Wings and Secretary, Department of Education, Employment and Workplace Relations

[2009] AATA 322

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2009] AATA 322

ADMINISTRATIVE APPEALS TRIBUNAL      )

)         Nos 2008/2739 and 2008/2740  

GENERAL ADMINISTRATIVE  DIVISION		)
Re		Gil and Valerie Wings

Applicants

And Secretary, Department of Education, Employment and Workplace Relations

Respondent

DECISION

Tribunal Mr G. L. McDonald, Deputy President

Date7 May 2009

PlaceMelbourne

Decision The decision under review is affirmed.

..............................................

Deputy President

CATCHWORDS – SOCIAL SECURITY – newstart allowance – whether a loan to the applicants’ son was a financial investment – unrecoverable loan – no documents evidencing the loan, no interest payable, no term for repayment – whether the applicants disposed of their assets – decision under review affirmed

Administrative Appeals Tribunal Act 1975 s 37

Social Security Act 1991 ss 9, 1122 and 1123

Unicomb v Secretary, Department of Social Security 50 ALD 405

REASONS FOR DECISION

7 May 2009 Mr G. L. McDonald, Deputy President

1.      The circumstances in this case are unfortunate.  The applicants are husband and wife. 

2. At the hearing the applicants were represented by Mr John Russell. The respondent was represented by Mr Andrew Carson. The Tribunal had before it the documents filed for the purposes of satisfying s 37 of the Administrative Appeals Tribunal Act 1975 (“T documents” and “ST documents”).

3.      Both applicants ceased work in April 2005 with the apparent intention of being self supporting retirees.  In August 2007 they applied to the respondent to be paid a Newstart Allowance.[1]  At that time Mr Wings had a self-managed superannuation fund which held somewhere in the vicinity of $250,000.  Each applicant owned a car, they had relatively small bank account balances and modestly valued personal property.  They had interests in four real estate properties all of which were mortgaged, including the matrimonial home.  The total value of their assets is not contested by the respondent and, save for the sum disputed in these proceedings, is accepted as being less than the amount permitted in August 2007 for a married couple to qualify to receive the allowance.

[1] ST documents, ST2, page 219.

4.      Sometime towards the end of 2006 their son, Andrew, expressed an interest in opening a restaurant and it is accepted by the respondent that moneys were advanced to him by his parents by August 2007.  The restaurant was to be operated by a company (FCCP Pty Ltd) in which all the shares were owned by the son.  The applicants agreed to give him some financial support.  It was initially thought a sum of $80,000 to fund the fit out of rented premises would suffice.  That proved to be too little and a further $30,000 was advanced.  Thereafter, despite backroom assistance from the applicants, the restaurant operated at loss of approximately $5,000 per week.  The restaurant ceased trading six months after opening.  By that time the applicants had advanced somewhere in the vicinity of $295,000.  It is accepted by the respondent, and the Tribunal, that the company has not operated since the restaurant closed, that there are unsecured creditors (not including the applicants) and that the company is likely to be liquidated shortly.  There are insufficient assets to pay the outstanding creditors or repay any amount to the applicants.

5.      There was no contract or any other documentation signed between the applicants and their son concerning the money advanced.  The money was paid by cheques from the applicants’ account directly into the company account.  There was an understanding that no interest would be paid by the son or his company, the applicants would be repaid when the business became profitable and that they may also receive a ‘bonus’ if there was a successful sale of the business.  Unfortunately the hope for the success of the business did not eventuate.  The applicants, the respondent and this Tribunal accept that the applicants will be unlikely to recover any of the $153,500 advanced by August 2007.

6. Given the agreed facts the issue for the Tribunal to determine is whether the money advanced to assist their son constitutes a ‘financial asset’ as defined in s 9 of the Social Security Act 1991 (the Act) or alternatively, if not, whether the advance of the money amounts to a disposal of assets for the purposes of s 1123(1) of the Act.

7. Section 9 defines ‘financial asset’ to include a ‘financial investment’. The latter expression is defined in s 9(e) of the Act to include a loan that has not been repaid in full. Section 1122 of the Act includes the value of a loan, but no unpaid interest on the loan, as an asset of a person. The relevant date on which this determination depends is August 2007 – the date the applicants applied to be paid the benefit.

8.      The submissions of the parties can be simply put.  On behalf of the applicants it is claimed that an intra-familial transfer of money occurred, the consideration for which was the love and affection of the applicants to their son, along with a desire to assist him to succeed in establishing and operating a business.  It was claimed to be irrelevant that the money was paid directly to the son’s company because, in fact, the payments should be regarded as loans to him, paid at his direction to the company.  The fact that there was no documentation evidencing the transactions, that no interest was payable and that there was no set term for repayment all evidence there being a non commercial domestic family arrangement which could not be characterised in any sense as a ‘financial investment‘ or ‘financial asset’.  It was submitted that no court would uphold the transaction as a being a loan and that if the son or his company were to become bankrupt other creditors would oppose the status of the applicants as being unsecured creditors.  The applicants were not intending to take any action to recover the money from their son or his company.

9.      The respondent, while agreeing that the transaction is intra-familial in nature, submits the loan is caught by the definition.  It submits that consistent with previous Tribunal determinations and Federal Court decisions the definition should be given a broad interpretation unencumbered by notions associated with common law contractual provisions.  The respondent submitted that the purpose of the Act must be considered and while there was no suggestion that the applicants were anything other than honest in their intentions and actions, the Act was not designed to assist those who owned assets as defined.

10.     The context in which the applicants advanced money to their son was that it would be repaid upon the success of the business.  Mr Wings expressed it as “a hope” that the money would be repaid and stated that he had every faith in his son’s ability to establish and operate the restaurant.

11.     Although lacking the formality which may be expected in the case of an arm’s length transaction the advance is correctly characterised as a loan under the definition of ‘financial investment’.  As at August 2007 there is no suggestion that the son would be unable to repay the amount.  This is confirmed by the subsequent further amounts advanced by the applicants apparently up to $295,000.  If they had thought that the money may not be able to be repaid then it is unlikely that more would have been advanced.  For the same reason it is not open to argue that as at August 2007 the sums advanced had transformed from a loan to an unrecoverable debt.  It is no force to the applicants’ submissions that the advance cannot be regarded as a loan because there was no fixed term or because no interest was payable.  A loan without a specific term being nominated is generally regarded as a loan payable on demand.  As is made clear in Unicomb v Secretary, Department of Social Security[2] s 1122 does not require a person to make a net advantage from the transaction for it be classified as a loan. As such, the $153,000 should be treated as an asset of the applicants in calculating their eligibility to be paid Newstart Allowance.

[2] 50 ALD 405 at 407 per Branson J.

12. If however the Tribunal is wrong in the above interpretation then the applicability of s 1123(1) is called into question. It is relevantly as follows:

(1)  For the purposes of this Act, a person disposes of assets of the person if:

(a)the person engages in a course of conduct that directly or indirectly:

…

(ii)disposes of all or some of the person’s assets; or

…

(b)one of the following subparagraphs is satisfied:

…

(ii)the person receives inadequate consideration in money or money’s worth for the destruction, disposal or diminution;

…

13.     The word ‘disposes’ is not defined in the Act.  It is to be given it ordinary meaning in context and is not to be interpreted pejoratively.  The Concise Oxford English dictionary relevantly defines the term ‘dispose of’ as:

do what one will with, regulate; get off one’s hands, stow away, settle, finish, kill, demolish (claim, argument, opponent), dismiss (cricket XI for certain score), consume (food); sell.

14.     The applicants in the advances made to their son ‘disposed of’ an asset, and in return received no consideration.

15.     The case is unfortunate because the applicants, who the Tribunal is satisfied are honest in their intentions and actions, did not, as at the date of application, qualify to receive a benefit to which, had the money not been legitimately lost, they may otherwise have had entitlement.  It could be prognosticated that in its attempt to stop people purposely disposing of assets in order to gain a benefit, those who genuinely lost money in a genuine attempt to help a family member have been unduly disadvantaged.

16.     For the reasons outlined above, the decision under review is affirmed.

I certify that the 16 preceding paragraphs are a true copy of the reasons for the decision herein of
Mr G. L. McDonald, Deputy President

Signed:         .....................................................................................
  Associate                  Grace Horzitski

Date/s of Hearing  29 April 2009
Date of Decision  7 May 2009
Representative for the Applicant   Mr John Russell, Financial Counsellor,
  Community Resource Centre
Solicitor for the Respondent         Mr Andrew Carson, departmental advocate

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