Hanrick and Secretary, Department of Family and Community Service s [2003] AATA 549 (13 June 2003)

Last Updated: 13 June 2003

DECISION AND REASONS FOR DECISION [2003] 549

ADMINISTRATIVE APPEALS TRIBUNAL )

) No Q2002/652

GENERAL ADMINISTRATIVE DIVISION	)
	Re	WILLIAM HANRICK

Applicant

And

SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES

Respondent

DECISION

Tribunal

Mr B J McCabe, Member

Date 13 June 2003

Place Brisbane

Decision

The Tribunal affirms the decision under review.

(Sgd) Mr B J McCabe

Member

CATCHWORDS

SOCIAL SECURITY - benefits and entitlements - aged pension - assets test - whether applicant's assets exceed legislative threshold - partnership - company - ownership of property and assets - whether a proportion of the assets are attributable to the applicant

Social Security Act 1991 (Cth)

Partnership Act 1891 (Qld)

Succession Act 1981 (Qld)

Repatriation Commission v Harrison (1997) 46 ALD 193

REASONS FOR DECISION

13 June 2003

Mr B J McCabe, Member

INTRODUCTION

1. The applicant, Mr William Hanrick, applied for an aged pension. A dispute has arisen over whether he satisfies the income and assets tests imposed by the Social Security Act 1991.. Mr Hanrick owns shares in a company that owns his home. He is also a member of a partnership that he says is carried on with the estate of his late mother and the estate of his late grandfather. Mr Hanrick is the sole executor and a beneficiary of both estates. The estates both own shares in the company that owns the applicant's home. The partnership no longer trades.

2. Centrelink analysed Mr Hanrick's affairs and decided he could not satisfy the income and assets test once the value (or a portion of the value) of the assets of the company and the partnership were attributed to him in accordance with the Act. The decision was affirmed by an authorised review officer within Centrelink, and subsequently by the Social Security Appeals Tribunal. Mr Hanrick has now appealed to this Tribunal.

THE MATERIAL BEFORE THE TRIBUNAL

3. The Tribunal was provided with the documents required under s 37 of the Administrative Appeals Tribunal Act 1975. Mr Hanrick gave evidence in person and provided a written statement. He also provided the Tribunal with a copy of the partnership agreement. Mr Hanrick represented himself at the hearing, while the respondent was represented by Ms Wallis-Dunn.

THE FACTS

4. Mr Hanrick was born on 11 June 1929. He discussed his intention to seek the pension with Centrelink officers in late 2001. He was informed in a letter dated 26 November 2001 that his entitlement to benefits (if there was one) would take effect from 26 November, provided he completed and lodged his application form prior to 10 December 2001. He lodged his application for the aged pension on 6 December 2001. The form was accompanied by a letter from his accountant summarising his financial position. The letter said Mr Hanrick and his wife earned a total of $47,029 - an amount that fell below the income threshold in the Act. Mr Hanrick subsequently provided Centrelink with his tax returns for the year ending 30 June 2000. He also supplied information in relation to Fly Yourself Pty Ltd. Mr Hanrick owned 22 of the 32 shares in the company; the estate of his late mother and the estate of his late grandfather each owned five shares. The company was incorporated in 1960, and its principal asset was the applicant's home in Mermaid Beach on the Gold Coast.

5. Mr Hanrick also said he was a member of a partnership trading as W H Hanrick and Sons. The partnership was engaged in the business of primary production near Longreach, but the farming properties and the stock were sold in 2001.

6. The partnership was established by deed on 23 September 1957. The other members of the partnership at the time were Mrs Ruth Hanrick, the applicant's mother, and the estate of Mr William Henry Hanrick, the applicant's grandfather. Mrs Hanrick and another individual were the executors of the estate of the late Mr William Henry Hanrick. Mrs Hanrick died during the 1980s, and the applicant is now the sole executor of both estates. He says the partnership still exists.

7. Partnerships automatically dissolve upon the death of one of the partners unless the partnership agreement expressly provides for the partnership to continue: s 36 of the Partnership Act 1891 (Qld). Clause 29 of the partnership agreement in this case provides for the partnership to continue upon the death of a partner, while clause 30 provides that the legal personal representative of a deceased partner may elect by notice in writing to succeed to the deceased partner's share in the partnership. It is unclear from the evidence whether notice under clause 30 was ever given.

8. The partnership assets at the relevant time consisted of a bank deposit in the amount of $66,000 and a loan to Fly Yourself Pty Ltd in the amount of $200,220: see T10 at p232. The loan to the company was apparently intended to fund the purchase of the applicant's home in Mermaid Beach. The respondent says Mr Hanrick's share of the partnership is 35/66, and the net assets of the partnership must therefore be attributed to him on that basis. It follows, the Secretary argues, that $106,177 of the amount of the loan and $35,000 of the amount on deposit should be attributed to the applicant. The total of those amounts exceeds the threshold of the assets test.

9. Mr Hanrick says the loan by the partnership to the company was used to fund the purchase of his home. He says he should be treated as a home-owner and the value of the property acquired with the loan should not be attributed to him.

10. Centrelink rejected the claim in its letter of 15 January 2002.

THE RELEVANT LEGISLATION

11. Section 1077 of the Social Security Act 1991 requires that the deemed income from financial assets be attributed to the applicant. The expression financial assets is defined in s 9 to include financial investments, which includes money on deposit and the value of a loan that has not been repaid in full. The respondent concedes that an interest in a house or other real property does not amount to a financial asset.

12. Once the assets have been identified, their value must be considered against the thresholds set out in the Act.

13. The respondent disputed the finding of the SSAT that the provisions of Part 3.18 of the Act applied to this case. Part 3.18 commenced operation on 1 January 2002 - before Mr Hanrick's application had been rejected. The respondent says Mr Hanrick's application should be assessed in accordance with the law as at 26 November 2001 (the date referred to in the letter from Centrelink at T14), or, in any event, as at 7 December when he lodged his completed application form. I think the respondent is right. The legislation in force at the time of the application should govern the assessment of Mr Hanrick's affairs unless the legislation expressly or by implication is to have a retrospective effect. There is no suggestion that is so. Accordingly, I will apply the law as it was at the time of the application.

14. It was common ground that if the amount Centrelink sought to be attributed to Mr Hanrick were in fact to be counted as part of his income, he was ineligible to receive the pension at the time and the Secretary's decision must be affirmed. The respondent added that a proper treatment of the applicant's assets would also have rendered him ineligible for assistance. Mr Hanrick's point appears to be that the loan monies owed to the company should not have been taken into account because they related to the purchase of his home, which is exempted from the calculation. If that amount were excluded from the calculation he says he would be eligible to receive the aged pension at the time of his application.

15. For reasons I will explain, I suspect Centrelink's treatment of the applicant's interest in the partnership understates his entitlement to deemed income for the purposes of the assets test administered under the Act. In any event, I do not accept his central point: that the value of the loan ought to be disregarded because it relates to the purchase of his home.

ATTRIBUTING THE VALUE OF THE ASSETS TO THE APPLICANT

16. Section 5 of the Partnership Act defines a partnership as a relation "which subsists between persons carrying on a business in common with a view of profit".. That definition means it is necessary for Mr Hanrick to identify at least one other person who is a party to the partnership agreement with him. The estates of his mother and grandfather are not legal persons capable of entering into a partnership within the meaning of the Act. Their legal personal representatives could (and, in the case of the estate of the applicant's grandfather, did) enter into a partnership. That is one effect of the Succession Act 1981. Section 45 provides that the property of a deceased person vests upon their death in the person of the executor. But Mrs Hanrick has died, and Mr Hanrick is now the sole executor of both estates. That means he is claiming to be in a partnership with two other people, both of whom are himself. That is a legal impossibility. He is really a sole trader, and the property of the partnership has vested in him - although he still owes equitable obligations to the other beneficiaries of the estates. The fact he holds some part of the property for others must be reflected in the calculation of the value of the assets he holds, and the amount of income that ought to be attributed to him. Since he is also a beneficiary under at least one of the estates, it will be necessary to reconsider his position having regard to the value of his share of those estates.

17. The result would not be any different if Mr Hanrick had exercised the right in clause 30 of the partnership agreement to succeed to the deceased partners' shares in the partnership. Either way, he would be the sole partner - meaning that there is no partnership.

18. The respondent has proceeded on the basis that the applicant is entitled to 35/66ths of the property of the partnership, and 22/32nds of the value of the company. If my analysis is correct, those shares understate Mr Hanrick's true entitlement to the financial assets of those entities, which include the value of the loan. But even if I am wrong, and Centrelink's approach was correct, the applicant must fail unless he can establish the loan monies ought to be disregarded because they were used to fund the purchase of a home.

19. In Repatriation Commission v Harrison (1997) 46 ALD 193, the applicants controlled two companies. The sole assets of the companies were debts owed to them by the applicants. The Secretary argued that the value of the loans by the companies were financial assets that ought to be attributed to the shareholders. The Tribunal held the value of the loans by the companies should be disregarded in assessing the value of the applicants' assets because in substance the applicants owed the money to themselves. Tamberlin J disagreed. The logic of the separate entity doctrine underlying corporate law prevented the decision-maker from having regard to the "reality" of the situation. If the applicants were indebted to the companies, it was not open to the applicants to forgive the debt or ignore it. His Honour held that the value of the debt could be attributed to the applicants.

20. I think the same logic applies here. The unpaid loan is a financial asset in the hands of the person or persons to whom it is owed. If the partnership has ceased to exist as I have found, the whole amount (less any amount that might be held for the benefit of others) is to be counted as part of the assets of the applicant. If the partnership remains on foot, the value of the loan is attributable to the partners according to the size of their shares for the purposes of the income and assets tests under the Social Security Act 1991. The company's presence cannot be ignored, whatever the "reality" of the situation. If one is to make use of complicated structures in the course of managing one's affairs in order to take advantage of the legal consequences of those structures, one cannot ignore the structure and its consequences when it suits one to do so.

CONCLUSION

21. The loan by the partnership to the company is a financial asset. At least 35/66ths of the value of that asset is properly attributable to the applicant - although the applicant's entitlement may be even greater given the partnership has ceased to exist. The decision under review is therefore affirmed.

I certify that the 21 preceding paragraphs are a true copy of the reasons for the decision herein of Mr B J McCabe, Member

Signed: Sarah Oliver

Associate

Date of Hearing 11 November 2002

Date of Decision 13 June 2003

The Applicant Appeared in Person

For the Respondent Ms Wallis-Dunn, Departmental Advocate