Bysouth and Secretary, Department of Education, Employment and Workplace Relations [2010] AATA 59 (29 January 2010)

Last Updated: 1 February 2010

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2010] AATA 59

ADMINISTRATIVE APPEALS TRIBUNAL )

) No 2009/1296

GENERAL ADMINISTRATIVE DIVISION		)
	Re		PETER BYSOUTH

Applicant

And

SECRETARY, DEPARTMENT OF EDUCATION, EMPLOYMENT AND WORKPLACE RELATIONS

Respondent

DECISION

Tribunal

Ms A F Cunningham (Senior Member)

Date 29 January 2010

Place Hobart

Decision

The decision under review is affirmed.

[Sgd Ms A F Cunningham]
Senior Member

CATCHWORDS

SOCIAL SECURITY - newstart allowance - assets test - whether superannuation funds used to purchase real property constituted a loan or gift by the applicant to the Trust - definition of assets - asset limit exceeded - decision under review affirmed

Social Security Act 199, ss 9, 11, 593, 608, 611(1), 1118, 1122, )

Social Security Guide - clause 1.1.L.65

O'Brien and Secretary, Family and Community Services [2002] AATA 848

Boyd and Secretary, Department of Social Security [1994] AATA 580

Clayton and Secretary, Department of Family and Community Services [2003] AATA 1225 In

Riches and Secretary, Department of Social Security [1995] AATA 361

Social Security Guide - clause 1.1.L.65

Re Eimberts and Repatriation Commission (1988) 16 ALD 19

Re Cowling and SDSS (1986) 12 ALD 169

Melbourne and SDSS (1988) 20 FCR 496

Taylor v Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2009] AATA 852

Re Lyons and Secretary, Department of Family and Community Services and Anor [2007] AATA 1095; (2007} 94 ALD 450

REASONS FOR DECISION

29 January 2010

Ms A F Cunningham (Senior Member)

1. The applicant, Peter Bysouth, lodged a claim for newstart allowance on 22 October 2008. His claim was rejected on the basis that his assets exceeded the allowable asset value limit. Centrelink's decision was affirmed by the Social Security Appeals Tribunal (SSAT) and Mr Bysouth now seeks a review of the decision by the Administrative Appeals Tribunal.

ISSUES

2. The issues for the Tribunal to determine are the nature and value of the applicant's assets and whether they exceed the allowable limit. The SSAT identified the assets limit as the issue for it to determine. It appears from their decision that there was no dispute regarding the characterisation of the assets under review.
3. It was agreed that Mr Bysouth meets the qualification provisions for newstart allowance. Mr Bysouth argues before this Tribunal however, that a sum of money of approximately $550,000.00 which were the proceeds of his superannuation entitlement and used to purchase a property at 3/17 Badham Avenue, Mosman in New South Wales had been incorrectly characterised as a loan. Mr Bysouth maintains that he had gifted the money to the Petalex Investment Unit Trust (the Trust) in 2001, and that there was never any expectation that it would be repaid to him.
4. The effect of a finding that the money was a gift and not a loan, given the passage of time means that it would be disregarded for the purposes of assessing Mr Bysouth's assets.

BACKGROUND

5. Following his retirement from the Defence Department in August 2001, Mr Bysouth received approximately $600,000.00 by way of superannuation entitlements. Acting on professional advice Mr Bysouth established the Bysouth Family Trust with the nominated beneficiaries being himself, his wife Christine Bysouth and their children and descendants. The trustee of the Family Trust is Petalex Holdings Pty Ltd. The Family Trust was established to receive income from the Petalex Investment Unit Trust (the Unit Trust). Petalex Holdings Pty Ltd is the trustee of the Unit Trust. The sole assets of the Family Trust are 100 B class shares in the Petalex Investment Unit Trust. Both trust entities are attributable solely to Mr Bysouth.
6. In 2003 a property at 3/17 Badham Avenue, Mosman was purchased by the Unit Trust for $1,050,000.00. The purchase monies were sourced from a contribution by Mr Bysouth in the sum of $550,000.00 and a loan obtained from Mr Bysouth from the Commonwealth Bank in excess of $700,000.00.
7. After being retrenched in 2003 due to illness, Mr Bysouth worked in Singapore until he was retrenched in April 2008 when he returned to Australia. Mr Bysouth has suffered significant health problems and has been diagnosed with post-traumatic stress disorder and depression. He has not resumed employment due to his ill health.
8. The above background facts were not in dispute at the hearing and the Tribunal finds accordingly.
9. Mr Bysouth's contribution of $550,000.00 received by way of superannuation entitlements and used as a deposit for the purchase of the Cremorne property was assessed by Centrelink as a loan and accordingly deemed to be an asset of Mr Bysouth for the purposes of the assets limit test. Mr Bysouth challenges the characterisation of these monies as a loan and contends that the monies were gifted to the trust for the purpose of purchasing the property and that there has never been any arrangement that the Unit Trust repay the funds or any interest to him.
10. Mr Bysouth does not dispute Centrelink's characterisation of the Commonwealth Bank loan. He agrees that the loan was obtained in his name and not in the name of the Unit Trust and that the monies were accordingly loaned by him to the Unit Trust for the purchase of the Cremorne property.
11. It is the respondent's contention that there is no evidence to support Mr Bysouth's claim that the deposit of the $550,000.00 with the Trust was in the nature of a gift. The respondent maintains that the evidence supports a finding that the advance was by way of a loan and not a gift. It is contended that it was only after Mr Bysouth became aware of the effect that the loan would have on his social security entitlement that he chose to describe the arrangement as one of a gift rather than a loan. The respondent points out that the applicant had described the arrangement in his evidence to the SSAT as a loan and also to Centrelink and that his current explanation is one of convenience and late invention.
12. The respondent particularly relies on the characterisation of these monies in copies of the tax return and financial statements for the year ended 30 June 2003 and the financial statement for the year ended 30 June 2002 which were tendered in evidence.

THE EVIDENCE

13. Mr Bysouth said in his evidence to the Tribunal that Centrelink had always characterised his $550,000.00 contribution to the Unit Trust as a loan and that he had not disputed this classification. This was despite the fact that there was no arrangement for the Unit Trust to pay him any interest or to repay the monies. Mr Bysouth did not originally contest Centrelink's decision on the basis of the characterisation of these funds as a loan but contended that the Unit Trust was virtually insolvent in that the value of the liabilities exceeded its assets.
14. The decision of the Authorised Review Officer (ARO) does not clearly identify the basis upon which he concluded that the $550,000.00 contribution by Mr Bysouth constituted a loan from him to the Unit Trust. In the 2002 Unit Trust Notes to the Accounts, there is a reference to an unsecured loan to unit holders of $503,212.00. (See T8). However there is no reference to this document in the ARO's decision.
15. Of particular relevance are the financial statements tendered in evidence at the Appeal hearing which refer to "unpaid present entitlements: Peter Bysouth" in the sum of $576,136.27 for 2003 and $503,212.00 for 2002. On the Funds/Loans/Capital Account page for the year ended 30 June 2003 these amounts are described as "Beneficiaries' Loans".
16. At the hearing Mr Bysouth maintained that this money was gifted to the Unit Trust for the purchase of the Cremorne property, however apart from his statement to this effect, he was unable to refer to any evidence in support of his contention. When asked why these funds were described as "unpaid present entitlements" to himself and "beneficiaries loans" in his tax returns and financial statements, Mr Bysouth was not able to give any explanation at the Apeal hearing.
17. Mr Bysouth was afforded additional time to clarify the position with his accountants and invited to present further evidence from them which he declined to do. He maintained that he had given no specific instructions to his accountants regarding the transfer of the monies to the Unit Trust and that they had classified the monies on the financial statements and tax returns in accordance with their normal practice.

THE LEGISLATION

18. The applicable legislation is that contained in the Social Security Act 1991 (the Act). It was conceded and the Tribunal accepts that Mr Bysouth satisfies the qualification requirements for newstart allowance as set out in section 593 of the Act.
19. Section 608 states that a newstart allowance is not payable to a person if the rate is nil. Section 611(1) provides that a newstart allowance is not payable to a person if the value of the person's assets is more than the person's asset value limit.
20. In Mr Bysouth's case the asset limit worked out in accordance with the Table for a non-home owner couple at the time of the lodgement of his claim was $368,000.00.
21. Section 11(1) of the Act defines the term "asset" as "means property or money (including property or money outside Australia)". Whilst "property" is not defined in the Act it has been widely interpreted to include all real or personal property and legal and beneficial rights and interest whether of a real or personal nature (Re Eimberts and Repatriation Commission (1988) 16 ALD 19). In Re Cowling and SDSS (1986) 12 ALD 169 the Tribunal held that shares were property. The Federal Court in Melbourne and SDSS (1988) 20 FCR 496 held that the term "property" included both physical things and proprietary rights.
22. Section 1122 of the Act suggests that a loan is considered to be an asset for the purpose of the assets test for it 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 include so much of that amount as remains unpaid but does not include any amount payable by way of interest under the loan".

23. The Tribunal in Taylor v Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2009] AATA 852 accepted the applicant's evidence that monies advanced by way of a loan to his son and daughter-in-law pursuant to a loan agreement were irrecoverable. It nevertheless held that the effect of section 1122 and section 1084 is that it remains an asset at its unrecovered amount for the purposes of the assets test. The Tribunal noted that the apparent effect at simplification of the law by section 1122 of the Act produced a decidedly unfair result for the applicant.
    
24. Section 1118 refers to certain assets that can be disregarded in calculating the value of a person's assets and loans are not included in the list.
25. Section 9 of the Act defines a "financial asset" as a financial investment or a deprived asset. A "financial investment" is defined in the same section as including a loan that has not been repaid in full.

DISCUSSION

26. There is little doubt that a loan owed to the applicant would be an asset for the purpose of the assets value limit. The question remains whether the funds deposited by Mr Bysouth with the Unit Trust in the sum of $550,000.00 constituted a loan by him to the Unit Trust or a gift.
27. The term "loan" is not defined in the Act. The Tribunal was referred to the Social Security Guide where "loan" is defined at clause 1.1.L.65 for the purposes of the assets test as an actual lending of money or an asset of a particular value with a clear intention to repay. A loan is stated to be an advance of money or the payment of an amount with an obligation whether expressed or implied to repay the amount. It was Mr Bysouth's contention that there is no evidence to suggest that the loan was repayable to him by the Unit Trust.
28. The Tribunal was referred to a number of decisions which considered this term in the context of the assets test. Several of the decisions related to an assessment of the value of the loan which had been accepted as an asset of the applicant and subject to the asset value limit.
29. The Tribunal in Clayton and Secretary, Department of Family and Community Services [2003] AATA 1225 included a loan made by the applicants to a private company of which they were share-holders as an assessable asset despite the fact that the loan had been forgiven and could not be repaid. In Riches and Secretary, Department of Social Security [1995] AATA 361 a loan to the family trust was included as an asset despite the absence of any formal agreement as to repayment or interest payments.
30. In Boyd and Secretary, Department of Social Security [1994] AATA 580 the Tribunal referred to the financial records of the company which consistently described the subject sum as a loan and said at paragraph 28:

"... Although such descriptions cannot be regarded as conclusive evidence of the nature of the sum, it nevertheless represents to the Tribunal a strong indication that it was a loan. Its description as such suggests that there were expectations of eventual repayment. Indeed, the act of forgiving was recognition that repayment was not possible".

At paragraph 38:

"In view of the Tribunal, section 1122 is clear in its effect. The value of the loan is that amount that "remains unpaid". There is no suggestion that those words may be interchanged with "remains recoverable". The Guide to the Administration of the Social Security Act does not expressly provide for part of a loan to be deemed irrecoverable. In accordance with Hughes (supra), the Tribunal finds that the legislation, whilst capable of producing unjust results in some circumstances, nevertheless intended loans made after 27 October 1987 to be valued at face value".

31. The applicant argued in O'Brien and Secretary, Family and Community Services [2002] AATA 848 that the value of the loan to the family trust to purchase a business and shares should be discounted for several reasons which included the failure of the business and the decline in the value of the shares. The Tribunal rejected the applicant's contention as it was not satisfied that there was any clear agreement at the time of the advance that the amount repayable by the trust was to be limited to the value of the assets held by the trustee. As there have been no demand for repayment the amount of the shortfall and hence the value of the asset had never been clarified.
32. In the majority of the cases referred to above the Tribunal was concerned with the value of the loan rather than its characterisation. In the current case Mr Bysouth disputes that the monies advanced by him constituted a loan but were instead a gift. There is however no evidence other than Mr Bysouth's statement to this Tribunal that the monies constituted a gift. Although there is no evidence of any specific arrangement for repayment of the monies, the absence of this evidence does not persuade the Tribunal that the monies could not be repaid to Mr Bysouth. Indeed in his letter to the Tribunal of 14 January 2010 Mr Bysouth states that in the event that the trust folded prior to his death, the monies would be returned to him tax free. As Mr Bysouth did not call the accountants to give evidence, the circumstances of repayment are not apparent, for instance, whether as a beneficiary of the Unit Trust or lender of the monies.
33. The Tribunal in Re Lyons and Secretary, Department of Family and Community Services and Anor [2007] AATA 1095; (2007} 94 ALD 450 was required to consider whether a cash injection by the applicants into their own company should be characterised as a loan or a gift. It considered the meaning of both terms by reference to a number of previous decisions where the terms had been considered in various contexts. Whilst the applicants in that case maintained that there was no expectation that they would ever recover their cash injections, the Tribunal was persuaded by the characterisation of the cash injections in the company's financial statements and held that the applicants were bound by the characterisations made by their accountant in accordance with generally accepted accounting principles and practice. The Tribunal held that the balance sheet of the company correctly recorded loans made by the applicants to the company and the applicants could not expect to ignore the consequences of the company structure when it is suited them to do so.
34. The authorities make it clear the issue of recoverability is not determinative of the characterisation of funds as a loan or a gift. The Tribunal adopts the view expressed in Boyd and Secretary, Department of Social Security (supra) which said that a reference in financial records to a sum as a loan represents a strong indication it was a loan and that such references suggest expectations of eventual repayment.
35. For these reasons the Tribunal agrees with the decision under review which is accordingly affirmed.
    

I certify that the 35 preceding paragraphs are a true copy of the reasons for the decision herein of Ms A F Cunningham (Senior Member)

Signed: ............................

R Hunt (Administrative Assistant)

Date/s of Hearing 29 October 2009

Further responses filed 11, 17, 18 December 2009 and 18 January 2010

Date of Decision 29 January 2010

Solicitor for the Applicant Applicant on his own behalf

Solicitor for the Respondent Mr B Sparkes, Centrelink Legal Services