1131(1) provides as follows:
1131.Access to financial hardship rules–benefits
1131.(1)If:
(a)a social security benefit is not payable to a person because of the application of an assets test; and
(b)the person is not receiving and is not eligible to apply for acceptable alternative Commonwealth income support; and
(c)the person's partner is not receiving and is not eligible to apply for acceptable alternative Commonwealth income support; and
(d)either:
(i)sections 1108 and 1109 (disposal of income) and 1124A, 1125, 1125A, 1126, 1126AA, 1126AB, 1126AC and 1126AD (disposal of assets) do not apply to the person; or
(ii)the Secretary decides that the application of those sections to the person should, for the purposes of this section, be disregarded; and
(e)the person, or the person's partner, has an unrealisable asset; and
(f)the person lodges with the Department, in a form approved by the Secretary, a request that this section apply to the person; and
(g)the Secretary is satisfied that the person would suffer severe financial hardship if this section did not apply to the person;
the Secretary must determine that this section applies to the person.
29.Under ss 11(12) and 11(13) of the Act, an unrealisable asset is one that the person:
· cannot sell or realise; or
· cannot reasonably be expected to sell or realise;
· and cannot use as a security for borrowing; or
· cannot reasonably be expected to use as a security for borrowing.
30.Further, the decision maker must be satisfied that the person would suffer severe financial hardship if s 1129 did not apply.
31.While severe financial hardship is not defined in the Act in respect of this section, some guidance can be found in the Guide to Social Security Law at 1.1.S.120.
32.The Guide considers someone to be in severe financial hardship when:
·their total income is LESS than the applicable pension or benefit payment, AND
·their readily available funds are LESS than:
· $6,000.00 for singles,
· $10,000.00 couples, AND
·they CANNOT reasonably be expected to sell or borrow against assets to improve their financial position.
CONTENTIONS
Cancellation of PPP
33.The applicant does not dispute that she was partnered with her husband on 30 March 2004.
34.The respondent contends that the applicant’s assets included the value of her husband’s assets on 30 March 2004 by virtue of s 500Q(4) of the Act.
35.The threshold amount set out in s 500Q(3) of the Act relevant to The applicant was $212,500.00
36.The respondent contends that the applicant’s assets (partnered) exceeded in total this threshold on 30 March 2004.
37.The respondent contends that the applicant and her husband’s assets included, amongst other things, 100% of the value of assets of the Company for the purposes of Part 3.18 of the SSA based on the decision of the AAT that her husband had a 100% controlling interest in the company.
38.The respondent submits that the SSAT has correctly determined the net value of the Company.
39.The statement prepared by Page Kirk and Jennings showed the Company’s net assets to be $259,794 for the 2003/04 financial year.
40.The respondent supports the SSAT’s preference for the financial statements prepared by Page Kirk and Jennings Chartered Accountants, being an independent third party, as an accurate reflection of the financial position of the company.
41.The issues relating to the value and ownership of the Company and the other assets attributable to The applicant will largely be dealt with in the 3 other proceedings joined by The applicant’s husband to the present application, most notably W2004/351.
Assets Hardship Test
42.The respondent further contends the SSAT was correct in affirming the decision made on 6 May 2004 that the applicant did not satisfy the assets hardship test for payment of a parenting payment (partnered) provided for by s 1131(1) of the Act.
43.The respondent contends the assets were not “unrealisable assets” within the meaning of s 11(12) of the Act. The applicant and her husband’s assets were readily realisable and were being retained as financial investments.
44.The respondent supports the decision by the SSAT that the applicant had realisable assets, (including commercial properties) that could be used by her as security for borrowing. Further, the SSAT was correct in concluding there were other courses of action available to the applicant which were reasonable for her to undertake in order to attempt to remedy her financial situation.
45.For these reasons the respondent submits the applicant did not satisfy the asset hardship test therefore disallowing her from being exempted from the asset test provisions in the Act.
Unrealisable asset (s 1131(1)(e))
46.Given the decision by this Tribunal that the applicant’s husband exercised control over the Company, the assets attributable to him as at the date he lodged his claim for consideration under hardship were $249,794.00 (T7 p75), being $259,794.00 minus a gift to himself of $10,000.00.
47.The respondent contends that this figure, as determined by the SSAT, is correct subject to the gift, which the respondent contends was not properly authorised by the company.
48.The respondent further contends that the loan by the Company to The applicant’s husband in the amount of $189,301.00 (T51 p204) was an asset of the Company and therefore, by virtue of the control test, was an asset of The applicant’s husband.
49.The respondent refers the Tribunal to s 1122 of the Act, which states:
“If a person lends an amount after 27 October 1986, the value of the assets of the person for the purposes of this Act includes so much of that amount as remains unpaid but does not include any amount payable by way of interest under the loan.”
50.There are a number of decisions by this Tribunal which attribute the amount of an unpaid loan towards the assets of a person (Re Duk Kyong Kang and Secretary, Department of Family and Community Services (2004) 81 ALD 738, Re Saunders and Department of Family and Community Services [2002] AATA 1256.
51.The respondent contends that no distinction should be made between amounts outstanding to natural persons and those outstanding to companies.
52.The question then arises as to whether this asset was realisable, ie whether the loan could have been repaid by the applicant’s husband.
53.The respondent contends that the loan could have been repaid by The applicant’s husband in one of the following ways:
53.1The applicant and her husband could have sold his house in Carramar, which he estimated to be worth around $500,000.00 at the time of the SSAT decision in W2004/351. Under corporations law, the Company could enforce such an action to recover its loan, even though the Social Security Act exempts the principal residence as an asset;
53.2The applicant’s husband appears to have made repayments of the loan between 2001 and 2003, as evidenced by the Company financial statements. On 30 June 2001, his debt to the Company was $204,886.00 (see W2004/351 T14 p126) and on 30 June 2003 his debt was only $189,301.00 (T51 p204). The respondent contends that this is clear evidence that the loan can be repaid and that consequently the asset can be realised.
53.3The applicant’s husband could also have sold the property at 2532 Great Northern Highway, Bullsbrook, to discharge the mortgage of $45,000.00 to Black Hole Investments and repay part of the loan to the Company.
54.In light of the above, the respondent contends that the Company’s assets should be regarded as readily available funds and not as an unrealisable asset.
55.The respondent further submits that, given The applicant’s husband’s deemed control of the company, the loan was fictional, because it was essentially a loan to himself.
56.If a person loans himself money, the loan amount remains in his asset pool. No liability has been incurred and thus no liability can be deducted from assets.
Severe financial hardship (1131 (1) (g))
57.Before an asset can be disregarded under the financial hardship provisions, The applicant must show that she would suffer “severe financial hardship” if the asset was not disregarded.
58.“Severe financial hardship” is not defined in the Social Security Act in relation to Part 3.12 and the general provisions relating to the asset test.
59.The Full Court in Repatriation Commission v Hall (1988) 78 ALR 687 at 694 commented that severe financial hardship does not require ‘proof of destitution’.
60.The respondent contends that The applicant was not destitute at the time of lodging the application and was not suffering severe financial hardship.
61.The respondent supports the SSAT’s decision that severe financial hardship cannot be applied if Mr and The applicant were holding commercial property that can reasonably be sold.
62.The respondent contends that The applicant’s husband, in his control of the Company, had its assets at his disposal and that s1129 could not be used in these circumstances to benefit The applicant’s husband.
63.The respondent refers the Tribunal to Re Ragless and Secretary, Department of Family and Community Services [2005] AATA 1299. Here, the applicant’s husband was held to be the attributable stakeholder of the trust and was not held to be in financial hardship, because the trust held assets which The applicant’s husband could use.
Section 1208B deductions
64.The applicant contends that the SSAT failed to determine that s 1208B of the Act allowed for previous tax losses of the Company to be taken into account in assessing the income of the Company.
65.The respondent contends that although prima facie such a deduction would be allowable under the Income Tax Assessment Act 1997 and thus permissible under s 1208B(1)(c), the case of Re Clifford Sayer and Donna Sayer and Secretary, Department of Family and Community Services [2003] AATA 891 clearly provides that this is not the case.
66.The AAT in Sayer held that previous tax losses were not eligible deductions under 1208B of the Act.
67.The AAT made reference to the Social Security and Veterans’ Entitlements Legislation Amendment (Private Trusts and Private Companies—Integrity of Means Testing) Act 2000. This act set up a system in the Social Security Act for the attribution to individuals of the assets and income of private companies and private trusts (sections 1207Y and 1208E ).
68.The AAT held at [23] that the intention of Parliament in enacting the above amendments was that such losses would be ineligible deductions.
69.The respondent contends that the same principle applies to this application and that the Company’s previous years’ tax losses are ineligible deductions.
W2006/64
“Decision under review
1.This is an application to the Administrative Appeals Tribunal (AAT) for review of a decision made by the Social Security Appeals Tribunal (SSAT) on 24 February 2006 to affirm the decision to cancel the applicant’s age pension.
issues
2.Did the SSAT correctly determine the value of the applicant’s assets?
3.Should the applicant’s age pension have been cancelled?
facts
4.In 1996 the applicant and his wife applied for Disability Support Pension (DSP), Parenting Allowance (PA) and Parenting Allowance (PGA), which was later renamed Parenting Payment (PP).
5.Centrelink granted these payments.
6.In 2004, Centrelink made a number of decisions reducing, suspending and cancelling these payments.
7.In mid-2005, the applicant was again receiving an age pension.
8.In May 2005, a Centrelink Officer wrote to the applicant and assessed his income to be $343,891.00.
9.On 13 June 2005, a Centrelink Officer reviewed the applicant’s assets and decided that they exceeded the limit at which age pension was payable. The Officer’s calculation of the applicant’s assets included a property at 10 Greenhaven Glade, Carramar, formerly the matrimonial home of the applicant.
10.The Centrelink Officer cancelled payment of the applicant’s age pension on the same day and notified the applicant of this decision.
11.On 17 June 2005, the applicant contacted Centrelink to request a list of assets which Centrelink used to cancel his age pension.
12.On 21 June 2005, a Centrelink Officer sent an asset summary to the applicant, advising him that his assets had been calculated at $470,487.00.
13.On 13 July 2005, the applicant wrote to Centrelink, stating that his Carramar residence should be exempt and that the value of other assets should be reduced.
14.On 18 July 2005 a Centrelink Officer wrote to the applicant requesting further information and advised him that he would treat his letter dated 13 July 2005 as a request for review.
15.On 26 July 2005 the applicant telephoned Centrelink to advise that he would not respond to the request dated 18 July 2005.
16.On 26 July 2005 another Centrelink Officer wrote to the applicant requesting much the same information as in the letter dated 18 July 2005.
17.On 5 September another Centrelink Officer wrote to the applicant regarding his pending AAT appeals and repeated the requests for further information.
18.On 27 September a Centrelink Officer affirmed the original decision to cancel the age pension, given that no further information had been provided by the applicant.
19.The applicant requested a review of this decision and on 13 January 2006, an Authorised Review Officer (ARO) set aside the decision of the Centrelink Officer and directed that the assets be recalculated without taking into account the Carramar property.
20.The ARO held that the Carramar property met the definition of “principal home” and was thus exempt from the assets test.
21.However, even in light of the ARO’s direction, a recalculation of the applicant’s assets still amounted to more than the assets limit, which, at 13 June 2005, was $313,750.00 (T2 p12).
22.On 31 January 2006, a Centrelink Officer recalculated the applicant’s assets and found them to be $342,387.00. The original cancellation decision was thus still in force.
23.The applicant appealed the original decision to cancel his age pension to the SSAT.
24.On 24 February 2006, the SSAT affirmed the original decision and valued the applicant’s assets at $397,941.38 (T2 p12).
Joint hearing of other applications
25.The determination of the present application is related to three applications made to the AAT by the applicant and his wife.
26.The AAT will hear this application together with the following:
26.1W2004/351, dealing with an application under the assets hardship test;
26.2W2005/6, dealing with a failure to comply with the respondent’s requests for information; and
26.3W2005/7 dealing with the cancellation of the applicant’ wife’s parenting payment;
27.As a result, some of the issues in this matter will depend in part on the Tribunal’s findings in the joined proceedings.
Related AAT decision
28.In WBC and WBN and Secretary, Department of Family and Community Services [2005] AATA 749 (5 August 2005), the AAT reviewed 8 decisions made by the SSAT in 2002 and 2003 to affirm decisions to reduce, suspend and cancel certain payments to the applicant and his wife.
29.The AAT also determined that the applicant controls Jean Arthur Pty Ltd (the Company) by operation of s1207C of the Act (WBC and WBN at [115]).
30.The AAT also held that the applicant’s asset attribution percentage and income attribution percentage in relation to the Company was 100 per cent by operation of s 1207X(1) of the Act (WBC and WBN at [99], [101], [106], [107] and [115]).
31.The AAT’s decision about the applicant’s control of the company is paramount to this application.
Legislation and policy
32.Section 11 of the Social Security Act 1991 (the Act) sets out the assets test definitions.
33.Section 1118(1) of the Act provides that the principal place of residence is an exempt asset.
34.Section 55 of the Act sets out that the rate of age pension be calculated in accordance with the rate calculator in section 1064 of the Act.
35.Under s 44(1) of the Act, an age pension is not payable to a person if the person's age pension rate would be nil.
36.Under s 80(1) of the Social Security Administration Act 1998 (the Administration Act), a benefit may be cancelled if it is not payable.
Contentions
37.The respondent contends that the SSAT correctly assessed the value of the applicant’s assets and correctly affirmed the cancellation of the applicant’s pension payments.
38.While s 80 of the Administration Act grants a discretion to the respondent to cancel or suspend a pension in particular circumstances, there is no obligation to necessarily adopt suspension in lieu of cancellation (Re Loren and Secretary, Department of Family and Community Services, [2004] AATA 595).
39.The respondent draws the Tribunal’s attention to the fact that the applicant has a history of providing minimal or no evidence to support his claims.
40.The respondent contends that the SSAT was correct in not being satisfied that the applicant’s handwritten company ledgers were reliable to ascertain the Company’s financial position.
41.In the absence of accurate and reliable information about the applicant’s assets, Centrelink and the SSAT had to make decisions based on the most recent information available to them.
Transfer of loan
42.The Company owed the applicant’s son, (who has the same names as the applicant) a sum of $56,238.00. The applicant explained in a letter to Centrelink dated 13 July 2005 that essentially the loan was to be transferred to himself so that he would have to pay it off (T14 p67) in lieu of the Company.
43.This implies the applicant’s son to have forgiven the debt to the company and becoming the applicant’s creditor.
44.The effect of this was that the $56,238.00 was deleted as a liability of the Company, hence increasing the Company’s assets by that amount.
45.The respondent contends that in light of the above, the SSAT’s calculation of the Company’s assets at T2 p10 is correct.
Mortgage over Lot 12 , 5 Edwards St, York
46.The respondent concedes that there is a mortgage to a “XYZ of ABC, Registered 30.6.2004”, yet in the absence of the mortgage document, the value of the mortgage cannot be ascertained by the respondent.
47.The respondent gave the applicant ample time and opportunity to provide the mortgage document, yet he failed to do so.
48.The respondent contends that the SSAT was correct in deciding that the loan agreement (T31 p174) was insufficient evidence of a $56,238.00 mortgage over the property and thus could not be deducted from the applicant’s asset pool.
49.The respondent further contends that, based on the information available to the SSAT, it was correct in adding $56,238.00 to the Company’s assets and not reducing that amount by $56,238.00 because of lack of evidence of a mortgage.
Three Gifts of $10,000.00
50.The respondent contends that the SSAT was correct in rejecting the legitimacy of the first two gift transactions dated 30 June and 1 July 2004. Until 8 December 2004, Mr XYZ and Mrs EFG were directors of the Company (T32 p259). The applicant provided no evidence of authority by the directors to make this payment.
51.The respondent submits that, in any case, any gifts from the company, while reducing its own assets, became cash assets of the applicant and therefore the net effect of the gift for the purposes of the asset valuations was nil.
52.The respondent contends that the attribution of control of the Company to the applicant does not absolve him from adhering to corporations legislation and directors’ duties.
Forgiving of loan
53.At 30 June 2004, the applicant claims to have written off the debt to the Company.
54.The respondent contends that the SSAT correctly determined that the applicant had no authority to write off the loan to the Company, as he was not a director at the time.
55.Seeing as no physical transfer of funds took place, the respondent contends that the loan is still in place as an asset of the Company.
56.Further, the respondent contends that the loan is not “irrecoverable”, as the applicant stated to the SSAT (T2 p5).
57.The loan exists and is enforceable against the applicant as a director of the Company on a personal basis.
58.“Forgiving” the loan was merely an asset reduction technique and does not reflect the reality of the situation.
Payment of stamp duty
59.The respondent submits that the SSAT’s asset attribution of the stamp duty paid on the applicant’s Carramar residence from the Company account is correct.
60.The Carramar property is not an asset of the Company and payment of such a duty is thus not a Company-related expense.
61.The respondent contends that the payment was a loan to the applicant by the Company.
Conclusion
62.The respondent submits that the SSAT’s decision to affirm cancellation of the applicant’s pension should be affirmed because his assets exceeded the limit for payment of a pension.”
AGREED FACTS AND ISSUES
4. At the hearing of these matters the applicants and the respondent filed a Statement of Agreed Facts and Issues which reads as follows:
“1.Mr A has applied for review of decisions in Applications W351/2004, W2005/7 and W2006/64.
2.Jean Arthur Pty Ltd (the company) is a company incorporated in or about 1970 (ABN 62008734263).
3.Mr A is currently the sole director and sole secretary of the company.
4.In or about October 2000 Mr A borrowed $85,000 from the company for the purpose of purchasing or property at 2/4 O’Connor Way, Wangara.
5.In October 2002 Mr A has repaid the loan to the company.
6.In or about 2002/2003 as a consequence of Centrelink’s decision that he assets of the company were to be attributed to Mr A, he utilised company assets for daily living expenses, purchase of real estate and other expenses.
7.As at the close of the 2003 financial year, Mr A had utilised $189,301 of the company’s funds.
8.In the company’s books of account, kept by Mr A’s wife until 30 June 1999 and Mr A thereafter, the amount calculated by them for this period is $190,701 (the sum).
9.Pursuant to a document entitled “General ledger – Jean Arthur Pty Ltd for end 30 June 2004” Mr A acting pursuant to his understanding of the asset attribution rules, inserted the following entry:
“A – irrecoverable debt - $190,879.”
10.Mr A states that he took that action in order to satisfy Centrelink that the money was irrecoverable because as controller of the company he had no intention of recovering the sum by suing himself.
11.Mr A concedes that the shareholders were not consulted in this action and that they have a right to recover these funds from The applicant’s husband by legal action.
12.The parties agree that the questions for the Tribunal are:
12.1should the $190,879 (the sum) be characterised as an asset of the company?
12.2does the sum have the characteristics of a loan in circumstances where it has been attributed as an asset of The applicant’s husband and it has been depleted in the acquisition of other assets and living expenses?
12.3does the fact that the sum has been depleted by purchase of an exempt asset (among other assets and living expenses) mean that it is not an asset of The applicant’s husband’s?”
5. The parties agreed that if the issues raised in paragraphs 12.1, 12.2 and 12.3 of the Statement of Agreed Facts and Issues as set out above are decided in favour of the respondent then this will effectively result in the three applications by the applicants being dismissed as the applications cannot succeed in such event.
TRIBUNAL’S DECISION AND REASONS
6. As stated above and put shortly, if the Tribunal determines that the loan should be characterised as an asset of Mr A’s then the applications for review fall away and the decisions must be affirmed. If on the other hand it is determined that the loan ought not to be characterised as an asset of Mr A’s then the Tribunal will need to proceed to determine whether s 1129 of the Social Security Act applies. So that, in broad terms, is the major issue which the Tribunal is now called upon to determine.
7. The Statement of Agreed Facts and Issues at paragraph 3 contains an acknowledgement by Mr A that he is currently the sole director and sole secretary of the company, Jean Arthur Pty Ltd, ABN 62008734263. In paragraph 4 it is conceded by the applicant that in October 2000 he borrowed $85,000 from the company for the purpose of purchasing a property at Unit 2, number 4 O'Connor Way, Wangara.
8. The Statement of Facts and Issues then goes on to record the fact that that sum was repaid. At paragraph 6 it is agreed between the parties that in or about 2002/2003 the applicant borrowed or utilised, financial assets of the company for daily living expenses, purchase of real estate and other matters. At paragraph 7 states that at the close of the 2003 financial year the applicant had utilised $189,301 of the company's funds for the purposes set out at paragraph 6. At paragraph 8 it is recorded that in preparing the company's books of account the applicant himself calculated this amount slightly differently. He calculated it as $190,701.
9. This differs slightly from the Centrelink calculation which is set out above. However nothing turns on the slight difference between those two sums and the respondent has accepted that the relevant sum is $190,701. Paragraph 9 records the fact that the applicant at some point prepared a document which is in the company's books of accounts which is entitled: “General Ledger, Jean Arthur Pty Ltd, Year Ending 30 June 2004.” Acting pursuant to his understanding of the asset attribution rules Mr A inserted the following entry in that document. That is, and I quote:
“A, irrecoverable debt, $190,879.”
10. Again, that figures slightly varies from the $190,701 figure, but nothing turns on that. Mr A has said in the statement of agreed facts that he took that action, that is, to purport to characterise that sum as an irrevocable debt, in order to satisfy Centrelink that the money was irrecoverable because as controller of the company he had no intention of recovering the sum, as he says, by suing himself. However, he then concedes that the shareholders were not consulted in his characterisation of the debt as irrecoverable and that those shareholders would have a legal right to recover these funds from him through legal action.
11. Finally, the parties agreed that the questions for the Tribunal are, firstly, should the $190,879 be characterised as an asset of the company? Secondly, does the sum have the characteristics of a loan in circumstances where it has been attributed as an asset of Mr A and it has been depleted in the acquisition of other assets and living expenses? And, thirdly, does the fact that the sum has been depleted by purchase of an exempt asset among other assets and living expenses mean that it is not an asset of Mr A? The Tribunal notes that in Mr A's oral evidence before the Tribunal he gave little direct oral evidence about the circumstances of the loan and the respondent stated in submissions that he was not cross-examined about that subject because it was and remains the position of the respondent that all the facts that the Tribunal needs to know in order to make it’s decision are before it by way of documentary evidence supplemented by the statement that has been agreed between the parties.
12. One of the crucial documents which provides this Tribunal with a number of relevant findings of fact and law about this matter is contained in the 2005 decision of this Tribunal in the matter of WBC and WBN v Secretary, Department of Family and Community Services, reported at 2005 AATA 749. A copy of that decision is set out in one of the volumes of T documents, namely, 64 of 2006 at T18. This was a decision of this Tribunal in respect the applicant in this case, and the entitlement of him and his wife, in respect of pensions and entitlements under the Social Security Act of 1991. It is a decision of Mr M. Allen, then a Member of this Tribunal.
13. It contains within it much relevant material to provide a background to the question currently before the Tribunal. Referring to the page numbers of the volume itself rather than the page numbers of the decision it starts at page 77. And the reasons for decision actually start at 79. At pages 79 through to 81 Mr Allen has described in fairly brief terms the eight decisions of the Social Security Appeals Tribunal regarding the applicant which were before him for review. There has clearly been a suppression order at some point in the proceedings. The effect of it is that in that decision, the person he refers to as Mr A is the applicant and the person he refers to as Mrs A is the applicant’s current wife.
14. The Tribunal will not go through the ten decisions of the Social Security Appeals Tribunal which were reviewed by Mr Allen in his reasons for decision in detail. However, the Tribunal notes that he first deals at page 83 with what he calls decisions 4 and 5. Those decisions can be described in general terms as decisions of the Tribunal relating to notices issued to the applicant which had not been complied with. The Tribunal dealt with those separately to the other decisions before it. At page 85 of Mr Allen's decision he starts to recite the evidence that was put before him concerning the very complicated and lengthy history of real estate transactions engaged in by the applicant and to some extent also by his wife.
15. At page 89 Mr Allen has summed up the history of the acquisition of the property in York, the property in Koondoola, the Alexander Heights property, the two Edgewater properties, the Woodvale property. Then over at 90, page 90, the Wangara land, the Woodvale shop. Then at 91 Mr Allen has summed up the history of the shares in the company. And then at 95 Mr Allen starts to address himself to the question of attribution of assets and income of the company. At paragraph 96 on page 95 Mr Allen says as follows:
“As foreshadowed above, on 1 July 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 13.18 of the Act. The purpose of the changes was to better ensure that all of the resources available to a person were taken into account, rather than focussing on the way the person may have structured or held the resources.”
16. Mr Allen then pulls together all of his factual findings concerning the company, Jean Arthur Pty Ltd, and applies those facts to the various sections and sub-sections of the Act. The discussion continues over pages 96 and 97 as Mr Allen applies the relevant sections of the Act and the principles of attribution which are properly called, at paragraph 103, the Social Security (Attributable Stakeholders and Attribution Percentage) Principles of 2000. Mr Allen reaches some conclusions which are important for this case at paragraph 114, which is at page 98 of the T documents. At paragraph 112 which is at the top of page 98, Mr Allen says as follows:
“In the present case it is apparent that Mr A -
(meaning the applicant)
has in substance treated the assets of the company -
and there he is referring to Jean Arthur Pty Ltd -
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 purpose have been applied for the benefit of Mr A and Mrs A since that property was sold and used in the purchase of subsequent houses in the name of Mr A and Mr A -“
Clearly that should be Mrs.
rather than (as was the case with the Alexander Heights property) in the name of the company.
And then he follows with some important words:
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. Section 12 of the principles -
And there Mr Allen is referring to the attribution stakeholders and attribution percentages principles:
“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:
“And then s 13 of the principles requires consideration of any other circumstance that affects the involvement of the individuals with the activities or the administration of a company. I observe in this context that in my opinion Mr A –“
(that is the applicant)
has, for all practical purposes, treated the company as his own and notwithstanding that Mr B –“
17. The Tribunal notes that Mr B in these findings is Mr XYZ, that is, the applicant's adult son:
“... 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.”
18. Then at paragraph 114, still on page 98 of the T documents:
“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 shareholders until such time as Mr A and Mrs A can organise their affairs to repay the company the money owed to the company. In my judgment 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.”
19. It is clear that what Mr Allen is holding there is two things. Firstly, that Mr A is the effective controller of the company for the benefit of himself and the applicant’s wife and their children. And, secondly, that Mr A is an attributable stakeholder of the company pursuant to the Social Security (Attributable Stakeholders and Attribution Percentages) Principles of 2000. Then at paragraph 115, also on page 98, Mr Allen then goes on to address to the question of what the applicant’s asset attribution percentage in relation to the company should be. He talks there about the principles that apply. In detail halfway through the paragraph 98 he says:
“It is my view that Mr A -
that is the applicant -
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.”
20. Then at page 99 at the top of the page Mr Allen says:
“I do not consider that any sufficient basis has been established on which a determination should be made that a percentage lower than 100 per cent 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. Decision 3.”
21. In effect Mr Allen upheld a previous decision of the Social Security Appeals Tribunal to the effect that Mr A is effective controller of the company and also makes the finding that Mr A should be considered as having an asset attribution percentage of nothing lower than 100 per cent. Mr Allen then in his decision goes on to speak of some issues concerning the valuation of the company. And in particular considers whether there are any special circumstances, that is, circumstances that are unusual, uncommon or exceptional which might activate the discretionary waiver available to the Secretary under s 1237AD. In short, Mr Allen decided that there were no special circumstances which would bring into play that discretion. At page 102 of the decision of Mr Allen, he says:
I have concluded that Mr A - ie
22. 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 arm's 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 -
that is 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 as to his assertions of fact.”
23. Mr Allen's decision provides an extremely detailed history of the financial affairs of the applicant and the company and shows the process whereby the decision was made, pursuant to the Act, attributing the assets of the company Jean Arthur Pty Ltd to the applicant and attributing 100 per cent of those assets to the applicant.
24. Now, that decision is obviously now the law and is not the subject of, nor could it be, review by this Tribunal and the applicants accept that this is so. It is in effect the springboard which has led to the issues which are currently before the Tribunal.
25. The question of whether the funds taken by Mr A from Jean Arthur Pty Ltd constitute a loan between Mr A and the company is the next issue which the Tribunal needs to determine.
26. The T Documents contain a bundle of papers, at T31, submitted by the applicants before the Social Security Appeals Tribunal, including extracts from the general ledger of the books of accounts for Jean Arthur Pty Ltd and in particular a document contained at page 233 of the documents. It is common ground that these documents were prepared by Mr A.
27. The document is called: “General ledger adjustments continued for 30 June 2003.” In Mr A’s handwriting in the second entry there appear the words, "A loan account". It is not clear what the words under that actually state but the words above it, "A loan account" include next to it in the debit entry $189,301. Then there is an amount of $3,000 which is attributed to be a bond transfer and a balance there of $192,301.
28. There are a number of other entries in Mr A's own handwritten documents where he has clearly accepted that the monies which he has utilised from the company are a loan. This is just one of many examples of that. He himself, in his own handwriting, has conceded that this money constitutes a loan. It is clear from the relevant authorities to which reference is made below that despite the fact that the company Jean Arthur Pty Ltd has for the purposes of Social Security law been deemed to be a company controlled by Mr A and, despite the fact that its assets have pursuant to Social Security law been deemed to be the assets of Mr A, Jean Arthur Pty Ltd continues to have status and legal recognition as a separate corporate entity.
29. That is a principle which it appears has not been adequately recognised by the applicant and which answers many of the submissions that he has made in these and other proceedings. That is, for the purposes of the law of Australia Jean Arthur Pty Ltd continues in place, as a separate legal entity with a separate legal personality, with rights, duties and obligations and the applicant, as an office bearer of that company, continues to have under corporations law, a number of rights, duties and obligations which continue quite regardless of the deeming provisions of the Social Security Act.
30. At the hearing Mr A's main contention in respect of this sum of money is that it is not a loan, notwithstanding that he himself in past documents has agreed that it is a loan. Mr A's position before this Tribunal, was that because that sum of money has been attributed to him, pursuant to the asset attribution rules, it should not be counted in his assets for the purposes of determining whether he is entitled to a pension.
31. He uses and relies on the notion that the Department or the Secretary is in effect double counting that asset because it is counting it once as an asset of the company and in counting it again, as an asset of his in the process of attributing the assets of the company to him. The question of double counting and the notion of double counting, is dealt with to some extent in two decisions, cited by the respondent. The first decision is a decision of this Tribunal, Senior Member Barber in 1996 in the matter of Albert Lawrence Harrison and Eva Lillian Harrison v Repatriation Commission. It was a decision involving an application by a couple for a veteran's pension and the issue arose in the determination of their entitlements as to whether the assets of two family companies ought to be attributed to them or not.
32. This decision of course was prior to the 2001 changes to the legislation. However, it is very useful in seeing the approach that was taken firstly by the Tribunal and then set aside by the Federal Court in determining whether a particular asset is indeed an asset of an individual or not. What happened in that matter was that in April 1992 the Department of Veteran's Affairs received an application by the applicants for the service pension and that application was granted.
33. The applicants however, had not disclosed to the Department that they had an interest in two companies known as L.B. Harrison Pty Ltd and A and E Roof Tilers Pty Ltd. They were the holders of all the shares in both of these companies and the only assets, of those two companies, were amounts owed to those two companies by the applicants.
34. As set out in that decision it was found that the companies were a separate legal entity to Mr and Mrs Harrison and both parties agreed that the debts owed to each of the companies represented what are called technical assets of those companies. Then the Tribunal goes onto say:
“As indicated previously, the only issue before the Tribunal is whether the applicants' service pension should be reduced consequence on those assets being included as assets of the applicants.”
35. The Tribunal refers to the relevant legislation which is quite similar to the Social Security Act in terms of establishing an entitlement. As noted at page 3 of the decision:
“The applicants submitted to the Tribunal that to determine the value of the subject assets one must determine the net value of the assets taking into account the existence ...(reads)... question and that the value of such assets is unable to be reduced by the amounts borrowed by the applicants.”
36. Then the Tribunal goes on in page 4 to hold that moneys owed by the applicants to these two family companies were in effect only “technical loans” because Mr and Mrs Harrison controlled, that is the applicants controlled both of the companies. The effect of which was, in the view of the Tribunal, that the loans should not be taken into account and Mr and Mrs Harrison's assets reduced accordingly. Now, the Federal Court was of the view that that approach was completely wrong.
37. In the appeal before the Federal Court in 1997, a decision of his Honour, Tamberlin J in 1997 Repatriation Commissioner v Harrison and another (1997) 956 FCA, the Federal Court held that the loans owed by Mr and Mrs Harrison to their family companies, which had been characterised as a “technical asset” by the AAT, were real assets and that the Tribunal’s approach was incorrect. At page 4 of the extract, second paragraph his Honour summed up the facts as follows:
“Mr and Mrs Harrison were at material times the holders of all the shares in each of the two companies mentioned above, the were also directors of a company. The only substantive assets of those companies were debts owed to the companies by the respondents.”
38. That is much like the situation here where the only substantive asset or substantial asset of Jean Arthur Pty Ltd is the debt owed to it by Mr A. The court goes onto say as follows:
“A finding of fact made by the AAT was that as at June 30 1994, the sums owed by Mr and Mrs Harrison amounted to the two sums as set out there. The AAT decision noted that each of the companies were separate legal entities to Mr and Mrs Harrison and described the debts owing to each of the companies as technical assets of those companies.”
39. His Honour then set out all of the statutory provisions and then at page 7 of his decision he then made the following comments:
“The respondents that is, Mr and Mrs Harrison, argued before the AAT that the correct approach - the proper approach to the valuation of the loans was not to take them at face value but rather to look at the amount actually recoverable.”
and they relied on a decision of the AAT in the matter of King. They submitted that:
“In accordance in the principles referred to in that case their shares in the company must be discounted to a nil valuation and that of course was accepted by the AAT.”
40. At page 8, his Honour then used the heading which he calls: “Lifting the Corporate Veil.” And he says at paragraph 2 underneath that heading:
“The separate legal existence and identity of corporate entities from that of their shareholders, incorporators or directors is well settled in corporations law and, subject to limited exceptions it currently represents the law of Australia.”
41. His Honour then sets out a number of authorities and he says -
“These are some closely limited exceptions to the fundamental principle enunciated in Salomon, these include specific inroads made by legislation or circumstances where there is a use of the separate entity principle to perpetuate fraud.”
42. He then says at the bottom of page 8, second paragraph up, the substance of the matter is that:
“The decision maker has treated the shareholder directors and the corporate entity as being indistinguishable for the purpose of calculating the value of the shareholders assets.”
43. And he says:
“This is contrary to settled principle.”
44. He then goes on to find that in calculating the entitlements to pensions of Mr and Mrs Harrison, the Department is obliged to treat the asset of the company as an asset regardless of the liabilities owed by Mr and Mrs Harrison to the company. On page 10, after his Honour has summarised the effect of various asset provisions in the legislation, he says as follows:
“The foregoing is support for the conclusion that the term "assets" as used in section 41F(1) was not intended to be net assets or assets less liabilities. It also indicates that the valuation of particular assets is to be made and the total value determined without taking into account liabilities. Liabilities can be taken into account but only to the limited extent provided for in the legislation.”
45. He then goes on to say, at the top of page 11 summarising an argument which is very similar to the argument that the applicant makes:
“Counsel for the respondent submit that for the purpose of the assets test, it strains frugality to say that a person with assets of one million and debts of $1,000,100 must be treated as having assets worth one million. It would therefore be unreasonable to deny such a person a pension on the ground of having assets of one million. He submits that the legislation being plainly beneficial legislation in character must be read favourably to the respondents where there is ambiguity.”
46. In rejecting this contention he says as follows:
“The provisions of this Act, and other provisions dealing with matters pertaining to social security, health and pension benefits can frequently be seen to give rise to anomalies in particular cases. No doubt, these arise from the wide ranging nature of the differing and conflicting policy considerations which must be taken into account when drafting legislation in these areas.”
and further:
“The legislature has recognised in section 52Y of the Act that the application of the asset's test may well result in financial hardship. There is provision for some relief against the consequences of the asset test where severe financial hardship would result from its application.”
47. The effect of this decision, is clearly that if there is as contended by the applicant some “double counting” in counting an asset once for the purposes of calculating the assets of the company, and then attributing that asset to him, then that is indeed the effect of the Act and the legislature has taken account of the possibility of that occurring by enacting ameliorative provisions which allow for hardship in particular cases to be dealt with.
48. The equivalent provisions under the Social Security Act of 1991 are sections 11, 29 and following of the Act. What the Federal Court has said is that if the effect of applying the assets test in a particular case results in an anomaly which results in hardship and results in effects which are unintended by the legislature, there is provision for its amelioration. However, before one gets to consider the provisions for amelioration, we need to apply the assets test and that is indeed what the respondent has done in this case.
49. What the respondent has done in this case is that acting on the decision of Mr Allen in 2005, it has looked at the financial circumstances of the company as far as it can given the paucity of records which are available. It has noted that the company, on the applicant’s own admission, is owed $190,000 in funds which the applicant has taken and used for his personal circumstances and that sum of money is an asset. There is in the Tribunal’s view no doubt that under the definition of asset in the Social Security Act, a loan of that nature is considered to be an asset.
50. The definition of asset under the Act is extremely broad. It is quite similar to that provided in the Veterans' Entitlement Legislation but in s 11(1) of the Social Security Act, asset is defined to mean property or money (including property or money outside Australia.) There is no doubt in the view of the Tribunal that the sum of money loaned by the company to Mr A is an asset pursuant to Social Security law. It is an asset of the company.
51. Section 1122 of the Social Security Act provides that:
“If a person lends an amount after 27 October 1986, the value of the assets of the person for the purpose of this Act includes so much of that amount as remains unpaid but does not include any amount payable by way of interest under the loan.”
52. It is clear that the loan owed by the applicant to the company is an asset of the company. As noted in Mr Allen's decision, that asset is attributed to Mr A. That asset then becomes part of Mr A's assets for the purposes of calculating his pension entitlement. And that is how we reach the situation, that the applicant is deemed to have control over that asset. It creates what is conceded by the respondent to be an unusual set of circumstances, much like the unusual circumstances that Mr and Mrs Harrison faced when they applied for a Veterans' Entitlement and discovered that the loans which they owed to the company were treated as an asset.
53. The resulting effect is that Mr A has the loan which he has taken from the company to use for his personal expenses attributed to him when his pension entitlements are calculated. Because he was in a domestic relationship with his wife at the relevant time, that also had the effect of affecting her assets for the purposes of calculating her parenting payment.
54. The consequence is that his entitlement for social security payments under the Social Security Act is reduced to nil. However, he has had the benefit of that money and as the evidence shows, that money or part thereof has been used by him and his wife to accumulate four separate pieces of real estate as well as for other living expenses. So it cannot be said by the applicant that he has had no benefit from that loan. He clearly has.
55. It has been the basis upon which he has accumulated large amounts of property, larger amounts of property than many other people in the community, including those who are not receiving a benefit under the Social Security Act.
56. The Tribunal was also referred by the respondent to the decision of Ragless v Secretary, Department of Family and Community Services (2005) 89 ALD 253, which is a decision of this Tribunal concerning the effect of a testamentary trust which had been established for the purpose of caring for a woman after her husband died. She was at the relevant time when quite elderly and living in a nursing home.
57. The testamentary trust which had been established by her late husband established her and her children as beneficiaries and the trust itself was run by the children for the benefit of their mother. The approach taken by the Secretary in that case was to attribute 100 per cent of the assets of the trust to the applicant and that resulted in both her age pension being cancelled and an over payment being raised by the department.
58. The main issue was whether Mrs Ragless should be considered an attributable stake holder of the trust, even though she had no direct control of its assets. In holding that the Secretary had been correct in his approach to the testamentary trust, the Tribunal referred to the underlying policy of the 2001 changes to the legislation. As the applicant has placed considerable emphasis on the second reading speech and what he claims to be the policy behind the changes thought it is appropriate to consider what the Tribunal’s approach in the Ragless matter was.
59. At paragraph 24 on page 2, the Tribunal says:
“The rationale behind the establishment of the Social Security trust and company legislation is set out both in the Social Security Appeals Tribunal decision and in the authorised review officer's decision. It is to prevent individuals distancing themselves from assets to which they have access directly or indirectly while at the same time receiving Social Security benefits. The attribution legislation was enacted in 2002 at a time well after the will of Peter Haldane Ragless and was signed, but it has application to the applicant and to the assets of the estate as it was the law in force when he died. … The Tribunal is satisfied that the legal structure of the trust was set up to ensure that during the lifetime of the applicant she would be well provided for, if her own resources were not sufficient to cover her needs. It was possibly also set up to ensure her entitlement to age pension and other government benefits would be maximised.”
60. At paragraph 37 the Tribunal refers to another decision of this Tribunal in the matter of Re Cocks and quoted Senior Member Handley as saying as follows:
“The amending Act, that is the trusts and companies provisions, represents a significant policy change by the Federal Government regarding the assets and income of welfare recipients. By attributing assets and income to persons who benefit from trusts and companies it is the stated intention of government that –“
and there are quotation marks -
"income support entitlements are based on a person's level of resources not on the way in which he/she holds those resources".
61. And that is a quote from the second reading speech. Then the Tribunal, Senior Member Handley goes onto to say:
“Additionally the fundamental change being proposed under this measure is that when a private trust or private company is recognised as a designated private trust or company the assets and income of these private trusts and private companies, may be attributed to the person who controls or who has contributed to these structures.”
62. Then at paragraph 40 of the Ragless decision the Tribunal decides:
“After consideration of the principles that it is appropriate that 100 per cent of the assets of this particular trust be attributed to the applicant and that she be considered an attributable stake holder within the meaning of the Act.”
63. This clearly puts in context the legislative policy and makes it abundantly clear that in the view of this Tribunal the policy behind these amendments to the Act is to ensure that if resources are available to a Social Security recipient even if that recipient does not hold legal title to the resources, they should be taken into account in some circumstances, and that is precisely what the circumstances were in Ragless and it is these circumstances which pertain in Mr A's case.
64. In Re Saunders v Secretary, Department of Family and Community Services (2002) 72 ALD 264, a decision of this Tribunal in December 2002 in which loans had been made to family trusts and one of the issues was whether or not the loans should be considered as assets under the Act. At page 4, paragraph 8 the Tribunal identified the issues for the Tribunal as follows:
“The issues for the Tribunal are whether or not the loans by Mr Saunders and Mrs Saunders to the family trust are assets under the Act.”
65. The submission was made by counsel for the Department that in relation to the loans to the family trusts they fell within the terms of s 1122 of the Act and it was submitted that they should be included as assets of the family trust by reason of s 1122. On the other hand, Mr Saunders had submitted, as said in paragraph 16, that the family trust may have no capacity to repay the loan and therefore, the loan should not be included in the trust's assets.
66. The Tribunal concluded that the question of whether or not the loans were realisable was an irrelevant question to the determination of whether the loan constituted an asset or not.
67. At page 6, paragraph 21, the Tribunal says as follows:
“In relation to the loans by the applicants to the family trust section 1122 of the Act provides that for amounts lent by a person after 27 October 1986 so much of a loan as remain unpaid to the person must be included as an asset for the purposes of the Act. It is not disputed by the applicants and I'm satisfied that the loans were made after the date given in that provision and that they are listed in the family trust balance sheet as current liabilities.”
68. Mr Saunders submitted that this was not a fair approach because the family trust had no capacity to repay the loans. That raises two matters for consideration, firstly the appropriate method of valuing the loans and the role of the provisions relating to unrealisable assets.
69. At Paragraph 23 the Tribunal said:
“In respect of the first matter the practise of adopting the full face value of the loan has been applied since 27 October 1986 when the Act was amended –“
and the Tribunal there sets out a large number of decisions which are authority for that proposition. And then the Tribunal returns to the unrealisable asset issue and it says as follows:
“In respect to the second matter the term "unrealisable asset" is defined in section 11, subsection (12) of the Act and it may well be the case that the loans to the applicants fall within that category. However, even if that were the case such a finding would have no relevance - to the application of the assets test when assessing the value of assets. In the circumstances of this case the only occasion when the notion of an unrealisable asset would be relevant is if the financial hardship provisions in section 1129 of the Act were invoked.”
70. And then at 25 the Tribunal says:
“It follows that the loans which total $128,325 and 53 cents are to be taken into account as assets for the purposes of the assets test under the Act.”
71. It is clear that the effect of s 1122 is that the full face value of a loan from one entity to another is taken into account when determining the value of that loan. Secondly, that whether or not the loan is realisable or not is irrelevant to the question of determining whether it is an asset or not.
72. Once it is determined to be an asset and once the assets test is applied to it, if the result is that severe financial hardship follows then it is open to the applicant to make a separate application under s 1129 of the Act but that is not what we are dealing with here. What we are dealing with here is the sole question of whether the loan should be characterised as an asset or not. Section 1122 of the Social Security Act 1991, together with the Saunders' ruling makes it clear that it must be treated as an asset.
73. When one combines that with the ruling of Mr Murray Allen in the 2005 Tribunal decision involving Mr A it is apparent that that asset must be attributed to Mr A because he has been determined to be the controller of the company. It is claimed by Mr A that the second reading speech supports his argument that the loan ought not to be counted as one of his assets. The Tribunal finds that on the contrary the second reading speech, when read as a whole, supports the position of the Department in this case.
74. In the Tribunal’s view the statutory provisions and in particular s 1122 of the Act are unambiguous and the decision in Saunders applies them as unambiguous provisions. It is generally the case that reference to extrinsic material such as a second reading speech only takes place where there is some ambiguity where additional material is required. That is, that the source material in the legislation itself is unclear and one needs to look for other source material which might shed light on the meaning of the legislation.
75. The Tribunal’s view is that the legislation itself is clear and that there is no need for reference to extrinsic materials. However, if the Tribunal was minded to look further than the actual terms of the Act then its first port of call ought to be the Commonwealth Acts Interpretation Act 1901 and various sections of that legislation. In particular s15AA, provides that:
“In the interpretation of the provision of an Act construction that would promote the purpose or object underlining the Act, whether the purpose or object is expressly stated in the Act or not shall be preferred to a construction that would not promote that purpose or object.”
76. Section 15AB refers to use of extrinsic material and it provides that subject to ss (3) in the interpretation of the provision of an Act, if any material not forming part of the Act is capable of assisting in the ascertainment of the meaning of the provision, consideration may be given to that material and for certain purposes. One of those purposes is to determine the meaning of the provision when:
“(1) The provision is ambiguous or obscure; or (2) The ordinary meaning conveyed by the text of the provision, taking into account its context in the Act and the purpose or object underlining the Act, leads to a result that is manifestly absurd or is unreasonable.”
77. The respondent contends and the Tribunal agrees that the result which occurs in this particular case is not absurd or unreasonable. Furthermore, in terms of the provisions that are relevant to this case, there is no ambiguity or obscurity in the provisions. However, if that view is not correct, then one must look at the extrinsic material and the second reading speech is recognised in the Interpretation Act as constituting a form of extrinsic material. The second reading speech which is heavily relied on by Mr A must be read as a whole. It is not possible or permissible, to select individual paragraphs quoted out of context and attempt to draw from them some intention, some parliamentary intention, which is not discernible when the entire document is read as a whole.
78. The Second Reading Speech says, relevantly:
“At present people operating private trusts or private companies are often treated more favourably under the current means test arrangements than are individuals, sole traders or people in partnerships of otherwise similar means. This is inequitable and inconsistent with the objectives of the income support system which are to provide a safety net for those who cannot adequately support themselves and to encourage self provision by those who can.”
And further:
“A key principle of our social security system is that people with similar levels of private resources should receive similar pension or allowance payments. However, the existing means test treatment of private trusts and private companies is inconsistent with the principles underlying effective targeting of social security payments. Under current social security law assets and income are only attributed to a person where legal ownership to a fixed right to income is established. This means that private trusts and private companies may be used to hold and control assets and/or income outside the scope of the means test.”
79. It goes on:
“The key issue for means testing purposes is to whom the assets and/or income of the structure should be attributed. At present assets held by individuals, sole traders or partnerships are taken into account. Similarly, investments in public companies and public unit trusts currently are assessed as financial assets of the customer. It is with structures legally separate from although controlled by the customer where the current means test does not consistently attribute assets and/or income to reflect a customer's real circumstances.”
80. Finally:
“To ensure that people are not treated unfairly or affected unintentionally as a result of this measure, there are provisions in the attribution process for assets and/or income to be disregarded if appropriate. Legislative asset hardship provisions will also apply as a protection for those asset rich income poor people who genuinely require taxpayer support.”
81. In the Tribunal’s view it is clear that the intention of these amending provisions of the legislation introduced in 2000 was to ensure that recipients of social welfare did not have access to assets which were not held legally in their name but were held by a company trust or other arrangement over which they had control and did not have those assets included in their assets for the purpose of the assets test. It was to, in the applicant’s words, create a level playing field, but not a level playing field in the sense that he claims. It was to create a level playing field so that persons who were in his situation who had access funds which were not legally personally held by them should not be treated more favourably than those who did not have access to elaborate company structures or even simple company structures such as Jean Arthur Pty Ltd.
82. Otherwise, quite clearly, an inequity would be worked because somebody such as the applicant who has access to large sums held by a third party, that is a company under his control, would be entitled to a pension when others who did not have their assets kept in such a way would not have any entitlement.
DECISION
83. In the Tribunal’s view the questions agreed between the parties are all to be determined in favour of the respondent ie.
1) The sum of $190,879 (“the sum”) is an asset of the company;
2) The sum has the characteristics of a loan; and
3) The fact that the sum has been depleted by purchase of an exempt asset (among other assets and living expenses) does not mean that it is not an asset of the applicant).
84. The Tribunal accordingly affirms the decisions under review.
I certify that the eighty four [84] preceding paragraphs are a true copy of the reasons for the decision herein of Mr A Sweidan, Senior Member
Signed: .........[Sgd C Skinner]........... Associate
Dates of Hearing 25, 26 September 2006
Date of Decision 22 January 2007
Representative for the Applicant In person
Counsel for the Respondent Ms L PriceSolicitor for the Respondent Arran Gerrard
Australian Government Solicitor
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