PART IIIB – PROVISIONS APPLICABLE TO … IIIB (s 46) PART IIIB – PROVISIONS APPLICABLE TO...

Part IIIB (s 46)

PART IIIB – PROVISIONS APPLICABLE TO SERVICE PENSIONS AND INCOME SUPPORT SUPPLEMENT

[Part IIIB.00] Legislative history – Part IIIB Part IIIB of the VEA was created by s 45 of the Veterans’ Affairs (1994-95 Budget Measures) Legislation Amendment Act 1994 (No 98/1994), with effect from 20 March 1995, as a consequence of the insertion of income support supplement (Part IIIA) into the Act. Part IIIB was created by removing Divisions 8AA to 21 of Part III “Service Pension” into the new Part and renumbering them: Original Div No (in Pt III)

New Div No (at 20/5/95)

Current Division Headings (at 1/9/08)

8AA 1 1 – Ordinary income concept 8 2 2 – Business income 8A 3 3 – Deemed income from financial assets 8B 4 4 – Income from income streams 8C 5 [Repealed] 9 6 6 – Income tests–conversion of foreign currency amounts 10 7 7 – Income tests–disposal of ordinary income 11 8 8 – Retirement assistance for farmers – – 8A – Retirement assistance for sugarcane farmers 12 9 9 – New Enterprise Incentive Scheme 13 10 10 – General provisions relating to maintenance income 14 11 11 – General provisions relating to the assets test – – 11A – Means test treatment of private companies and private trusts – – 11B – Private financial provision for certain people with disabilities 15 12 12 – Service pensioner and income support supplement recipient benefits – 12A 12A – Payments after bereavement 16 13 13 – Recipient obligations 17 14 14 – Pensioners in certain institutions 18 15 15 – Variation and termination 19 16 16 – Review of decisions 20 17 17 – Administration of pension payments 21 18 18 – Indexation

Division 1 – Ordinary income concept

Section 46 General meaning of ordinary income [46.01] Effect of s 46 Section 46 emphasises the general approach in the VEA that ordinary income for income test purposes is gross income and is not subject to set-offs for expenses incurred, other than where the person is carrying on a business (s 46C). See the discussion of set-offs against income at [5H.03] in Part I.

Veterans' Entitlements Law 2nd edn Robin Creyke and Peter Sutherland

© The Federation Press All Rights Reserved

2 VETERANS’ ENTITLEMENTS LAW

Part IIIB (s 46A)

Section 46A Certain amounts taken to be received over 12 months

[46A.01] Effect of s 46A [46A.02] “the day on which the person becomes entitled to receive that amount” –

s 46A

[46A.01] Effect of s 46A Section 46A provides for certain receipts to be averaged over a 12 month period for income test purposes. It applies essentially to certain capital receipts as the section excludes:

(a) income from financial assets and income streams; (b)(i) income in the form of periodic payments; and (b)(ii) ordinary income from remunerative work.

Section 46A is the same as s 1073 of the Social Security Act 1991 and its predecessors (s 1074, s 12L of the repealed Social Security Act 1947). The scope of what constitutes “income” under the Social Security Act was significantly extended by the decision of the Federal Court in SDSS v McLaughlin (1997), particularly in relation to capital receipts unrelated to remunerative work; see the discussion at [5H.01] in Part I.

[46A.02] “the day on which the person becomes entitled to receive that amount” – s 46A

Section 46A averages capital receipts over the 12 months following “the day on which the person becomes entitled to receive that amount”. Note that “received” is a narrower term than “earned” or “derived” (as used in the definition of “income” in s 5H) and that capital returns can be derived before they are received: Re Smith and Director-General of Social Services (1982). See Re Truscott and SDSS (1989) for an example of the application of an equivalent section in the repealed Social Security Act 1947. The fact that the person received the money before lodgement of the claim for pension does not limit the operation of the provision: Re SDSS and Browne (1992). In Re Duckworth and SDSS (1995), Re Christensen and SDSS (1995), Re SDSS and Papamihail (1997) and Re Hawkins and SDFaCS (1999), the Tribunal took the view that the crediting of a pensioner’s account within the accounts of a discretionary family trust constitutes receipt of that sum by the pensioner. The Tribunal’s reasoning was that the pensioner has a right to insist on the payment or, if the amount credited discharged an existing debt, the pensioner has received the benefit of it. However, see Re D’Angelo and SDFaCS (2003) where the Tribunal declined to follow these decisions and held that payments into a trust account had been “derived” but not “received” (for the purposes of equivalent s 1073(1)) until they were actually in the possession of the applicant. In this case, the applicant was not informed of the distribution and the trustee had refused to pay out the applicant’s entitlement. Litigation was afoot between the applicant and the trustee to recover the money. Until the money was received, it should be treated as a financial asset subject to the deemed income arrangements. See also Re Drummond and SDSS (1998) where the applicants argued that an annual distribution from a family trust was the result of periodic receipts from



SERVICE PENSIONS AND INCOME SUPPORT SUPPLEMENT 3

Part IIIB (s 46C)

investments held by a trust in which they held the beneficial interest. They argued that the trust was really only a conduit for their own monies and, as such, the distribution should be treated as having been received on a periodic basis albeit that the trustee only paid it annually as a lump sum. Following Re Duckworth, the Tribunal held that s 1073 applied to the distribution as the applicants had no entitlement to the payments until the Trustee exercised his discretion and distributed the accumulated income at the end of the financial year. In Re Beer and Repatriation Commission (2006), the applicants had life insurance policies, the value of which were taken into account by the Repatriation Commission in the calculation of service pension in 1991. As a result of the application of the assets test, Mr Beer’s service pension was reduced. In 2003, the applicants surrendered these policies to obtain funds for retirement accommodation purposes. The Commission then assessed the growth component on the life insurance investments as income and reduced the service pension on that basis. The Tribunal noted that the Commission was required to apply either the assets test or the income test, but not both. By taking into account the growth on the life policy investment in both the assets and income test and applying both tests, the Commission had erred. The Tribunal set aside the decision and remitted it to the Commission for recalculation of service pension from 1991 to the present date. In Re Creamer and SDFaCSIA (2006), the applicants received a one-off distribution from the sale of the intellectual property rights owned by a trust of which they were the beneficiaries and, as a result, their age pension were reduced under s 1073. The applicants argued that s 1073(1) had no application to age pension because the age pension is not referred to in the list of benefits in s 1073(2). The Tribunal held that s 1073(2) is not intended to contain an exhaustive list of benefit categories and that s 1073(1) does apply to age pensions. The Tribunal rejected, without giving reasons, the argument that the payment received was not “income” but rather was a return of an asset.

Division 2 – Business income

Section 46C Permissible reductions of business income [46C.01] “if a person carries on a business” – s 46C(1) [46C.02] Allowable business deductions – s 46C(1) [46C.03] Receipt of “ordinary income on a financial investment” – s 46C(2)

[46C.01] “if a person carries on a business” – s 46C(1) Section 46C is the same as s 1075 of the Social Security Act 1991 and is similar to predecessor sections in the Social Security Act (eg s 1072C). In broad terms, s 46C permits certain deductions, depreciation and allowances, provided for in the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997, to be off-set against income for VEA income test purposes, but only where the pensioner “carries on a business” and only in respect of deductions, etc in relation to that business. See, for example, Re Jessep and SDFaCS (2001) where the applicant sought to offset farm losses against income from part-time work at a nursing home. The Tribunal declined to allow the offset as the loss arose from a separate business. See also [5H.03] in Part I.




Part IIIB (s 46C)

Section 46C has not been directly considered by the Tribunal, however cases on former s 1072C and s 1075 are fully relevant. In SDSS v Ekis (1998), the Federal Court held that “carries on a business” in s 1075 [VEA s 46C] has exactly the same meaning as the expression “carrying on a business” in s 51(1) of the Income Tax Assessment Act 1936 and thus necessarily excludes any “occupation as an employee”:

The Tribunal, in seeking the meaning of the statutory expression “carries on a business”, broke it up into two components: it determined first what it considered was the true meaning of the word “business” and then, having concluded that the respondent was engaged in “an occupation or calling in the business of conducting real estate sales”, sought for the meaning to be given to the other component of the phrase, “carries on”, and concluded that the respondent met the statutory requirement. Interpreting a composite phrase by dissecting it into its component words and seeking a meaning for each has, however, long been identified as an inappropriate method of construing such a phrase: see, for example, Mersey Docks and Harbour Board v Henderson Bros (1888) 13 App Cas 595 at 599-600 and Collector of Customs v Agfa-Gevaert Ltd (1996) 186 CLR 389 at 399-400. This approach led the Tribunal away from identification of what in my opinion is the true meaning of the statutory expression. … … While the term “business” as used in s 51(1) of the ITAA is defined by s 6(1) of that Act to include “any profession, trade, employment, vocation or calling”, it is also defined to exclude “occupation as an employee”. It follows that, if a pension applicant who claims to be carrying on a business for the purposes of s 1075 is, in truth, an employee, losses and outgoings incurred in respect of the person’s employment are not deductible as business losses or outgoings under s 51(1) and so cannot be brought into account in the pension entitlement calculation. … (at 85 FCR 385)

The Court remitted the matter to the Tribunal for it to determine, on the facts, whether the respondent (a real estate agent operating within an agency on a commission-only basis) was an employee or an independent contractor. The Court discussed how to draw a distinction between an employee and an independent contractor:

In arguing that the respondent was an employee, the applicant placed particular reliance upon Federal Commissioner of Taxation (Cth) v Barrett (1973) 129 CLR 395, where it was held that salesmen employed on a commission-only basis by a firm of land agents in South Australia were employees of the firm. The old test for resolving the question of employee or independent contractor, namely, whether the work was done under such a degree of actual or potential supervision that the worker should be characterised as an employee of, rather than an independent contractor to, the person with supervisory authority, has now been replaced by a more “flexible” test: see Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 at 24 and 49 and Vabu Pty Ltd v Commissioner of Taxation (Cth) (1996) 33 ATR 537 at 538–539, 540–541). Barrett itself does not suggest otherwise. Because the question whether a person is an employee rather than an independent contractor must be determined by reference to the circumstances of the particular case, it will rarely if ever be possible to find a determination in an earlier decision on facts so close to those currently in issue as to justify the same conclusion. In resolving this question in a particular setting, no one factor is likely to be decisive. Rather will the proper characterisation of the relationship depend upon an assessment of the relative significance of a number of different features of that relationship. (at 85 FCR 388)

On remittal in Re Ekis and SDFaCS (1999), the Tribunal referred to the “control” test and also to the “flexible approach” suggested by Drummond J. After addressing the circumstances of control, remuneration, hours of work, provision of equipment and




Part IIIB (s 46C)

deduction for income tax, the Tribunal found that the applicant was an independent contractor. In Re Haynes and SDFaCS (1999), the Tribunal considered the position of a registered tax agent who did tax return work for H& R Block. There was a written contract of employment between the parties which clearly indicated that the applicant was an employee. H&R Block provided the office facilities, met all necessary overheads and paid the applicant on both a time worked and a supplementary commission basis. H& R Block deducted PAYE tax, paid workers compensation and superannuation payments. The applicant was required to comply with Company procedures and to refrain from having private dealings with the clients. The applicant argued, inter alia, that the professional nature of his duties meant that there was minimal supervision of his work and this was suggestive of a contractor relationship. The Tribunal considered the various indicia of an employment relationship at some length and rejected the argument that professional obligations were necessarily inconsistent with an employment relationship. The Tribunal saw the existence of the written contract of employment coupled with the PAYE and superannuation payments as being persuasive in favour of an employment relationship. In Re Cantlay and SDFaCS (1999), a person working as a consultant to a State politician was held to be carrying on a business, notwithstanding PAYE tax deductions and formal appointment to the Public Service as a temporary employee (which were “merely a mechanism to provide for the payment to the applicant for his services”). This decision was set aside on appeal by the Federal Court in SDFaCS v Cantlay (2000) because the existence of an employment relationship was determinative of the issue. Heerey J said:

In the present case, the AAT expressly found, and indeed it was not disputed, that the respondent was employed by the Department pursuant to an instrument of appointment during the relevant period. There being no suggestion that the appointment of the respondent was a sham, the fact of employment could not be set to one side as “merely a mechanism to provide for payment”. The instrument of appointment and the relationship thereby created did of itself determine for the purposes of the Act whether or not the respondent was entitled to have any business expenses deducted from the income he received from the Department. That income could not be income from a business carried on by the respondent because it was obtained by virtue of his occupation as an employee and thus not within s 1075(1), for the reasons explained by Drummond J [in SDSS v Ekis (1998)]. (at [33]-[34])

In Hollis v Vabu Pty Limited t/a Crisis Couriers (2001), the High Court held that a bicycle courier was an employee, not an independent contractor. Gleeson CJ and Gaudron, Gummow, Kirby and Hayne JJ said:

However, considerations respecting economic independence and freedom of contract are not, with respect, determinative of the legal character of the relationship between the bicycle courier and Vabu as disclosed by the evidence. In classifying the bicycle couriers as independent contractors, the Court of Appeal fell into error in making too much of the circumstances that the bicycle couriers owned their own bicycles, bore the expenses of running them and supplied many of their own accessories. Viewed as a practical matter, the bicycle couriers were not running their own business or enterprise, nor did they have independence in the conduct of their operations. A different conclusion might, for example, be appropriate where the investment in capital




Part IIIB (s 46C)

equipment was more significant, and greater skill and training were required to operate it. The case does not deal with situations of that character. The concern here is with the bicycle couriers engaged on Vabu’s business. A consideration of the nature of their engagement, as evidenced by the documents to which reference has been made and by the work practices imposed by Vabu, indicates that they were employees. First, these couriers were not providing skilled labour or labour which required special qualifications. A bicycle courier is unable to make an independent career as a free-lancer or to generate any “goodwill” as a bicycle courier. The notion that the couriers somehow were running their own enterprise is intuitively unsound, and denied by the facts disclosed in the record. Secondly, the evidence shows that the couriers had little control over the manner of performing their work. They were required to be at work by 9.00 am1 and were assigned in a work roster according to the order in which they signed on. If they signed on after this time, they would not necessarily work on their normal “channel”. Couriers were not able to refuse work. It was stated in Document 590 that “ANY DRIVER WHO DOES SO WILL NO LONGER WORK FOR THIS FIRM.” The evidence does not disclose whether the couriers were able to delegate any of their tasks or whether they could have worked for another courier operator in addition to Vabu during the day. It may be thought unlikely that the couriers would have been permitted by Vabu to engage in either activity. Thirdly, the facts show that couriers were presented to the public and to those using the courier service as emanations of Vabu. They were to wear uniforms bearing Vabu’s logo. Vabu stated in Document 792 that “DRIVERS SHOULD ALWAYS BE AWARE THAT THEY ARE A DIRECT REPRESENTATION OF THE COMPANY. THEIR ATTITUDE AND APPEARANCE CAN ONLY BE SEEN AS A DIRECT REFLECTION OF OUR ORGANISATION.” Certain attire (“thongs, singlets, swim shorts, torn jeans and other unclean or torn attire”) was not permitted. Further, Vabu required that all couriers “should be clean shaven unless that person is bearded”. The question of the significance of livery in cases where the issue is whether the individual wearing it is an employee or an independent contractor is not a new one. In Quarman v Burnett itself, Parke B said that the wearing by the coachman, with the consent of the defendants, of their livery was a “matter of evidence only of the man being their servant, which the fact at once answers”3. Here, there is rather more to the facts. Couriers were required to wear Vabu livery partly from Vabu’s wish to advertise its business. Mr Hollis was unable to identify the cyclist who struck him down other than by the Vabu livery. Vabu knew that a significant number of its couriers rode in a dangerous manner but had failed to compel its couriers to adopt an effective means of personal identification. Rather, the effect of Vabu’s system of business was to encourage pedestrians to identify the couriers “as a part of [Vabu’s] own working staff”; the phrase is that of Dean Prosser and Professor Keeton4, used by them as a guide to classification of a person as an employee. Fourthly, there is the matter of deterrence. Reference has been made to the findings of fact in this case respecting the knowledge of Vabu as to the dangers to pedestrians presented by its bicycle couriers and the failure to adopt effective means for the personal identification of those couriers by the public. … Fifthly, Vabu superintended the couriers’ finances: Vabu produced pay summaries and couriers were required to dispute errors by 6.00 pm Friday of the same week. “Unjustified or unsubstantiated” claims for additional charges, such as due to waiting time, wrong address or excess weight, could result in total deduction of that particular job payment. There was no scope for the couriers to bargain for the rate of their remuneration. Evidence in chief was given by Vabu’s fleet administrator that the rate of remuneration to the bicycle couriers had remained unchanged between 1994 and 1998. Vabu was




Part IIIB (s 46C)

authorised to hold for six weeks the last week’s pay of a courier against any overcharges, unpaid cash jobs or outstanding insurance claims. Final cheques would not be processed until all of Vabu’s property had been returned. Failure to return Vabu’s equipment, including the uniforms, or the return of damaged equipment or unwashed uniforms resulted in replacement or washing costs being deducted from this amount. Vabu undertook the provision of insurance for the couriers and deducted the amounts from their wages and, as discussed above, passed on an excess to all bicycle couriers and did not pay medical or hospital costs4. The method of payment, per delivery and not per time period engaged, is a natural means to remunerate employees whose sole duty is to perform deliveries, not least for ease of calculation and to provide an incentive more efficiently to make deliveries. Moreover, Vabu stipulated in Document 590 that “[n]o annual leave will be considered for the period November to Christmas Eve, nor for the week prior to Easter. Leave requests will be considered in accordance with other applications and should be submitted to the manager in writing at least 14 days prior.” This suggests that their engagement by Vabu left the couriers with limited scope for the pursuit of any real business enterprise on their own account. Sixthly, the situation in respect of tools and equipment also favours, if anything, a finding that the bicycle couriers were employees. Apart from providing bicycles and being responsible for the cost of repairs, couriers were required to bear the cost of replacing or repairing any equipment of Vabu that was lost or damaged, including radios and uniforms. Although a more beneficent employer might have provided bicycles for its employees and undertaken the cost of their repairs, there is nothing contrary to a relationship of employment in the fact that employees were here required to do so. This is all the more so because the capital outlay was relatively small and because bicycles are not tools that are inherently capable of use only for courier work but provide a means of personal transport or even a means of recreation out of work time. The fact that the couriers were responsible for their own bicycles reflects only that they were in a situation of employment more favourable than not to the employer; it does not indicate the existence of a relationship of independent contractor and principal. Finally, and as a corollary to the second point mentioned above, this is not a case where there was only the right to exercise control in incidental or collateral matters. Rather, there was considerable scope for the actual exercise of control5. Vabu’s whole business consisted of the delivery of documents and parcels by means of couriers. Vabu retained control of the allocation and direction of the various deliveries. The couriers had little latitude. Their work was allocated by Vabu’s fleet controller. They were to deliver goods in the manner in which Vabu directed. In this way, Vabu’s business involved the marshalling and direction of the labour of the couriers, whose efforts comprised the very essence of the public manifestation of Vabu’s business. It was not the case that the couriers supplemented or performed part of the work undertaken by Vabu or aided from time to time; rather, as the two documents relating to work practices suggest, to its customers they were Vabu and effectively performed all of Vabu’s operations in the outside world. It would be unrealistic to describe the couriers other than as employees. (at [46]-[57])

[1] Vabu’s fleet administrator gave evidence that, in 1994, the starting time was 8.00 am. [2] (1840) 6 M & W 499 at 509 [151 ER 509 at 513]. [3] Prosser and Keeton on the Law of Torts, 5th ed (1984), §70 at 501. See also Dobbs, The

Law of Torts, (2001), vol 2, §338. [4] In Document 792, Vabu informed its couriers that “[t]his company does not pay

hospital or medical bills for any courier involved in an accident”. [5] Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 at 29.




Part IIIB (s 46C)

In Re Jenkins and SDEWR (2007), the applicant worked as a commission sales person for a business called Aerial Imagery Pty Ltd. The Tribunal held that he was in fact an employee:

Mr Jenkins services is to sell training and coaching courses presented by Midline Unit Trust. Mr Jenkins claims he has control over the methods used to sell these courses as well as who and when he contacts a prospective buyer and can dictate his own hours of work. The amount of $1300 per month as a retainer and commission from sales is paid to Mr Jenkins by Midline Unit Trust. Mr Jenkins is also reimbursed travelling and other expenses and is entitled to a two weeks incapacity period. Mr Jenkins is responsible for managing and paying his own tax and superannuation. Mr Jenkins has a registered ABN claimed that he and provides all equipment and materials for work. He also claimed that he leases a telephone and office space from Midline Unit Trust. (at [36]-[39]) … Schedule 11 of the Midline contract defines the services as training, sales and negotiations and operational activities for the training products and related services and other specified tasks as requested by Midline Unit Trust. Clause 5.1 of the contract states that Mr Jenkins must, amongst other things:

o conform with reasonable and legal instructions of Midline Unit Trust; o obey, comply and conform with covenants, conditions and undertakings made by

Midline Unit Trust with another; and o comply with all relevant legislation, regulations and codes of conduct.

The Tribunal notes that the document at T34 Pages 277 to 291 states that Mr Jenkins has to follow directions of the Trust and is subject to directions relating to confidentiality [clause 5.2], intellectual property right [clause 5.3], restraint of trade [clauses 8 & 14.1] and any other tasks requested by the Trusts [par. 2 of the Schedule]. In the Tribunal’s view Mr Jenkins is advertising and selling Midline Unit Trust products and doing so as a representative of the Trust. Mr Jenkins has no control over the financial aspects or profit of Midline Unit Trust. Mr Jenkins must invoice the Trust every week [T34: pg. 281: clause 7.2]. Commission is paid on financial receipt of the money which can be deferred by participants. Mr Jenkins does not advertise for his goods or services or employ others to work for him. Clause 8 provides that Mr Jenkins will not either directly or indirectly be involved in any business or undertaking the same as or similar to the business, and under clause 16.2 Mr Jenkins cannot assign the rights or benefit of employment. (at [46]-[51]) … Mr Jenkins has a home office and is able to work from home, however he normally works at NLP’s premises and uses their equipment. Mr Jenkins contributes to the cost of telephone calls as part of the fee he pays for the “seat costs” which was taken into account in his commission fee structure. The Tribunal is of the view that the seat cost and work setup reflects “a situation of employment more favourable than not to the employer and it does not indicate the existence of a relationship of independent contractor and principal”. It is clear from the evidence that Midline Unit Trust hold the rights to the intellectual property and Mr Jenkins has little latitude regarding the structure or form of the product that is being sold, or advertisement material available for distribution. The fact that Mr Jenkins is regarded by the Australian Taxation Office (ATO) as self-employed for taxation purposes does not, in the Tribunal’s view, determine the issue under social security legislation. The Tribunal notes that there is no evidence as to the basis on which the ATO made its determination and further that the relevant taxation law provisions are different to the social security laws which are in issue here. (at [54]-[57])

Other relevant cases include:




Part IIIB (s 46C)

• Re Lennen and SDSS (1995): an advance of commission to pay for costs of training could not be deducted, as the relationship was one of employment and not independent contractor.

• Re Panagis and SDSS (1997): a pizza delivery driver was also held to be engaged in a contract of employment rather than as an independent contractor.

• Re Mills and SDSS (1997): a retired academic who undertook consultancies for his previous employer was held not to be carrying on a business – “his relationship with the University was more akin to that of an employee”.

• Re VZM and SDFaCS (2000): the Tribunal held that a silent partner in a taxi licence, who had no involvement in the operation of the licence, was not carrying on a business in the taxi industry.

• Re Klewer and SDFaCS (2001): the Tribunal held that a taxi driver working on commission under a “Bailment Agreement” was not carrying on a business.

• Re Laming and SDFaCS (2005): a tutor of Indigenous students in Darwin was held to be an independent contractor. The tutoring was funded under the Aboriginal Tutorial Assistance Scheme (ATAS), a program of the Commonwealth Department of Education, Science and Training, and administered through the Charles Darwin University.

“a business” – s 46C(1) In Re Farquhar and Repatriation Commission (1998), the applicant carried on his farm business through two legal entities, a family trust and a partnership with his wife, the family trust was profitable and made distributions but the partnership was not. The Tribunal, citing SDSS v Garvey (1989), rejected the applicant’s submission that the two structures were employed in the financial maintenance of the same business enterprise and therefore losses from the partnership ought to be deducted from the distributions of the family trust.

“ordinary income from the business” – s 46C(1) In Re Watson and SDFCS (2003), the applicant conducted a financial planning business. He contracted cancer, requiring an operation which left him with a reduced capacity to carry on his business; it thereafter ran at a loss. The applicant received payments under an income protection policy by reason of this disability. The applicant sought to set off the losses arising from his financial planning business from the income protection payments, however the Tribunal held that the income protection payments did not arise “from” the financial planning business. An appeal from this decision was dismissed in Watson v SDFaCS (2003). Finn J held that payments received under an income protection policy were income but not income “ordinary income from business” within the meaning of s 1075 [VEA s 46C]. The fact that these payments were paid in substitution for lost income from the applicant’s business was not determinative of their character.

[46C.02] Allowable business deductions – s 46C(1) In Re Salmon and SDEWR (2007), the Tribunal held that s 1075 [s 46C] permitted the set off of one business loss against another business gain in a situation where the applicant conducted multiple businesses. The Tribunal drew a distinction between this




Part IIIB (s 46C)

and off setting business losses against personal income gains in the form of wages, which was not permissible under s 1075.

The applicants’ counsel said in his written submissions that the social security legislation should be approached on the same basis as the deduction provisions in the income tax legislation. That legislation permits deductions relating to one business activity to be offset against income generated from another business. He said that was appropriate because, as Drummond J concluded in Ekis, the expression “carries on a business” in s 1075 has the same meaning as the expression “in carrying on a business” in the income tax legislation: ibid at 249-251. Drummond J’s reasoning in Ekis repays careful reading. His Honour explained the purpose of social security payments was to ensure that pensioners in lower income brackets received some support. It was appropriate that the person’s entitlement be assessed with reference to his or her gross income without taking into account deductions because, with few exceptions, the deductions available were likely to be limited. But his Honour pointed out that one of the exceptions to this approach recognised in s 1075 was in relation to outgoings in connection with business activity. His Honour said (at 250):

… the assumption would appear to be that, in contrast to the position generally obtaining in respect of deriving income from other sources, eg, work as an employee, a person would only derive a gross amount of income from carrying on a business at the cost of having to incur what might be substantial expenses, so that it would be unfair to ignore those expenses in determining such a person’s pension entitlement.

Given his Honour’s view of the purpose of the legislation, it makes no sense to arbitrarily prevent the respondent from allowing what may be substantial expenses from one business activity to be offset against income from another business. To do so would present a distorted view of an applicant’s income. If the legislature had intended that result, it would have done so in clearer terms. I do not think the use of the word “that” in s 1075(1)(a) has the effect contended for by the respondent. It follows I am satisfied the applicants are entitled to offset outgoings incurred in connection with one business against income incurred from another business. (at [14]-[17])

See also Re Donges and SDFaCS (2003), discussed at [5H.03] in Part I.

[46C.03] Receipt of “ordinary income on a financial investment” – s 46C(2)

In Re Port and SDFaCS (2001), the applicant was carrying on a business of share trading while he was in receipt of newstart allowance. The Tribunal held that the effect of s 1075(2) [s 46C(2)] was to prevent him from deducting his interest costs and other trading expenses from his “ordinary income” even though they were deductible for income tax purposes. In Re Bersee and SDFaCS (2003), the applicant was in receipt of an age pension from a retirement fund established by the Government of the Netherlands. She argued that part of the pension was a return of her own contributions and therefore it should not be caught as income for social security purposes. The Tribunal was satisfied that the pension was ordinary income and not an “income stream” and therefore the contri-butions were not deductible.




Part IIIB (s 46D)

Division 3 – Deemed income from financial assets

Section 46D Deemed income from financial assets – persons other than members of couples

[46D.01] The introduction of “extended deeming” [46D.02] Application of s 46D

[46D.01] The introduction of “extended deeming” The Social Security and Veterans’ Affairs Legislation Amendment Act 1995 (No 1/1996), with effect from 1 July 1996, made sweeping changes to the treatment of investment income under the VEA and the Social Security Act 1991. The changes, identified by the term “extended deeming”, involved the substitution of new Divisions 1 (ss 46-46A), 2 (46B-46C ) and 3 (ss 46D-46M) and new subdivision 4A (ss 46Q-46S). Subdivision E of Division 2 became subdivision 4B and Division 5 was repealed. The Explanatory Memorandum to the Bill described extended deeming in the following terms:

2. Background In 1994, the Government engaged an independent consultant, Mr John Barber from Ageing Agendas, to conduct the Strategic Review of the Pensions’ Income and Assets Tests. Mr Barber held widespread consultations with pensioners and veterans, groups representing older people and the investment industry. He presented the final report, Targeting for Equity, on 5 December 1994. The consultations with pensioners, veterans and pensioner organisations revealed their concerns about the complexity of the rules for assessing income from financial investments, the frequent changes they caused to pension payments, and their effect on incentives to earn more from investments. People with investments, such as shares and managed investments, found the rules particularly complex and said their pension payments changed far too often. Pensioners wanted a simpler and fairer system. Ageing Agendas provided firm directions for policy change, in particular for the adoption of a broader system of deeming income on assets, arguing that a significant expansion of deeming would maintain and improve means testing and meet pensioner desires for a more simple and predictable system. The Government responded to the Report in the 1995 Budget, broadly accepting the Ageing Agendas’ recommendations but not adopting them in their entirety. The Government decided that from July 1996 deeming will be extended to the full range of financial investments. At present there are many different and complex rules for calculating the income from financial investments. In some cases the rules depend on when the investment was made. From July 1996, these rules will no longer apply and financial investments will be assessed under one set of simple rules, which build on the bank deeming measure. Under extended deeming, the total value of a person’s financial assets will be added together. On 9 May 1995, the Government announced that a deeming rate of 5% will apply to the first $30,000 of the total for a single person (or $50,000 for pensioner couples combined or $25,000 for a member of a non-pensioner couple). A deeming rate of 7% will apply to the value of financial assets over these thresholds.




Part IIIB (s 46D)

The deeming rates of 5% and 7% announced by the Government were set so that the rates are easily achievable in safe investments. These rates will be reviewed periodically to take into account movements in the financial markets. Financial assets will include bank, building society and credit union accounts; cash; term deposits; cheque accounts; friendly society bonds; managed investments; investments in superannuation funds, approved deposit funds and deferred annuities after age pension age; listed shares and securities; loans, debentures and bonds; shares in unlisted public companies; gifted assets above the allowable gifting value of $10,000 a year; and gold and other bullion. Financial assets will not include the home or its contents; cars, boats and caravans; antiques, stamp or coin collections; investments in superannuation funds, approved deposit funds and deferred annuities before age pension age; standard life insurance policies; and holiday homes, farms or other real estate. They also do not include income stream products such as superannuation pensions, allocated pensions, immediate annuities or allocated annuities. The concession under the bank deeming rules, which allows the first $2,000 ($4,000 for pensioner couples combined) of bank deposits and cash to be assessed at the actual interest rate if it is less than 5%, will be continued. [Note: this concession was repealed from 20 March 1997] The objectives of extended deeming are that it will introduce a mechanism that: • is simpler, since it replaces numerous rules applying to different financial assets with

one set of rules; • is fairer, because it ensures that people with the same levels of financial assets

receive a similar assessment no matter how those assets are invested; • is more predictable, because it reduces the extent to which payments change due to

investment performance; • increases incentives for self-provision, because returns in excess of the deeming rate

are not counted as income and cannot reduce payments; • simplifies choice of investments because, by treating all financial assets in the same

way, it encourages people to choose investments on their merits instead of their likely effects on entitlements; and

• puts the means test system on a sounder, long term footing as the population ages. …

Extended deeming does not change the assets test in any way. The free areas under the income and assets tests will continue to be adjusted in line with the consumer price index (CPI). The pension withdrawal rates above the free areas have not changed. This extended deeming measure is to be introduced in two stages. First, from the date of Royal Assent of this Bill, income will not be assessed when a “saved” managed investment is cashed in. “Saved” managed investments are managed investments purchased before certain dates, and the current rule is that capital growth on these investments is assessed as income, only when the investment is cashed in. Removing this rule from Royal Assent is a concession that will allow people who decide they wish to change their investments before July 1996 to do so, without their social security payment being adversely affected by past capital growth. Second, the new deeming rules do not come into effect until 1 July 1996. This gives people affected by the measure plenty of time to consider their situation and to make changes to their investments if they wish. (at pp 2-4)

See also the legislative history of investment income at [5J.00] in Part 1.




Part IIIB (s 46H)

[46D.02] Application of s 46D In Re Fielden and SDSS (1998), an age pensioner borrowed money to undertake renovation of her principal home. She deposited the loan receipts in an investment account and drew down on the account when trade accounts had to be paid. Under the equivalent provision in the Social Security Act (s 1076), the Tribunal held that the amount in the account was a financial asset, that it was subject to deeming at 3%, and that she could not offset against this deemed income the interest she was paying on her mortgage loan.

Section 46H Deeming threshold

[46H.01] Indexation of the deeming threshold and deeming rates The deeming thresholds set out in s 46H are subject to indexation on 1 July in each year. The indexed threshold amounts and the below threshold and above threshold deeming rates (which are set by determinations under s 46J) are set out in the table below.

Date BTR ATR Threshold Amounts Below Threshold

Rate Above Threshold

Rate Single pensioner Pensioner couple

1 Jul 96 5% 7% $30,000 $50,000 23 Jan 97 4% 6% $30,000 $50,000 1 Jul 97 4% 6% $30,400 $50,600 20 Sep 97 3% 5% $30,400 $50,600 1 Jul 98 3% 5% $30,400 $50,600 20 Mar 99 3% 4.5% $30,400 $50,600 1 Jul 99 3% 4.5% $30,800 $51,200 20 Mar 2000 3.5% 5.5% $30,800 $51,200 1 Jul 2000 3.5% 5.5% $31,600 $52,600 1 Jul 01 3% 4.5% $33,400 $55,800 20 Mar 02 2.5% 4% $33,400 $55,800 1 Jul 02 2.5% 4% $35,600 $59,400 1 Jul 03 2.5% 4% $35,600 $59,400 20 Mar 04 3% 5% $35,600 $59,400 1 Jul 04 3% 5% $36,400 $60,600 1 Jul 05 3% 5% $37,200 $62,000 1 Jul 06 3% 5% $38,400 $63,800 1 Jul 07 3.5% 5.5% $39,400 $65,400 20 Mar 08 4.0% 6.0% $39,400 $65,400 1 Jul 08 4.0% 6.0% $41,000 $68,200 17 Nov 08 3.00% 5.00% $41,000 $68,200 20 Nov 09 2.00% 3.00% $41,000 $68,200




Part IIIB (s 46K)

Section 46K Actual return on financial assets not treated as ordinary income

[46K.01] Deposit moneys In Re Harris and Repatriation Commission (2001), the applicant invested money in a “loan account” in a discretionary family trust which made periodic distributions of income. The Commission treated the investment as a financial asset and applied the deemed income provisions. It also took into account the actual income distribution from the trust, which the applicant argued was a double counting of the same income in breach of VEA s 46K. The Tribunal held that the transaction was not a true loan and was properly characterised as “deposit moneys” as defined in s 5J(1); see [5J.04] in Part I. It held that, once an income had been deemed on the amount of the “loan”, s 46K prevented the Commission from taking into account the actual income from the trust. In Re Brown and SDFaCS (2004), the applicants made interest-free loans to the family trust and later received a distribution from the trust. The Tribunal declined to follow Re Harris, saying:

The applicants received the trust distribution because they are beneficiaries of the trust and the trustee resolved to distribute the income of the trust to them pursuant to the provisions of the trust deed. The trust distribution related to their interest in the trust estate as beneficiaries and it did not constitute a return on their financial assets which are the loans they made to the trustee. The applicants made the loans on an interest free basis which means that they produced no actual returns that would have been excluded from ordinary income under s 1083(1). (at [28])

See also Re Beer and Repatriation Commission (2006) at [46A.02] for discussion of the restriction on taking into account actual returns on investments when those same returns have already been taken into account in the assets test.

Section 46M Valuation and revaluation of certain financial investments

[46M.01] Purpose of s 46M Section 46M was inserted by item 27 in Schedule 16 to the Social Security and Veterans’ Affairs Legislation Amendment Act 1995 (No 1/1996) on 1 July 1996 as part of the “extended deeming” measures discussed at [46D.01]. Section 46M was inserted just before the Bill passed the Senate and was not accompanied by a Supplementary Explanatory Memorandum. Hansard (Senate, 28 November 1995, pp 4097-98) records the following debate on the equivalent section in the Social Security Act (s 1084A):

[Senator CROWLEY, Government] These amendments will clarify issues relating to valuation dates for managed investments and listed securities that fluctuate according to market values. Because of this amendment pensioners will know with certainty when the rate of their pensions may change because the Department of Social Security has revalued their investments. The amendment will provide that listed securities and market linked managed investments will only be revalued when the investment values are reviewed on 20 March and 20 September or the recipient requests that the department revalue any of his or her investments or an event occurs that affects an investment and is specified in a




Part IIIB (s 47)

recipient notification notice. An example of an event that may be specified in a notice is a change to a bank account of more than $1,000. The recipient is required to notify the department of changes such as these so that the recipient’s social security payment can be correctly reassessed. The government had intended to consult the community before introducing revised arrangements for valuing assets. It has already informally discussed some options for better administrative arrangements with groups such as the APSF. However, the non-government parties were keen to have arrangements set out in the legislation. While the government would have preferred the opportunity to have consulted more widely, it does support the general principles of providing pensioners with certainty and clarity in revaluation of assets. For these reasons the government has moved what it believes are workable and equitable amendments. In relation to the revaluation of these investments, the government undertakes that revaluations will be determined in accordance with departmental guidelines using the current market value of the investment. Senator KNOWLES (Western Australia) (6.13 p.m.) [Opposition] – The coalition will support the government amendments because basically they reflect the amendments that we were proposing earlier this afternoon prior to the redrafting by the government of this particular set of amendments. While we certainly support a simplified and more equitable valuation of assets, we do believe that the timing of the valuation of financial investments should be incorporated in the bill, and that has now been done. This system and timing of valuation must not only be administratively simple but also workable. It should also place minimum demands on those clients of DSS who will be affected by extended deeming. Our amendment that we were moving earlier this afternoon does fit hand in glove with what has now been moved by the government in so far as we wanted to ensure that the valuation of financial assets was to take place at six-monthly intervals, with the option of a client being able to seek a valuation at any other time during the year. The amendment clearly states that the revaluation must occur on 20 March in each calendar year after 1996 and on 20 September in each calendar year after 1996. As Senator Crowley has said, a person can request a revaluation of one or more of the person’s listed securities and managed investments and following an event that affects the relevant investments and is the subject of a recipient notification notice. The coalition will be supporting the government’s amendments.

There have been no decisions of the Tribunal or the Federal Court in respect of this section or s 1084A of the Social Security Act (as at 1 April 2009).

Division 6 – Income tests – conversion of foreign currency amounts

Section 47 Application of Division

[47.01] Application of Division 6 In Re Lobik and Repatriation Commission (1995), the Tribunal was advised that no determination under s 47 had been made in respect of Dutch guilders:

Accordingly the selection of the appropriate foreign exchange rates for the purpose of converting into Australian dollars the income amount received by the applicants from the Dutch pension is within the discretion of the Commission and, on review, of the Tribunal. (at [25])




Part IIIB (s 48)

The Tribunal declined to follow a Departmental practice, in calculating overpayments, of applying the annual average exchange rate for each year in which the overpayment arose. Rather it held that the overpayment should be calculated using the same exchange rates as were originally applied:

As has already been explained (see paragraph 13 above), when the Department in 1993 recalculated the amount of income received by the applicants from the Dutch pension for the period from 15 January 1987 to 8 December 1993, it applied, essentially for reasons of practicality and convenience, the average annual exchange rate for the Dutch guilder for each of the years from 1987 to 1993 as supplied by the Australian Taxation Office. As was noted earlier (see paragraph 14 above), these exchange rates generally gave the Dutch guilder a higher value against the Australian dollar than the exchange rates originally applied by the Department to calculate the amount of income received by the applicants from the Dutch pension at the time that such income was received by them. As a result the amount of income in Australian dollars notionally received by the applicants from the Dutch pension in the period from 15 January 1987 to 8 December 1993, according to the Department’s retrospective recalculation in 1993, was substantially greater than the amount of income actually received by them from the Dutch pension during that period. The decision retrospectively to apply average annual exchange rates, rather than the exchange rates actually applied by the Department during the abovementioned period when calculating the amount of income in Australian dollars received by the applicants from the Dutch pension, produced a result which was less favourable to the applicants in terms of recalculating the rate of service pension that was payable to them during that period. In the Tribunal’s opinion the correct or preferable decision, in the interests of consistency and fairness to the applicants, would have been to apply the latter exchange rates – that is, the same exchange rates as were applied by the Department during the period from 15 January 1987 to 8 December 1993. (at [26]-[27])

Division 7 – Income test – disposal of ordinary income

Section 48 – Disposal of ordinary income

[48.01] Disposition of income and assets In broad terms, the effect of Division 7 is that, where a person disposes of income for inadequate consideration, or for the purpose of obtaining a service pension, the disposed of income is included in the person’s ordinary income for income test purposes for the following five years. Section 48 deals with conduct that directly or indirectly diminishes the rate of a person’s ordinary income. It should be distinguished from Subdivisions B, BA and BB of Division 11 in this Part (ss 52E-52JE) which deal with dispositions of assets. Reference should be made to the following commentary in s 52E for relevant discussion of disposition issues:

[52E.02] “disposes of assets” – s 52E(1) [52E.03] “inadequate consideration” – s 52E(1)(b) [52E.04] “the purpose, or the dominant purpose, of the person” – s 52E(1)(c)




Part IIIB (s 48)

[48.02] “disposes of ordinary income” – s 48(1) In Re Nadenbousch and Director-General of Social Security (1984), the Tribunal considered the equivalent provision in the repealed Social Security Act 1947 in a case where a pensioner had made interest-free loans of capital to a family trust. The Tribunal held that there was a disposal of income, being the potential interest to be earned from the capital, but there was no disposal of assets because it was only a loan of the capital. The Tribunal said:

I consider that the expression “has directly or indirectly deprived himself of income” is wide enough to describe a person who has made an interest-free loan of a sum of money and has thereby deprived himself of the income which might have been received by the normal investment of that sum. (The manner of calculation of that income is a separate question …) The fact that the loan is repayable on demand is immaterial in this context; the deprivation continues in respect of the potential income from any part of the loan which remains outstanding at any time. The significance of the fact of repayability on demand (apart from its enabling Mrs Nadenbousch free access to any part of the funds at any time) lies in the fact that she cannot be said to have deprived herself of the moneys lent … (at 6 ALD 404)

In Re Hill and Repatriation Commission (1996), the applicants were the sole directors of a company which was the trustee of their family trust. While overseas, the applicants leased their home to the family trust for a nominal rent. The Trust in turn leased the home at a commercial rent. The Tribunal determined that the difference in the two rates of rent constituted a disposal of income by the applicants. See also Re Collingwood and Repatriation Commission (1992) where acceptance of less than a commercial rate of rent constituted a disposal of income. In Re Silich and Repatriation Commission (1997), an age service pensioner, on retirement, commenced work on a voluntary basis in his daughter’s business doing essentially the same job that he had previously done while in employment. The Commission argued that the applicant had given his pre-retirement business to his daughter and thus had disposed of income under s 48. The Tribunal found on the facts that previously he had been an employee of a separate company and therefore could not have transferred the business to his daughter. The Tribunal also held that working on a voluntary basis does not constitute a disposal of income. A disposal of income entails giving away what already exists, while working on a voluntary basis does not give rise to any contractual right to income which can be the subject of a disposition. The Tribunal said:

The Tribunal finds nothing within the provisions of s 48(1) of the Act which forces a pensioner to continue earning income from personal labour. It does not specify what should be income, but deals with an applicant disposing of existing income. The Tribunal also finds that there is nothing within s 48(1) which prevents persons receiving service pension from undertaking voluntary work. The Tribunal finds that the work which Mr Silich undertakes for the Trust, and previously for Ms Key, is voluntary work. Mr Silich sets his own work hours and is free at any time to cease working. The Tribunal finds that it is similar to Mr Silich also performing other tasks for his daughter and her family, such as assisting with house repairs and baby-sitting, albeit his assistance with the tarpaulin business is on a more organised basis. The Tribunal believes Mr Silich’s account that he undertakes his work for the tarpaulin business because it gives him something to do. The Tribunal also finds that there is nothing stopping Mr Silich from working for a business on a voluntary basis rather than working for a non-profit




Part IIIB (s 49)

organisation. Section 48(1) of the Act does not go so far as to deem what could possibly have been earned in other circumstances to be income. The respondent did not tender any authorities which suggested that voluntary work for a business under these circumstances would be prohibited. (at [38]-[39])

In Re Mulholland and SDSS (1997), a pensioner parent released their adult child from a mortgage obligation which was originally imposed as part of the transfer of family assets. The Tribunal held that this constituted a disposal of income.

Departmental Instruction C8-99 Departmental Instruction C8-99, dated 1 March 1999, was issued to clarify policy and legislation regarding disposal of income. It examined the case where a veteran permitted his adult children to live rent-free in residential premises which he owned and from which he had never received income since the date of purchase. The Instruction stated: • “the receipt of rental income cannot be characterised as a gift or allowance” and

therefore the foregone rent cannot be characterised as excluded income under s 5H(8)(zd);

• “The veteran in this example has disposed of income. He does not have to first receive the income then stop receiving it for him to have diminished his income. It is sufficient that his actions have made his income smaller than it would otherwise have been”; and

• “In order to determine the amount of the disposition under section 48A of the VEA, the delegate would need to investigate what would be a reasonable amount of rent taking into account the age, location and condition of the properties as well as the property market in the area”.

The Instruction appears to be consistent with the decisions of the Tribunal on disposition of income and assets; see, for example, Re Hill and Repatriation Commission (1996) and Re Roberts and Director-General of Social Security (1983).

Division 8 – Retirement assistance for farmers

Subdivision 1 – General

Section 49 Purpose of Division

[49.00] Legislative history – s 49 Section 5P in Part I, and Division 8 of Part IIIB (ss 49-49J), were inserted by clause 3 of Schedule 2 to the Social Security and Veterans’ Affairs Legislation Amendment (Retirement Assistance for Farmers) Act 1998 (No 84/1998) with retrospective effect from 15 September 1997. The equivalent provisions in the Social Security Act 1991 are s 17A and Part 3.14A. The Scheme was extended from 14 September 2000 to 30 June 2001 by Schedule 2 to the Retirement Assistance for Farmers Scheme Extension Act 2000 (No 118/2000), with effect from Royal Assent on 7 September 2000. The Social Security and Veterans’ Entitlements Legislation Amendment (Retirement Assistance for Farmers) Act 2001 (No 151/2001), which commenced on 1 October 2001, extended access to the Scheme which otherwise would have finished on 30 June




Part IIIB (s 49)

2001. It extended access to farmers who contacted the Department before 1 August 2001 and who completed the transfer of farm assets within 3 months from when the Department responded to their inquiry.

[49.01] Purpose of the Scheme Section 5P and Division 8 gave effect to one element of the Coalition Government’s “Agriculture – Advancing Australia” package and was developed from a recommendation of the Special Rural Task Force which examined the impact of the social security and service pension assets test on rural customers. The new provisions offered a three year “window of opportunity” (to 14 September 2000, later extended to 30 June 2001) during which farmers of age service pension age were able to transfer their farm assets, up to a maximum of $500,000, to family members of a younger generation who have been actively involved in the farm. A transfer under these provisions did not affect access to the age service pension. The Explanatory Memorandum (at p 17) gives an overview of the measure:

2. Explanation of Changes These provisions provide veterans and their partners with a “window of opportunity” for an inter-generational transfer of the farm and farm assets without that transfer affecting their eligibility for a Veterans’ Affairs income support payment. The Scheme is the same as that which applies to persons covered by the Social Security Act, both are subject to the following criteria: • the Scheme will only apply to farms transferred between 15 September 1992 and 15

September 2000; • the person or their partner must have been continuously involved in farming for the last

15 years, or intermittently involved in farming for 20 years or more; and • the equity in the farm can be no more than $500,000; and • all interest in the farm must be transferred, although a life interest can be retained in

the farm house and surrounding 2 hectares (principal home); and • the member of the younger generation being given the farm must have been actively

involved in farming for at least 3 years; and • the person (or couple) must have earned less that the equivalent of the age service

pension over the last 3 years; and • the farmer, or in the case of a couple, one of the members of the couple, must be of

retirement age. The purpose of the Scheme was discussed by Cooper J in SDFaCS v Haagar (2001) in the following terms:

Part 3.14A of the Act is headed “Retirement Assistance for farmers”. The purpose of the Part is contained in s 1185A which states … The Part gives effect to the Retirement Assistance for Farmers Scheme and is beneficial legislation designed to assist farmers who retire from farming, and satisfy the criteria contained in the Part, to obtain social security benefits under the Act. (at [5]) The purpose of Pt 3.14A as appears from s 1185A, is to allow the value of farming interests transferred by a qualifying farmer to be disregarded when social security payment entitlements are assessed under the Act. (at [18])




Part IIIB (s 49A)

Section 49A Division to apply to certain transfers of estates in farms etc.

[49A.01] Transfer of a “qualifying interest” in a farm – s 49A(2)(a)(i) [49A.02] “the total value … does not exceed $500,000” – s 49B(2)(c)

[49A.01] Transfer of a “qualifying interest” in a farm – s 49A(2)(a)(i) In Re Cheney and SDFaCS (2002), the applicant owned a half interest in a farm and was the trustee on behalf of her children under her late husband’s will for the other half of the farm. In addition, the applicant was the beneficiary of an unregistered life tenancy in the half of the farm held in trust for the children. In order to qualify for an age pension, the applicant transferred her own half interest in the farm to her children as well as the half interest of which she was trustee. The applicant did not transfer (or, rather, release the children from) her life tenancy in half the farm. The Secretary took the view that s 1185B(2)(a) [s 49A(2)(a)] required the applicant to transfer all of her interest in the farm in order to qualify for the pension under this Scheme. The Tribunal held that the “qualifying interest” in s 1185B, as defined in s 17A in Part 1.2 [s 5P], included both legal and equitable interests. The Tribunal then held that s 1185B(2)(a)(i) did not require that all qualifying interests in the farm be transferred, but did require that all interests in farm assets be transferred (s 1185B(2)(a)(ii)). Accordingly, the failure to transfer the life tenancy was not fatal to her application. There was no indication in the decision of the extent to which a person’s legal and equitable interests in a farm must be transferred to satisfy the section.

[49A.02] “the total value … does not exceed $500,000” – s 49B(2)(c) In the value of the person’s qualifying interests in the farm and farm assets and not to the total value of the farm.

Subdivision 4 – Requests for increase in rate of service pension or income support supplement

Section 49F Request for increase

[49F.01] Purpose of s 49F and Subdivision 4 In SDFaCS v Haagar (2001), Cooper J discussed the equivalent Division 4 and s 1185G of the Social Security Act 1991 in the following terms:

Division 4 of Pt 3.14A applies to persons who are receiving a social security payment under the Act and the value of the qualifying interests has been included in the value of assets when calculating the rate of the person’s social security payment. Section 1185G [s 49F] is facultative. It enables a person to whom the Division applies to request that the person be paid social security at the increased rate (as defined in s 1185G(a)). The means by which that request is to be made is contained in s 1185H [s 49G]; it is to be made in writing and must be in accordance with a form approved by the Secretary. Section 1185J [s 49H] is important in two respects. Firstly, it identifies the person empowered to grant the request as the Secretary. Secondly, it identifies the Secretary as the




Part IIIB (s 49G)

person who must be satisfied of the existence of the circumstances in s 1185G(a) and s 1185J(1)(b) which give rise to an entitlement to be paid at the increased rate. In the context of Division 4, the written request in a form approved by the Secretary is intended as the mechanism whereby the person making the request communicates information to the Secretary for the purpose of the Secretary acting upon that information to discharge the statutory function cast upon the Secretary by s 1185J(1) of the Act. The communication is intended to be made by the written request with the purpose of conveying the information contained in it for the consideration of the Secretary. It is apparent that the written request in the approved form is not made in a vacuum. It is a request ultimately made to or of the Secretary to be acted upon by the Secretary in terms of s 1185J(1). Section 1185J(1), in its ordinary sense, contemplates that at the time when the Secretary is required to consider the matters in s 1185J(1)(b), he or she has available the written request in the form required by s 1185J(1)(a). That is, s 1185J(1) does not contemplate a situation where a request can be made to or of the Secretary without the Secretary having received a request in the statutory form. Once it appears that the statutory scheme contemplates the giving of notice of the request, including the contents of the request, to the Secretary and for it to be acted upon by the Secretary, it is difficult to avoid the conclusion that the legislature intended that the request would be made for the purpose of s 1185G when a request in the statutory form was at the latest received by Centrelink for consideration by the Secretary and that no request was made, in the sense of being complete, until it was received by or on behalf of the Secretary as the person empowered to grant the request. (at [19]-[25])

Section 49G Making a request

[49G.01] Request “must be made in writing” – s 49G Section 49G requires a request for a rate increase under s 49F in Division 8 to be “made in writing” and “in accordance with a form approved by the Commission”. Unlike equivalent provisions for pensions and benefits (see for example s 16(4) of the Social Security (Administration) Act 1999), there is no reference to “lodgment” of the application. This distinction was of importance in Re Haager and SDFaCS (2000), in relation to the equivalent s 1185H of the Social Security Act, where the applicant posted his request in Murgon in Queensland on 14 September 1998 and was received in the Gympie Centrelink office on 15 September 1998. For a reason not discussed in the decision, the application would be rejected if it was made on or after 15 September 1998. The Tribunal held that the application was made on 14 September 1998. An appeal against this decision was allowed by the Federal Court in SDFaCS v Haagar (2001). Cooper J held that the request must be received by the Secretary (ie the Commission) before it could become operative:

The making of a request under s 1185G [s 49F] cannot be characterised as a personal unilateral act to bring the requestor into a select class to avoid the operation of a prohibition which would otherwise operate to prevent the exercise of a statutory power in favour of the requestor as was the case in North West Traffic Area Licensing Authority v Brady. The making of a request in the written statutory form has important consequences for the administration of the scheme as a whole. The making of the request is the formal step required by the Act to authorise the Secretary to make a determination under s 1185J(1) [s 49H(1)]; it is also the step which places the Secretary under a statutory obligation to act under s 1185(1) and to make the determination if satisfied that the requisite statutory conditions are made out to his or her




Part IIIB (s 50)

satisfaction. The Secretary has a real interest in knowing with certainty that a request in writing has been made because the making of it sources both the obligation and the authority to act under s 1185J(1). The making of the request, in terms of the date on which it is made, also has financial consequences for the administration of the scheme and with respect to the payment of public monies. This follows from the operation of s 1185J(2) [s 49H(2)] in determining the date upon which the Secretary’s determination shall take effect. Finally, the making of a request protects the social security recipient from the consequences of any delay in the Secretary making a favourable determination under s 1185J(1) by preserving the date of making the application as the date for the purpose of the operation of any of the provisions of s 1185J(2)(a), (b) or (c). That is, once the Secretary has been put on notice of a request under s 1185G, the requestor’s rights under the scheme which flow from a favourable determination are fixed and preserved, and irrespective of the delay thereafter, the administration of the scheme will be subject to the rights of the requestor to be paid at the increased rate. In this context, the risks of delay in making the request due to loss or delay in the post with the consequence that rights or benefits are not preserved for the purposes of s 1185G(2) until receipt to the written request are borne by the requestor who uses the postal service to communicate the request. (at [30]-[31])

Division 9 – New Enterprise Incentive Scheme

Section 50 General effect of Division [50.01] Treatment of NEIS payments under the VEA income test Payments under the NEIS are not “ordinary income” for the purposes of the income test because of the exclusion in s 5H(8)(x) in Part I. However NEIS income is offset against service pension and income support supplement, on a dollar for dollar basis, by operation of ss 50A and 50B in this Division.

Division 10 – General provisions relating to maintenance income

Section 51 Apportionment of capitalised maintenance income

[51.01] Discretion to set “capitalisation period” in s 51(6) Section 51(6) provides that, where a court order or a registered maintenance agreement sets out a capitalisation period which the Commission considers is “not appropriate in the circumstances of the case”, or where no capitalisation period is applicable, “the capitalisation period is such period as the Commission considers appropriate in the circumstances of the case”. In Re Hope and SDSS (1990), in relation to an equivalent discretion under the repealed Social Security Act 1947, the Tribunal extended a capitalisation period from three years to six years on the basis that the reduced rate of pension resulting from the three year capitalisation period was an insufficient amount of money for the applicant to live on. A similar provision in the Social Security Act 1991 (s 1116) was considered by the Tribunal in Re SDSS and Smith (1992). In this case, the applicant and her spouse




Part IIIB (s 52)

entered a consent agreement in the Family Court for child maintenance in a lump sum calculated on the basis of $40 per week per child for the next five years. The evidence of the applicant was that she thought the agreement was for the whole period to age eighteen for each child and that there was no prospect of obtaining any further maintenance from the father. Because of this misunderstanding, she argued that the appropriate capitalisation period was to age eighteen, thereby reducing the impact of maintenance on her sole parent pension. The Tribunal held that it was not bound to accept consent awards at face value and could look behind awards to ascertain their true nature. The Tribunal said that the purpose of the discretion was to prevent the attribution of a nominal capitalisation period only, so as to produce maximum pensioner entitlements. The Tribunal found that the five year period was not an unreasonable figure. In considering what was “appropriate in the circumstances”, the Tribunal said that the ill health and financial circumstances of the applicant were relevant con-siderations, as was the failure of her solicitors to warn her of the impact of the settlement on her pension entitlement. Notwithstanding these factors, the Tribunal refused to disturb the five year capitalisation period.

Division 11 – General provisions relating to the assets test

Subdivision A – Value of a person’s assets

Section 52 Certain assets to be disregarded in calculating the value of a person’s assets

[52.01] “the value of any right or interest … in … the principal home” – s 52(1)(a), (b) [52.02] “the value of any life interest of the person other than … a life interest

created on the death of the person’s partner” – s 52(1)(c)(iii) [52.03] “the value of any contingent, remainder or reversionary interest of the person

(other than an interest created by the person …)” – s 52(1)(g) [52.04] “the value of any assets … from the estate of a deceased person but which

has not been, and is not able to be, received” – s 52(1)(h) [52.05] “exempt funeral investment” – s 52(1)(ja) [52.06] “personal property … designed for use by a disabled person” – s 52(1)(k), (l) [52.07] Proceeds of the sale of the principal home – s 52(2)

[52.01] “the value of any right or interest … in … the principal home” – s 52(1)(a), (b)

For discussion of “principal home”, see [5LA.1] in Part I. Note that s 52 is in similar terms to s 1118 of the Social Security Act 1991. In Re Robertson and Repatriation Commission (1994), the Tribunal disregarded a loan of $76,479.50 to a discretionary family trust; the loan was given to fund the purchase of the couple’s family home giving rise to an equitable interest (a vendor’s lien) in the property. In Re Letcher and SDSS (1995), the Tribunal, citing Re Robertson, took a similar approach and disregarded a loan of $94,000 to a family company which was part of a transaction transferring their principal home into the company. In Schulz v Repatriation Commission (2004), the applicant lived in a property owned by a discretionary trust; he was the sole director and shareholder of the trustee




Part IIIB (s 52)

company and a principal beneficiary of the trust. As discussed at [5L.08] in Part I, he was held to be a “homeowner” for the purposes of the assets test because he held an interest in the property (as a tenant) and had reasonable security of tenure as controlling mind of the trust. However, the applicant could not benefit from the assets test exemption of a principal home under s 52(1)(b) as the property was owned by the trust and not by himself. His interest in the property was that of a tenant, with a right of occupation and ancillary rights. Even if he was secure in his tenancy, this could not convert his interest to a valuable interest in the house property itself for the purposes of s 52(1)(b). The Tribunal, in Re Schulz and Repatriation Commission (2003), commented on the alleged unfairness of this outcome:

Dr Schulz has chosen to arrange his affairs in a particular way. Those arrangements have legal consequences that he presumably intended. One consequence is that the loan transaction creates a valuable right that is a form of property. The value of that property is properly considered in the administration of the assets test provided for in the Act. The fact the loaned monies were used to fund the purchase of an exempt asset is irrelevant for the purposes of the Act. This is not an unintended or anomalous result, nor is it unjust: it is entirely consistent with the scheme and purpose of the legislation. (at [11])

See also the discussion of “reasonable security of tenure in the home” at [5L.08] in Part I.

[52.02] “the value of any life interest of the person other than … a life interest created on the death of the person’s partner” – s 52(1)(c)(iii)

In Re HXCC and SDFaCSIA (2007), the Tribunal considered the inclusion in the assets test of a life interest from a deceased partner’s estate, in the equivalent s 1118 of the Social Security Act. The Tribunal questioned whether setting a present asset value for expected future income from the life interest was fair to the pensioner. In those circumstances, the pensioner’s present income support was reduced on the basis of an asset which could not be used to raise any income, on the anticipation that income may be received in the future. The Tribunal observed that it would be more appropriate to apply the income test in such circumstances, however the legislation clearly required the application of the assets test. The Tribunal noted that the life interest was an unrealisable asset which could attract the hardship provisions if necessary. Section 52(1)(c) includes the following Note:

Note: The exclusion from paragraph (1)(c) of the value of a person’s life interest mentioned in subparagraph (i), (ii) or (iii) does not result in the value of the interest being included in the person’s assets if the interest falls within paragraph (1)(a) or (b).

[52.03] “the value of any contingent, remainder or reversionary interest of the person (other than an interest created by the person …)” – s 52(1)(g)

The equivalent provision in the repealed Social Security Act 1947 was considered by the Tribunal in Re Smart and SDSS (1990), which concerned a pensioner who received a bequest of a parcel of land under her father’s will. The pensioner voluntarily executed a life tenancy in the land in favour of her mother. The Tribunal held that the voluntary creation of the life tenancy by the pensioner took the pensioner outside the scope of the




Part IIIB (s 52)

section and therefore the property should be assets tested. See also Re SDFaCS and Zangari (1998).

[52.04] “the value of any assets … from the estate of a deceased person but which has not been, and is not able to be, received” – s 52(1)(h)

In Re SDSS and Goodfellow (1994), the Tribunal agreed that the equivalent provision in the Social Security Act (s 1118(1)(j)) applied to a discretionary trust under a will where the trust was administered by the Northern Territory Public Trustee and the respondent would have a legal entitlement to the assets only if and when she reached the age of 21. In Re Saunders and SDFaCS (2002), the applicant was the executor of his aunt’s will, under which he was to take a one third interest in certain real estate. The applicant had delayed 10 years in the final act of transferring the real estate, there remaining no other acts to be done to complete the administration of the estate. The applicant contended that, as he had not actually received any legal interest in the real estate under the will, s 1118(1)(j) applied to him. The Tribunal noted the terms of the “Guide to Social Security Law” at para 4.6.5.80 to the effect that inordinate delays in transferring assets by applicants who have control over the transfer process will not support the operation of s 1118(1)(j). The Tribunal also noted that the applicant was in breach of the statutory requirement in the Succession Act 1981 (Qld) which required the distribution of assets in the estate as soon as practicable. The applicant’s interest in the real estate was included in his assets, which placed him in excess of the assets limit for newstart allowance. In Re Dowd and SDFaCS (2004), the applicant was executor and sole beneficiary of his brother’s estate. He transferred the title of his brother’s property into his name as sole proprietor; the certificate of title deed showed him holding the property as “legal personal representative”. The Tribunal held that the exemption under s 1118(1)(j) applied until the transfer of title, but did not apply after that date even though he had not yet received the proceeds of sale of the property. At that date, he had a beneficial and equitable interest in the asset. For discussion of assets held on trust, see [5L.02] in Part I.

[52.05] “exempt funeral investment” – s 52(1)(ja) “Exempt funeral investment” is defined in s 5Q(1). It is similarly defined in s 23 of the Social Security Act and has been held not to include a life insurance policy under the equivalent s 1118(1) of the Social Security Act: Donovan v SDFaCS (2003), which approved the consideration of this issue in Re Donovan and SDFaCS (2003). Note, however, the following discussion of the issue in Re Donovan:

The Tribunal finds that Mr Donovan holds an APSBS insurance policy, the surrender value of which was $3,326 at the date of the hearing. Mr Donovan also holds a MLC Whole of Life policy with a surrender value of $58,683.20 at 6 December 2002. Both of these policies fall within the scope of the broad definition of “asset” in s 11(1) of the Act. As to whether the policies are “exempt funeral investments” so as to amount to exempt assets for the purpose of exclusion from the relevant assets test, neither policy satisfies that definition. To be an exempt funeral investment the policies must be type A or type B funeral investments as defined in s 23(1). Considering that each policy has a surrender value and can be realised at any time, neither would satisfy the definitions of




Part IIIB (s 52)

“type A” or “type B” funeral investments as outlined above. It is clear that Mr Donovan can choose to surrender the policies at any time and realise the surrender value. The Tribunal noted the correspondence indicating that DVA has a policy of treating certain insurance policies, notably APSBS policies, as exempt funeral investments. With-out seeing those particular insurance policies, the Tribunal is unable to comment on the approach adopted by DVA. The Tribunal notes that the approach was not adopted as a re-sult of a determination of the Tribunal in its own right, but formed a part of a consent dec-ision in settlement of a matter separate to the proceedings presently before the Tribunal. The Tribunal notes that the Act and the Veterans’ Entitlements Act 1986 feature equivalent provisions in relation to the definitions that are at issue in this matter. While that may be the case, for the insurance policies to be exempt assets as argued, it would be necessary for the policies to satisfy the requirements of a type A or type B funeral investment, both of which require that the asset is not able to be realised before maturity. That is not the case here. While the policy approach adopted by DVA may not be consistent with the relevant legislation, the Tribunal cannot be certain that that is the case here and makes no further comment on the material relating to the DVA. (at [23]-[26])

[52.06] “personal property … designed for use by a disabled person” – s 52(1)(k), (l)

In Re Perrone and SDFaCS (2004), the Tribunal held that an amount of $500,000 held by the Public Trustee on behalf of the applicant, who was severely disabled, did not fall within this paragraph. Such a construction “places far too much strain on the words of the paragraph” and the paragraph refers to “items such as wheel chairs, motor vehicles, or other type of appliance that are either specifically designed for physical use by a disabled person or are modified so that they can be used by such a person” (at [15]). See also Re Sleep and Repatriation Commission (2007) where the Tribunal refused to apply the exception to a standard Toyota Prado motor vehicle and camper trailer which had not been modified in any way to accommodate the applicant’s disabilities. This approach was confirmed by the Federal Court in Sleep v Repatriation Commission (2007) where Besanko J said:

There can be no doubt that the motor vehicle and camper trailer are “assets” within the definition of that word in s 5L of the VE Act. I think the Tribunal’s interpretation of s 52(1)(k) and (l) is the correct one. Personal property falls within the terms of s 52(1)(k) if there is a feature or features of the design that indicates that it was designed for use by a disabled person. Assets designed for use by persons who are not disabled, such as the motor vehicle or camper trailer in this case, do not become assets designed for use by a disabled person because of the intention of the owner or disabled person or the particular way in which it is used by a person. If there is any doubt about the proper interpretation of s 52(1)(k) (and I do think that there is), it is removed by the provisions of s 52(1)(l), which deal with modifications made so that personal property can be used by a disabled person. In those circumstances, only that part of the value of the personal property that is attributable to the modifications is to be disregarded under s 52(1). As I understood the applicant’s submission, it was that Parliament intended to exclude from the assets taken into account for the purposes of determining the rate of pension assets which a disabled person needed because of his or her disability and what was needed was a question of fact to be determined in each case. That is not the test laid down by the clear words in s 52(1)(k) and (l). Those paragraphs focus attention on the purpose for which personal property was designed or the reason it was modified. (at [10]-[11])




Part IIIB (s 52C)

[52.07] Proceeds of the sale of the principal home – s 52(2) In Re Aconley and SDSS (1996), the applicant sold her house and deposited the proceeds ($100,000) in a bank account. The Tribunal accepted that she intended to use the proceeds to purchase another house within 12 months, thus attracting the operation of s 1118(2) of the Social Security Act, the equivalent provision to VEA s 52(2). The investment with the bank provided that the funds had to be left with the bank for 6 months or an interest penalty would be imposed. The Department conceded that the investment was not an asset by reason of s 1118(2), but did take the interest on the investment into account in the income test. The applicant argued that s 1118(2) had the effect of disregarding the proceeds of the house for all purposes including the income test. The Tribunal rejected this submission, holding that s 1118(2) only excluded the money from the assets test and the interest earned on the deposit was income. In Re Thomas and SDFaCS (1998), the Tribunal noted that s 1118(2) [VEA s 52(2)] only exempted the proceeds of sale of a principal home from the assets test and not from the income test. The Tribunal commented that the pensioner couple could have regained their pension entitlement by paying the money into their solicitor’s trust account or to the solicitors of the building company which was contracted to build their new home; this course of action was, however, not acceptable to the couple who were using the interest received to offset the cost of temporary accommodation. In Re SDEWR and SAAJ (2006), the respondent sold her principal home to finance the construction of a new principal home. Due to building delays beyond her control, the new home was not ready for occupation 12 months after the sale of the original principal home. The Tribunal held that a new home still under construction did not constitute a “principal home” and that s 1118(2) only applies to exempt the proceeds of the sale of the original home for a period of 12 months. After the expiration of 12 months, s 1118(2) ceased to apply and the respondent’s new land and partially constructed house were included in the assets test. In Re Anstis and SDFaCS (1999), the Tribunal held that the invested proceeds of a principal home were a “financial asset”, as defined in s 9 of the Social Security Act 1991 [VEA s 5J], and that the reference to “assets” in s 1118(2) [VEA s 52(2)] did not extend to “financial assets”. Accordingly the invested proceeds of the sale of a principal home were not exempt from the income test.

Contents of a principal home are not disregarded – s 52(3) The exemption of the principal home does not extend to exempt the household contents and other personal effects in the house. Section 52(3) provides that household contents will be presumed to be worth at least $10,000 unless the Commission is satisfied that their value is less than $10,000. If the contents are worth more than $10,000, that higher value is used in the assets test.

Section 52C Effect of charge or encumbrance on value of assets

[52C.01] “charge or encumbrance” – s 52C(1) [52C.02] “collateral security” – s 52C(2)(a) [52C.03] “the charge or encumbrance was given for the benefit of a person other than

the person or the person’s partner” – s 52C(2)(b)




Part IIIB (s 52C)

[52C.04] Charges or encumbrances over disregarded assets – s 52C(3) [52C.05] Charges or encumbrances over more than one property

[52C.01] “charge or encumbrance” – s 52C(1) Neither “charge” nor “encumbrance” is defined in the Act or in the equivalent provisions in the Social Security Act 1991 (s 1121) or the repealed Social Security Act 1947 (s 4(1)(b)). In Re Kirkman and SDSS (1990), the Tribunal held that a caveat lodged to protect an interest pending a family law settlement was not a charge or encumbrance within the meaning of s 4(1)(b) of the 1947 Act. A caveat, the Tribunal said, was:

simply a protective device allowing the caveator an opportunity to take other action to establish his interest. It does not of itself create a right to payment … in the sense of a charge, or a claim or demand in the sense of an encumbrance … but merely holds the status quo as it were while the caveator takes, expeditiously, other steps to protect his interests. (at 20 ALD 404)

In Re Finley and SDFaCS (2005), the Tribunal held that a caveat was not a charge or encumbrance over the land; it is simply a device to protect an interest claimed and “does not of itself create a right to any payment to the caveator, it is not a charge or encumbrance the value of which can be deducted from the value of the property” (at [17]). See also Re Avery and SDFaCSIA (2007) where the Tribunal held that a caveat lodged on real property by a trustee in bankruptcy to protect the interest of the creditors is not a charge or encumbrance within the meaning of the section. In Re Fawthrop and Repatriation Commission (1993), the Tribunal considered the meaning of “charge” and “encumbrance”:

Turning to s 52C(5), we should briefly consider the meaning of the terms “charge”, “encumbrance” and “security”. Taking first the word “charge”, we note that an ordinary meaning of it is the liability to pay money but that it may also denote a particular liability to pay money when performance is secured by the creditor’s right to receive payment from a specific fund or out of the proceeds of the realisation of specific property: see, for example, the consideration in Davison v Bathurst City Council [1966] 1 NSWR 61 at 64, Re Price, ex parte Tinning (1931) 26 Tas LR 158 at 160 per Nicholls CJ and Davies v Littlejohn (1923) CLR 174 per Knox CJ at pp 180-182 and 184. The word “encumbrance” may also have a wider and a narrower meaning in general language as is apparent from the case of Wallace v Love ((1922) 31 CLR 156 at 164) when it was said:

The word “encumbrances”, in its ordinary connotation, means that a person or estate is burdened with debts, obligations or responsibilities. True the word is in law especially used to indicate a burden on property, a claim, lien or liability attached to property. …

Finally, the word “security” may also have more than one meaning. Looking at its plural form, it may mean

Evidences of debts or of property. State v Allen, 216 NC 621, 5 SE 844, 845, 847. Evidences of obligations to pay money or of rights to participate in earnings and distribution or corporate, trust or other property. Oklahoma-Texas Trust v Securities and Exchange Commission CCA 10, 100 F 2d 888, 890. Stocks, bonds, notes, convertible debentures, warrants, or other documents that represent a share in a company or a debt owed by the company.

A different meaning was given to the word “securities” by Viscount Cave in Singer v Williams ([1921] AC 41 at page 49) when he said:




Part IIIB (s 52C)

The normal meaning of the word “securities” is not open to doubt. The word denotes a debt or claim the payment of which is in some way secured. The security would generally consist of a right to resort to some fund or property for payment; but I am not prepared to say that other forms of security (such as personal guarantee) are excluded. In each case, however, when the word is used in its normal sense, some form of secured liability is postulated.

Given the context in which the word “security” is used in s 52C and particularly in the juxtaposition with the words “charge” and “encumbrance”, we have concluded that the word “security” must be understood to connote a debt or claim the payment of which is in some way secured. For the same reasons, the word “charge” must also be given its narrower meaning to denote a liability, the performance of which is secured and the word “encumbrance” to mean a claim, lien or burden attached to a property. That brings us to consider the nature of a mortgage. A mortgage is defined in the Real Property Act 1861-1988 (Qld) to mean:

… any charge on land created under or in accordance with the provisions of this Act for securing –

(a) the repayment of a loan or the satisfaction of an existing debt; (b) the repayment of future advances or the payment or satisfaction of any future

or unascertained debt or liability, contingent or otherwise; (c) the payment to any person or persons by yearly or periodical payments or

otherwise of any annuity, rent-charge or sum of money other than a debt. (section 3)

In the same Act, section 60 provides that a bill of mortgage is to be construed and have effect only as a security for the sum of money annuity or rent charge intended to be thereby secured and shall not operate or take effect as a transfer or land estate or interest intended to be thereby charged with the payment of any money.

It follows from sections 3 and 60 that a mortgage is a charge, an encumbrance and a security. The next question is whether the mortgage in this case is also a “collateral security” within the meaning of sub-section 52C(5). (at 36 ALD 144)

The Tribunal further observed that a charge can only arise in relation to an existing debt:

On the face of the Bill of Mortgage, it would seem that the company is indeed a party to the mortgage. We must, however, look also to the Memorandum of Mortgage which we asked the parties to produce at the conclusion of the hearing. This is so as the charge or encumbrance is not the Bill of Mortgage although such a bill must be executed (see paragraph 41 above). Brennan J made that distinction in Sibbles v Highfern Pty Ltd ((1987) 62 ALJR 55, Mason CJ, Dawson, Toohey and Gaudron JJ, Brennan J dissenting) when considering s 73 of the Property Law Act 1974 (QLD). That section provides, in part, that a “vendor under an instalment contract shall not without the consent of the purchaser … mortgage the land the subject of the contract”. Brennan J said at pages 60-61:

A charge cannot exist unless the debt or liability to be secured is in existence: there may be an agreement that the property be charged with the payment of a future debt, but there is no charge until the debt exists. The giving of a bill of mortgage over land is sometimes said to be the mortgaging of the land even though the debt or liability has not come into existence, but the giving of an instrument which can have effect “only as security for the sum of money … intended to be thereby secured” (s 60 Real Property Act) is not effective to create a charge until there is a sum of money intended to be thereby secured. (at [46]-[47])




Part IIIB (s 52C)

A majority of the Full Federal Court in Repatriation Commission v Tsourounakis (2007) (Dowsett and Edmonds JJ) expressed the view that an equitable interest by a son in his parents’ property imposed a burden on the parents’ rights to deal with the property sufficient to constitute an “encumbrance” within the meaning of s 52C. In Re Gowans and Repatriation Commission (1988), the Tribunal considered the case of a pensioner who raised unsecured loans from his family company. The Tribunal held that unsecured loans did not come within the scope of the section and so did not operate to reduce the value of assets. They found a clear intention in the wording of the section only to catch secured loans and other encumbrances. To the extent that this decision was prepared to lift the corporate veil on family companies, it was not followed in Re Eimberts and Repatriation Commission (1988). In Re Smith and SDFaCS (1999a), the Tribunal considered a case in which a business loan was secured by a personal guarantee “supported by” a mortgage over the principal home. The Tribunal held that the primary mode of security was the personal guarantee and that this did not constitute a charge or encumbrance over an asset, notwithstanding the presence of the mortgage over the principal home. Re Samek and SDSS (1988) contains a suggestion that an unsecured loan may be considered an encumbrance for social security purposes if evidence is adduced of the relationship between the loan and the purchase of the property. See Re Moffatt and SDFaCS (2003) to the same effect. In Re Ractivand and SDFaCS (2004), the Tribunal commented on Re Samek:

In [the applicant’s] submission, the Tribunal should regard the loan made by the father as relating specifically to the purchase of the Noraville property, and although the loan was not secured, on the authority of Re Samek and Secretary, Department of Social Security (1988) 16 ALD 295 it should be taken into account by reducing the value of that property. The Department appears to accept this interpretation of Re Samek given the inclusion of the following passage in its Guide to Social Security Law at 4.6.6.30 “Encumbrances & Loans against Assets”:

Unsecured Loans If a customer has an unsecured loan AND provides evidence that the loan was specifically obtained to purchase the asset, the outstanding amount of the loan IS deducted from the value of the asset. (at [17])

See Re Nock and SDFaCS (2003) for an example of an unsecured loan, raised directly in respect of the purchase of an asset, being considered as a charge or encumbrance under this provision. On appeal in Nock v SDFaCS (2005), the Federal Court held that an amount of $179,253 drawn down on a Westpac Equity Access Loan could properly be regarded as an encumbrance on one of the properties owned by the appellants. It rejected the suggestion that the credit limit for the facility of $340,000 should be deducted from the value of the assets, noting that “the value of the charge or encumbrance, for the purpose of s 1121(1), is the amount then due and owing at the time that the application is made” (at [49]). In Re Bohun and SDSS (1996), the Tribunal rejected the suggestion that it was appropriate to deduct the costs of developing a subdivision; the only appropriate deduction was a mortgage held over the subdivided land. In Re Radovanovic and SDFaCS (2000), the applicant argued that his mother and a business associate had a charge over a substantial sum of cash in his bank account by reason of arms length loans. The charges were said to arise by virtue of the fact that either of these persons could bring an action against him in debt. The Tribunal rejected




Part IIIB (s 52C)

this argument, holding that a charge or encumbrance can only exist in relation to a real asset:

In the present application, the Tribunal is not satisfied that there is any form of what could be considered “security” so as to bring either liability owing the applicant’s mother or Brock Partners into the scope of “charge” or “encumbrance” as those terms are to be understood in relation to sub-section 1121(1) of the Act. This Tribunal concurs with the approach in Re Fawthrop and cannot accept that loans with no security can fall within the scope of “charge” or “encumbrance”. Re Samek goes no further than to support the pro-position that if there is a direct relationship between an unsecured loan and the purchase of a property, such a loan may be offset against the value of the asset. It cannot be extended to encompass the situation before the Tribunal here, where there is no security in respect of the loans. Regardless of the method by which the applicant ultimately repaid his mother, that loan was not in respect of a particular property, nor was it secured against such. The applicant argued that his mother had security in that she could have commenced pro-ceedings against him to recover such monies had he not repaid her. Whilst this is true, the capacity to commence proceedings is not of itself “security”. Security would arise where such proceedings had been commenced and an order put in place over a particular property interest, whether that be land or the applicant’s bank account. (at [23])

In Re Mason and SDFaCS (2004), in relation to “charge or encumbrance” in a similar context in s 1208G in Part 3.18 of the Social Security Act [VEA s 52ZZT], the Tribunal discussed the characterisation of a trading account held by an options trader with an option trading broker. The Tribunal held that the unrealised loss (exposure on open option positions) should be deducted from the trading account when determining the value of the asset.

[52C.02] “collateral security” – s 52C(2)(a) In Re Fitzgerald and SDSS (1992), the applicant was in a farming partnership with his wife and sons. The partnership was in substantial overdraft to a bank and the partners decided to re-finance through a special loan scheme run by the Department of Agriculture. Before the re-financing was completed, the applicant and his wife retired from the partnership. Nevertheless the applicant duly executed a mortgage over his land to the Department of Agriculture after retirement. One son also executed a security. The Secretary took the view that the re-financing (and hence the mortgage over the applicant’s property) was for the benefit of the remaining partners only and thus was a collateral security (the principal security being the son’s mortgage) or, in the alternative, was given for someone else’s benefit. It was therefore outside the scope of the 1947 Act equivalent of s 52C and did not operate to reduce the value of the asset. The Tribunal discussed at some length the meaning of a “collateral security”.

What is a collateral security? The term is not defined in the Act. The respondent submitted that it should be given its recognised legal meaning as defined in Osborne’s Concise Law Dictionary Sixth Edition (1976):

collateral [By the side of.] A collateral assurance, agreement, etc, which is independent of, but subordinate to, an assurance or agreement affecting the same subject-matter. A collateral security is one which is given in addition to the principal security. Thus a person who borrows money on the security of a mortgage may deposit shares with the lender as collateral security. See consanguinity.

Collateral is described in Stroud’s Judicial Dictionary as meaning:




Part IIIB (s 52C)

side by side, “parallel”, and, taken by itself, has no such meaning as “secondary”, “auxiliary”, “subsidiary” or “only to be made use of in aid”.

A definition closer to the point is that contained in Fisher & Lightwoods Law of Mortgage Tenth edition at p 16:

Collateral security. Collateral or additional security may be given by the principal mortgagor himself or by a third party. The most common example of the first type of collateral security is a mortgage of a policy on the life of the principal mortgagor by the principal mortgagor, which is additional to and is to secure the same debt as that secured by the principal mortgage. Examples of the second type of collateral security are a guarantee by a third party for the repayment of the principal mortgage debt and a mortgage of land or other property by a third party to secure either a principal debt or his liability under a guarantee.

Note this definition distinguishes two types of collateral security. What type of “collateral security” is referred to in the use of the term in s 4(10)(a) of the [Social Security] Act? The purpose of s 4(1) is to ascertain the correct value of the assets of an applicant for benefit under the Act. In the Tribunal’s view, the purpose of defining a charge as an “excluded security” is to prevent a person who is applying for a benefit from claiming a reduction in value of his/her assets by reason of a mortgage given to support that person’s guarantee of some other party’s debt, i.e. the second type of collateral security. As suggested in the definition, the most common of the first type of collateral security comes about when a person borrows money from an insurance company to buy or build a house. A mortgage is given over the house and a collateral mortgage is given over a policy of life insurance on the life of the mortgagor. It might even be in the reverse. Either way such a mortgage should not be excluded from an assessment of the persons net worth under s 4(1)(b) of the Act. Such a transaction is a collateral security by definition but in terms of s 4(10)(b) the person applying for Social Security benefit in these circumstances would be “a party to the charge or encumbrance”. Further, the Act is beneficial legislation and when words of an Act are capable of two interpretations it is well established that the ambiguity should be resolved in favour of the claimant. To answer our question what type of “collateral security” is referred to in the use of the term in s 4(10)(a) of the Act, the Tribunal is of the view that it is the second type, i.e. one given to support a guarantee of the debt of another. What is the situation here. In the sense that they are “side by side” each mortgage could be said to be a collateral security. In the sense that the mortgages are given to support the debt of another (i.e. the partnership) in a form of guarantee each mortgage could be said to be collateral. However, it is not “independent of” (the) “agreement affecting the same subject matter”. It is very much part of the same transaction as the mortgagors in both cases were personally liable under the loan contract, and in the mortgage document itself they acknowledge the money was advanced to each of them. (at [8]-[11])

The Tribunal noted that the applicant remained liable for the partnership debts and, in this sense, his participation in the re-financing was only to secure his own joint and severable liability and therefore was not given for the benefit of another within the meaning of the Act. In Re Fawthrop and Repatriation Commission (1993), the Tribunal dealt with a case in which:

(a) the applicant and his wife were directors of a trading company which owed money to Westpac Bank;

(b) the applicant’s wife owned certain land;




Part IIIB (s 52C)

(c) to secure existing debts and future advances, the applicant’s wife mortgaged her land to the bank;

(d) the mortgage included the company as a party in the mortgage; the company contracted to be jointly and severally liable for the debts and undertook certain other obligations. Whether the liabilities of the company under the mortgage extended in any way their existing obligations to the bank was not discussed in the Tribunal’s decision.

The issue for the Tribunal was whether the value of the encumbrances could be deducted from the joint assets of the applicant and his wife for assets test purposes under a predecessor to s 52C. The Tribunal reviewed at length the law relating to the meaning of “charge” and “encumbrance”, and in relation to the meaning of “security” said:

Finally, the word “security” may also have more than one meaning. Looking at its plural form, it may mean:

Evidences of debts or of property. State v Allen, 216 NC 621, 5 SE 844, 845, 847. Evidences of obligations to pay money or of rights to participate in earnings and distribution or corporate, trust or other property. Oklahoma-Texas Trust v Securities and Exchange Commission CCA10, 100 F.2d 888, 890. Stocks, bonds, notes, convertible debentures, warrants, or other documents that represent a share in a company or a debt owed by the company.

A different meaning was given to the word “securities” by Viscount Cave in Singer v Williams ([1921] 1 AC 41 at 49) when he said:

… the normal meaning of the word “securities” is not open to doubt. The word denotes a debt or claim the payment of which is in some way secured. The security would generally consist of a right to resort to some fund or property for payment; but I am not prepared to say that other forms of security (such as personal guarantee) are excluded. In each case, however, when the word is used in its normal sense, some form of secured liability is postulated.

Given the context in which the word “security” is used in s 52C and particularly in the juxtaposition with the words “charge” and “encumbrance”, we have concluded that the word “security” must be understood to connote a debt or claim the payment of which is in some way secured. For the same reasons, the word “charge” must also be given its narrower meaning to denote a liability, the performance of which is secured and the word “encumbrance” to mean a claim, lien or burden attached to a property. (at [25]-[27])

In relation to the meaning of “collateral security”, the Tribunal said: Ms Jenyns submitted at the outset, although she did not pursue her submission with any great vigour, that it is a collateral security. In doing so, she relied on the definition of “collateral” and of “collateral security” in Osborn’s Concise Law Dictionary (7th ed, 1983) (Sweet & Maxwell) which states:

By the side of. A collateral assurance, agreement, etc, which is independent of, but subordinate to, an assurance or agreement affecting the same subject-matter. A collateral security is one which is given in addition to the principal security. Thus a person who borrows money on the security of a mortgage may deposit shares with the lender as collateral security. …

Although the scope of a collateral security is somewhat circumscribed by this definition, Ms Jenyns did submit, albeit somewhat tentatively, that the bill of mortgage was a collateral security as it secured the repayment of the debt owed by the company. No further definitions were discussed during the course of the hearing but a submission along these lines accords with the meanings of “collateral” found in dictionaries other than legal




Part IIIB (s 52C)

dictionaries. I refer, for example, to the definition of “collateral” appearing in the 6th ed (6th impression, 1978) of the Shorter Oxford Dictionary where the broader meanings correspond to that given in Osborn but the particular meaning given to “collateral security” differs. The Shorter Oxford defines a “collateral security” as “property pledged as guarantee for repayment of money”. Similarly, in the Macquarie Dictionary (2nd ed, 1991) the relevant meaning is said to be “security pledged for the payment of a loan”. The word “collateral” has been considered by the High Court in the context of the provisions of s 261 of the Income Tax Assessment Act 1936 (Cth) which provides, in part, that:

(1) A covenant or stipulation in a mortgage, which has or purports to have the purpose or effect of imposing on the mortgagor the obligation of paying income tax on the interest to be paid under the mortgage … shall be absolutely void. … (5) For the purposes of this section, “mortgage” includes any charge, lien or encumbrance to secure repayment of money, and any collateral or supplementary agreement, whether in writing or otherwise, and whether or not it be one whereby the terms of any mortgage are varied or supplemented, or the due date for the payment of money secured by mortgage is altered, or an extension of time for payment is granted.

In the following passage from David Securities Pty Ltd v Commonwealth Bank of Aust ((1992) 109 ALR 57 at 63-4, Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ), Mason CJ considered the meaning which should be given to the word “collateral”. He said:

In reaching its conclusion that the loan agreements were collateral to the securities taken by the bank and thus fell within the definition of “mortgage”, the Full Court relied upon the definition of “collateral” given in Stardown Investments Pty Ltd v Comptroller of Stamps (Vic) (1983) 84 ATC 4097 at 4100. In that case, in the context of the Stamps Act 1958 (Vic), Tadgell J decided that one thing is collateral to another if it exists side by side with the other. In so doing, he rejected the submission of counsel that the word “collateral” necessarily involves the notion of the primacy of one thing over another.

Mason CJ then went on to consider and to reject the notion that the term “collateral” imports a sense of a thing’s being “secondary” and concluded at ALR 64:

Collateral contracts are so called not because they are subordinate or of lesser importance (although they may well be, depending on the facts of the case), but because they impinge upon and are related to another contract. The primary/subordinate distinction is not supported by the case on which the bank seeks to rely, Heilbut, Symons & Co v Buckleton, in which Lord Moulton stated [[1913] AC 30 at 47] that collateral contracts have “an independent existence, and they do not differ in respect of their possessing to the full character and status of a contract”. Once the notion of primacy is jettisoned, “collateral” must be understood in the sense of “related to” or even “in addition to”. So understood, the word covers the present case.

There is nothing in s 52C which suggests that we should adopt any meaning other than that adopted by Mason CJ. Therefore, having regard to the words of s 52C(5), a charge or encumbrance is a collateral security if it is a charge or encumbrance which is related to or in addition to another security, be that other security a charge, encumbrance or some other security such as a guarantee. This interpretation seems to us to ensure that a veteran, who has given two securities for the payment of the one debt, is allowed to deduct the value of that debt once only. In this case, only one mortgage has been given to secure the repayment of the debt owed by the company even though there are two properties subject to the mortgage. No security other than the mortgage has been offered and, therefore, it cannot be said that the mortgage is either related or in addition to another security. Consequently, it cannot be




Part IIIB (s 52C)

said to be a collateral security with the meaning of s 52C(5)(a). (at 36 ALD 145-147) (at [31]-[37])

[52C.03] “the charge or encumbrance was given for the benefit of a person other than the person or the person’s partner” – s 52C(2)(b)

In Re Elovalis and Repatriation Commission (1997), the applicant owned four blocks of land in Perth which were in his name, but were mortgaged to two of his daughters for loans he had raised from them, inter alia, for overseas travel for himself and his wife. The Tribunal found that the mortgages to the daughters were raised to finance the applicant’s expenditures, but then held that such mortgages were given for the benefit of a person other than the applicant. The Tribunal construed the benefit referred to in s 52C(2)(b) as relating to the person to whom the mortgage was given, rather than the person for whom it was given (ie whether the applicant was the person who benefited from the funds raised by the mortgage). With respect, the Tribunal’s decision on this point should be treated with care. The obvious response to the Tribunal’s reasoning is that whenever an owner executes a mortgage to another person, it must of necessity be to a person other than him or herself, and thus on the Tribunal’s reading of s 52C(2)(b), all mortgages would necessarily be excluded from s 52C.

[52C.04] Charges or encumbrances over disregarded assets – s 52C(3)

The effect of the equivalent provision in the Social Security Act was discussed in Re Berry and SDSS (1995) where the applicant sought to offset against her assets a $250,000 loan which was secured against her principal home (a disregarded asset under s 52). The loan had been taken out for business purposes but was secured against the home at the insistence of the lender. The problem was compounded by the fact that a sum of $129,000, which was on-lent to a business from the proceeds of the loan, was counted by the Department as an asset of the applicant. The Tribunal held that sub-s (3) was clear in its meaning such that, “in relation to a charge or encumbrance over a disregarded asset, sub-s (3) renders sub-s (1) inapplicable and such a charge or encumbrance cannot be used to off-set the value of any non-disregarded assets”: at [13]. The Tribunal noted that it was “patently unfair” to include borrowed money as an asset but to ignore a corresponding liability because it was secured against a disregarded asset; however only legislative amendments could resolve the problem. See also Re Elliott and SDSS (1997), Re Smith and SDFaCS (1999a), Re Sgouros and SDFaCS (2000), Re Achkar and SDFaCS (2001), Re Tabain and SDEWR (2006) and Re Worner and SDEWR (2006) to the same effect. In Re Hill & Johnston and SDFaCS (2005), the applicants owned their principal home in Cooroy and two other properties – a house in Cooroy and a block of land in Doonan. A mortgage was secured over both the second house and the land. The land was treated as an unrealisable asset under s 1132 [VEA s 52Z] and therefore the Tribunal was required to determine the value of the second house for the purposes of the assets test. Following Re Smith (supra), and making reference to the Second Reading Speech to the Social Security and Repatriation (Budget Measures and Assets Test) Act 1984, the Tribunal held that the total amount of the money secured by the mortgage




Part IIIB (s 52CA)

must be deducted from the value of the house. The provision looked to the “net market value” of the asset and an apportionment between the two assets was not appropriate as neither sub-ss (3) or (4) had application in the case of an asset excluded under the hardship provisions.

[52C.05] Charges or encumbrances over more than one property In Re SDEWR and Huntly (2007), the Tribunal considered the treatment of a mortgage which extended over more than one property. Drawing an analogy with the equivalent to s 52C(4), the Tribunal held that the amount of the encumbrance should be allocated among the assets in proportion to their value. See also [52ZZT.01] in this Part.

Section 52CA Effect of certain liabilities on value of assets used in primary production

[52CA.01] Shared family liabilities [52CA.02] Farm assets used off the farm

[52CA.01] Shared family liabilities In Re James and Repatriation Commission (1993), the applicant and his wife ran a farming business in partnership with their son and daughter-in-law. The business operated both on the applicant’s wife’s farm (valued at $310,000) and on a farm jointly owned by the applicant’s wife and son. The partnership borrowed money ($235,000) and mortgages were given over both properties as security. The partnership was not successful and its liabilities came to exceed the partnership assets. The Commission allowed, in respect of Mr James, only a pro-rata portion of the mortgage debt reflecting the proportion of the partnership assets he held. The Tribunal noted the son’s (and his wife’s) impecunious state and found that, if called upon by creditors to make good the partnership debts, the son could not do so beyond the value of his shares in the land. The Tribunal further noted the joint and several liability of the partners and found that creditors would, most likely, look to the applicant and his wife for satisfaction of the debt. For this reason, the Tribunal held that the true extent of the applicant’s total liabilities related to the farm partnership was all the debt except for the value of the son’s interest in the jointly owned land. Re James was not followed in Re Estate of Ridgway and Repatriation Commission (1996) where the applicant and his wife had between them a 33% interest in a farming property and their two sons each had a 33% interest. The evidence established that the sons were impecunious and that the partnership’s liabilities exceeded its assets. The applicant argued that s 52CA(1)(c), when it spoke of “liabilities”, authorised the Tribunal to have regard to the joint and several liability within the partnership and the fact that the applicant and his wife may be called upon to make good their sons’ shares of the total liabilities. On this reasoning, the applicant argued that the whole of the partnership’s liabilities should be deducted from his assets under s 52CA(2). The applicant relied upon the Tribunal’s decision in Re James (1993) to the above effect. The Tribunal declined to follow Re James and held that, unless and until the creditors did make a demand on the partnership, each partners’ assets and liabilities must be valued according to the partnership terms and on the basis of the ongoing nature of the partnership:




Part IIIB (s 52CA)

Central to the submissions of both parties regarding the above issue is the decision of the Tribunal in Re James and Repatriation Commission 18 AAR 423. In that decision the Tribunal was of the view that because the net deficiency on partnership (found to be present) produced a liability and because two of the partners would be unable to meet their respective shares of the deficiency if called upon, then those deficiencies would come home to the applicants being the only persons capable of defraying the partnership liabilities. Accordingly, the Tribunal concluded that the applicant’s “liabilities” for the purposes of s 52CA included the two impecunious partners’ share of the partnership deficiency. Mr Murray submitted on behalf of the applicant that as the partnership liabilities exceeded its assets in the present case and because the partners, other than the late Mr Ridgway and Mrs Ridgway, were also said to be impecunious, that this Tribunal should apply the reasoning in Re James (supra) and include as liabilities, for the purpose of s 52CA, the other partners’ share of the deficiency. The Tribunal has reflected upon the decision in Re James (supra) and, with respect, is unable to concur in the reasoning employed by the Tribunal in that case in one important particular. The reasoning in Re James (supra) is based on the assumption that at the time of valuing the partnership assets and liabilities for s 52CA purposes, all partnership liabilities are to be met, that they exceed the partnership realised assets and as certain partners cannot meet their partnership commitments therefore, the other partners must do so. This in turn assumes, at the time of valuation, a factual situation which does not exist. As to liabilities of the partnership – they may or may not be met with the passage of time. Some liabilities may be met in the near future, others in the longer term. The asset situation will also vary with the passage of time. More capital may be injected into the partnership. The future is uncertain. Whilst it is appropriate to have regard, for the purposes of valuing the partnership liabilities of a service pension, the extent to which the pensioner is to share those liabilities according to the partnership agreement, is it appropriate for the purposes of s 52CA of the Act to also take account of the pensioner’s liability to meet other partners’ liabilities in the event of their inability to meet their respective share of the deficiency? The Tribunal is of the view that it would not be appropriate for the following reasons. To do so would bring about an air of artificiality not warranted by the legislation. The method of valuation employed in Re James (supra) assumes in effect, at the time of valuation, a bringing to an end of the partnership in question by a realisation of the assets and a payment of debts and a bringing home to a partner the commitments unable to be met by partners who are impecunious. That process does not take account of the fact that at the relevant time the partnership under scrutiny in Re James (supra) and the partnership in this matter were alive, ongoing, operating entities. The Tribunal is of the view, should the respective share of any partnership deficiency by impecunious partners come to have to be met by partners who are not, then that is, for s 52CA purposes, the appropriate time to have regard to such a situation. The Tribunal is of the view that s 52CA does not require an administrator, when valuing a person’s liabilities from a partnership perspective, to have to examine the finan-cial ability of other partners to meet any deficiency between the notional realisation of partnership assets and payment of debts as at the time of valuation. To do so would create an administrative nightmare requiring an examination of the financial health of the other partners every time a valuation took place. That situation can readily be accommodated if and when it actually occurs. Then it would accurately reflect, for pension purposes, the actual liabilities of the service pensioner in question. To allow as a liability for pension purposes that which may never come to be is to accord an unwarranted benefit (for pension




Part IIIB (s 52CA)

valuation purposes) upon a service or would be service pensioner. The Tribunal cannot see from the provisions of s 52CA that this was intended by Parliament. In any event, one must have regard to the provisions of s 5L(3A) of the Act regarding the meaning to be given to the expression “value of a liability” which is contained in s 52CA(2).

5L(3A) A reference in this Act to the value of a liability of a person is, if the liability is shared by the person with another person, a reference to the value of the person’s share of the liability.

The Tribunal is of the view that s 5L(3A) of the Act makes it clear, for the purposes of valuing a shared liability as in a partnership, that it is the value of the person’s share of the liability that one must have regard to ie the share that each partner has of the partnership liabilities in accordance with the partnership agreement. Should the joint and several liability of each partner to meet the debts of the partnership bring about, in a given situation, one partner having to meet the partnership debts of impecunious partners then that becomes a liability of that person at that point in time and can then be taken into account for s 52CA purposes. In the present case, the latter situation has not yet occurred and so for s 52CA purposes the late Mr Ridgway’s share of the partnership liabilities was 17% as at 24 June 1994 and the Tribunal so finds. (at [8]-[14])

In Re SDSS and Thomas (1993), the applicant and his son George formed a partnership to farm a property. The applicant owned 90% of the land and had a right to 40% of the income under the partnership agreement. The applicant purported to:

(a) lease his 90% share of ownership of the land to the partnership, with his son George similarly leasing his 10% to the partnership;

(b) receive rents from the partnership; (c) make loans to the partnership.

Whilst the case is difficult to understand, it appears that the applicant then sought to deduct, pursuant to s 1121A of the Social Security Act [VEA s 52CA], his share of the liabilities of the partnership from his personal assets, which included his share of the partnership assets. After recognising the legal status of a partnership being only that of the partners, the Tribunal indicated its difficulties with the concept of a person leasing property to themselves and making loans to themselves. The Tribunal concluded that the lease was a fiction and the rent was really a distribution of profits:

As already explained, there cannot be any lease, nor therefore any liability to pay rent, between Mr Thomas and George Thomas as lessors and Mr Thomas and George Thomas as lessees. While it may be appropriate that the partnership accounts provide for some adjustment to be made to Mr Thomas in recognition of the fact that he owns the greater share of the property on which the farming enterprise is conducted, that adjustment is not really a rental payment. It is rather part of the distribution of the profit and loss of the primary production business. The money received by Mr Thomas, which is described as rent, does not come from a source different to primary production. (at [30])

Similarly, the Tribunal rejected the notion of the applicant in his partnership capacity being indebted to himself in a non-partnership capacity through the loan:

The partnership has no legal identity separate from that of the partners and the concept of a loan from oneself to oneself must be, in the words of Viscount Simonds in Rye v Rye, as “fanciful” and “whimsical” as a lease from lessors to themselves.

The Tribunal disallowed the part of the loan attributable to the applicant’s 40% partnership interest as a liability for the purposes of the section.




Part IIIB (s 52CA)

In Re Agnew and SDSS (1998), a father owned a farm property in South Australia but operated the farm business in partnership with his four sons. He later took up non-farm employment in Perth, leaving management of his property entirely to his sons for 15 years. During that time, a mortgage over the land of $371,000 was taken out to cover partnership liabilities, presumably with the agreement of the father. When the father retired from his other employment, the partnership was dissolved, the sons gave their father an indemnity in respect of the liabilities, and the father transferred title in the land to a family trust. The Tribunal rejected an argument that s 1121A [VEA s 52CA] applied so as to reduce the value of the disposed of asset ($450,000) by the amount of the mortgage, holding that: • at the time of the transfer of the land, the father had no part of the partnership

liabilities to which the mortgage related as these had been expunged by the indemnity given previously by his sons; and

• the mortgage did not relate to primary production carried on by the father, rather it related to primary production carried on by his sons.

The Tribunal said: The evidence before the Tribunal is that as and from 1 July 1995, Mr Agnew had been given a full indemnity by his sons for the whole of the partnership debts, by virtue of the variation of partnership deed executed on 7 March 1996 which was given retrospective operation. Thus, at the time the property was contractually transferred to the trustee on 19 September 1995, Mr Agnew effectively had no liabilities with respect to the partnership debt. Further, it is of no moment that despite the indemnity given by the continuing partners, Austrust might have pursued Mr Agnew personally for any shortfall in the partnership’s ability to repay the loan. At most the partnership debt is a potential liability and, as the Tribunal found in The Estate of the late Eric B Ridgeway and Repatriation Commission (Unreported; AAT 11522, 24 December 1996) potential liabilities to a partnership do not crystallise into actual liabilities for asset test purposes until they are called in by the creditor. As this has not happened in the case of Mr Agnew (having never received letters of demand and the mortgage subsequently being discharged prior to the transfer of Rosedene to the trustee), the Tribunal finds that Mr Agnew had no liabilities to the partnership at the time of disposal of the asset. Section 1121A of the Act cannot therefore assist the applicants in reducing the value of their asset. Section 1121 of the Act would also fail for the same reason, as any encumbrance, ie the mortgage, was also discharged prior to the transfer of Rosedene. (at [36]) … Although it is not necessary to do so, the Tribunal finds that the debt and mortgage existing over Rosedene did not relate “to the carrying on of the primary production” (emphasis added). The Tribunal’s considered opinion is that s 1121A(1)(c) of the Act and, in particular, the word “the”, requires that for a liability to be deducted from the value of a farming asset, the liability must relate directly to the primary production which is carried out by the primary producer, which in turn relates back to the asset which is used for the purpose of carrying out the primary production by virtue of s 1121A(1)(b) of the Act. That is to say, where a liability in the form of a mortgage is registered over one property but relates to primary production carried out on several properties, some of which are owned by another as is the case here, the whole of that liability cannot then be deducted from the value of that one property but must be shared proportionally between them. The Tribunal is of the view that this would further prevent the applicants from successfully relying on s 1121A of the Act. (at [38])




Part IIIB (s 52D)

The decision of the Tribunal was set aside by the Federal Court in Agnew v SDSS (1999) but on another point – that a constructive trust had been created by the actions of the father and his sons; see [5L.02] in Part I. An appeal by the Department to the Full Court in SDSS v Agnew (2000) was unsuccessful.

[52CA.02] Farm assets used off the farm In Re Salmon and SDEWR (2007), the applicant used farm equipment for an off-farm business relating to traffic control. The Tribunal held that merely using farm equipment for an off-farm business activity did not make the off-farm activity one of primary production.

Section 52D Loans [52D.01] Effect of s 52D [52D.02] Loans made before 22 May 1986

[52D.01] Effect of s 52D Section 52D applies only to loans made on or after 22 May 1986 and requires the face value of the loan to be used for assets test purposes: Re Hughes and SDSS (1992), Re Clayton and SDSS (1996). See also Re SDFaCS and Downes (2002) and Re Trewin and SDFaCS (2002) for examples of loans to a family company and a family trust (respectively) being valued at face value. Note that the equivalent date in s 1122 of the Social Security Act 1991 is 27 October 1986. For loans made before 27 October 1986, the value of the debt is its real value; see the discussion at [52D.02]. Section 52D refers only to loans (“a person lends an amount”) and not to debts or investments. Loans are characterised by a contractual intent to lend together with a contractual duty to repay (see [5L.04] in Part I); debts can occur where no intention to lend was present. Similarly, loans must be distinguished from investments; see Re SDSS and Thomas (1993) where an amount of money shown in a partnership capital account to the pensioner’s credit was treated as the pensioner’s partnership equity rather than as a loan. See also Re Boyd and SDSS (1994), discussed below. In Re Banister and SDSS (1993), the applicant provided vendor finance, post-27/10/86, for a purchaser which was a company. The purchaser defaulted on the repayments and the applicant had not taken legal action to recover the land. The applicant argued that, because the loan was non-income-producing, this fact should be taken into account in valuing the loan as an asset. As with Re Hughes, the Tribunal rejected this approach although its decision appears to have been influenced by the fact of the applicant’s otherwise healthy assets position. In Re Boyd and SDSS (1994), the Tribunal, applying Re Hughes, held that s 1122 [s 52D] established that the value of the loan is the amount that remains unpaid. The applicant in this case raised the interesting argument that the amount “loaned” by the applicant to the family company, which was ultimately forgiven as a debt, should in fact be seen as an unsuccessful investment and not as a loan:

The applicant argued that it was possible for the $126,170 to be considered an investment rather than a loan. The element of speculation, the use of funds to secure profit and the element of control exercised by the applicant indicated that the applicant’s contribution was an investment not a loan. A loan was characterised by its temporary nature, and the




Part IIIB (s 52D)

usually predetermined rate of return – features absent from the applicant’s contribution. (at [23])

While the Tribunal found against this argument on the facts of the case, it does raise the interesting point of the necessary indicia for a loan vis-à-vis an investment; see [5L.04] in Part I. In Re Joyce and Repatriation Commission (1995), the applicants were trustees and general beneficiaries of a family trust. They had to their credit loans to the trust totalling $287,800 which the Commission treated as assets for the purpose of service pension. The Tribunal rejected an argument that only the real value of the assets within the trust – totalling $204,034 – should be taken into account. The Tribunal noted that Re King and Repatriation Commission (1990) (discussed at [52D.02]) had been decided before the legislation was amended to its current form and commented:

The circumstances in King are different to the position here where repayment of the loans has not become due and may never do so. The loans are apparently interest free and repayable on demand. No demand for repayment has been made and no repayments have been made. The Trust is active. As no demand for repayment has been made and may never arise, any obligation to repay the loan has not arisen. Further, given the nature of the Trust assets and the vagaries of the stock market, the market value of the Trust assets from time to time is unpredictable. It may well be that if and when repayment is demanded, the loans may be repayable in full. It could not be said that the Trust would never be in a position to repay the applicants’ loans. Neither at the date of the pension review, nor when the matter came on for hearing, had the question of whether the loan is irrecoverable arisen. It seems to me that the applicants would have been on much stronger ground if, following a demand for loan repayment, an actual shortfall had occurred on a sale of assets. For present purposes however, in the applicants circumstances, the book value of the loans is in my opinion correctly included in the value of the applicants’ assets. It is that amount which remains unpaid for the purposes of s 52D. Section 52C, a provision dealing with the effect of a charge or encumbrance on the value of assets, does not have any application given the facts in this matter. (transcript at p 6)

In Re Ropert and SDSS (1999), the applicant was the trustee of a family superannuation fund. The applicant lent the superannuation fund money which showed as a loan in the accounts of the fund; the fund in turn lent the applicant a smaller sum of money which showed in the fund’s accounts as a debt owing to the fund. The applicant argued that the value of the loan owed to her by the fund should be offset by the debt she owed the fund so that only the net balance was caught by the assets test. The Tribunal proceeded on the basis that there is no provision in the Act to set-off debts owing to applicants against their assets and held that the whole of the loan was included as an asset without set-off for the debt. In support, the Tribunal cited the Federal Court decision in Unicomb v SDSS (1998), where Branson J said:

Nothing in the terms of s 1122 of the Act, in my view, suggests that it is appropriate, for the purpose of determining whether a person has lent an amount, to consider whether, having regard to the factual circumstances which surround the transaction prima facie falling within the terms of the section, the person has gained a net advantage from such transaction so far as his or her total assets are concerned. (at 50 ALD 407)




Part IIIB (s 52D)

In Re Cayeux and SDFaCS (2000), the Tribunal held that a trust is not a juristic person and that a person cannot make a loan in their personal capacity to themselves in the capacity of sole trustee of a family trust. In Re Juric-Kacunic and SDFaCS (2003), the applicant lent a large sum to a friend who subsequently was unable to repay the loan. The applicant took no steps to recover the loan, accepting the futility of any such action. The Tribunal held that, in the absence of demonstrated efforts to attempt to recover the sum, the loan remained an asset. It was not appropriate to apply the policy on “Assessing Failed Financial Investments-Loans” at para 4.6.5.110 in the “Guide to the Social Security Law”. See Re Hawkins and SDFaCS (2005), discussed at [5L.04] in Part I, for discussion of loan as debts, the enforcement of which is alleged to be statute-barred. In Re Brown and SDFaCS (2004), the applicant loaned funds to the trustee of a family trust to invest in a South African venture. Losses were sustained with exchange rate fluctuations and the trustee repaid the applicant less than the full amount of the loan. The applicant took the view that the loss was his own loss and that nothing was still owing from the trustee. The Tribunal took the view that the loss constituted an unpaid residue of the loan. In Re Gordon and SDFaCS (2005), a pensioner had a line of credit or a revolving loan with a bank, secured against the asset of his house. The pensioner himself did not use the line of credit, however his children used the line of credit and made repayments against the loan. The Tribunal took the view that the line of credit was a “loan” made by the pensioner to the children to the extent of the money drawn down by the children. The Tribunal also refused to allow any offset from the amount of the loan for interest accrued on the loan.

[52D.02] Loans made before 22 May 1986 Where a loan was made before 22 May 1986, the value of the loan for assets test purposes is its real value: Re Wright and SDSS (1994); Re Riches and SDSS (1995); Re Hughes and SDSS (1992). In Re Lenthall and SDSS (1987), the Tribunal held that the appropriate value of a pre-1986 debt was the actuarial calculation of the current value of the debt rather than just the sum of the original debt. See also Re King and Repatriation Commission (1990) and Re SDSS and Doyle (1990) to the same effect. In Repatriation Commission v Harrison (1997), the Federal Court distinguished Re King and, in effect, suggested that the approach in Re King was correct in the circumstances. Tamberlin J said:

There is no suggestion in the material that if the shares were to be sold and the debts realised, the respondents, who are the debtors, would not have been in a position to repay those debts. In this important respect the present matter is clearly distinguishable from the authority referred to by the respondents, namely Re King and Repatriation Commission (1990) 12 AAR 375, particularly at 378-379. In King the AAT assessed the value of a debt at less than its face value because the company owing the debt did not have the necessary sufficient asset backing or capacity to repay the loan at its face value. The amount of the debt was about $225,000. However, the value of the total assets of the debtor was only $66,850. Accordingly, the loan asset was valued, after some adjustments, at $60,750. That case is different from the present because the exercise in that case was directed to valuing the asset comprised by the debt, whereas in the present case the approach taken by the AAT was in effect to arrive at a net result by offsetting the respondents’ loans from




Part IIIB (s 52D)

the company against the value of the shares. This is quite a different exercise. (at 78 FCR 451)

Re Wright and SDSS (1994) provides an example of valuation of forgiven loans advanced before and after 27 October 1986. In Re Unicomb and SDSS (1996), the applicant and his wife were the directors of a building company. They made loans to the company over a number of years; some of these loans were made prior to 27 October 1986 and some were made after that date. The first issue for the Tribunal to determine was the amount of such outstanding loans to be included in the applicant’s assets test. The Tribunal, relying on Re Wright and SDSS (1994), accepted that the face value of the loans made after 27 October 1986 was caught. In relation to the pre-27 October 1986 loans, the value of the loans depended on the capacity of the company to pay. The Tribunal then turned to the appropriate method of apportioning the company’s capacity to pay between the pre-1986 and post-1986 loans. The Tribunal preferred an “apportionment method” to a “last in first out method”, accepting that the total asset value of the company should be apportioned on a pro-rata basis between the two categories of loans, to determine the capacity to pay each. In Unicomb v SDSS (1998), the Federal Court dismissed an appeal from the Tribunal’s decision, however the issue of apportionment under s 1122 was not in issue. In Re Taylor and SDEWR (2007), the applicants had loan account balances extending back to 1981. They argued that, to the extent that the loan accounts represented pre 28 October 1986 debts, they ought to be valued by reference to their objective worth rather than their face value. The Tribunal considered that the amount of movement in the loan accounts over the previous years meant that there was no pre-1986 element in the loans:

The first argument relies upon a line of authority in the Tribunal that amounts lent on or earlier than 27 October 1986 (the date referred to in s 1122 of the Act) ought to be valued in accordance with the “real value”, which involves making an assessment of the likelihood of repayment and the ability of the debtor to repay. The Secretaries submit it is no longer appropriate, more than 20 years after the introduction of s 1122 of the Act, to draw distinctions about the age of loans and that as a matter of policy it is preferable to have a unified approach to the assessment of the value of the loans. I do not find it necessary to determine that particular issue here because the argument for Mr and Mrs Taylor fails on the facts; that is, there is no evidence from which I could conclude that any part of the balances from 1996 onwards. Indeed it seems to me, having regard to the evidence of Mr Taylor of regular weekly drawings of cash being made over the years, such evidence as there is points to the opposite conclusion. The beneficiaries’ loan accounts were the subject of a detailed analysis by Mr David Williams, a chartered accountant. Necessarily, Mr Williams could not analyse movements in the loan accounts during the years where the annual accounts are not available. Even on the basis of the figures available, Mr Williams’ analysis points to the absurdity of the notion that in 1996 there were amounts in the accounts that had been advanced earlier than 28 October 1986. The balance in Mr Taylor’s account as at 30 June 1986 was $93,847 (it is notable that it had reduced from $185,225 the preceding year). In the 1996, 1997, and 1998 years Mr Taylor had drawings totalling $22,386. Nothing is known about the movements in the loan accounts in the 1987 to 1992 years, other than that as at 1 June 1993 the balance of Mr Taylor’s loan account was $59,039. Let it be assumed that the whole of that sum represented loans made by Mr Taylor to Merritt prior to October 1986 (and I emphasise that there is no evidence to support that assumption). Even on that




Part IIIB (s 52E)

assumption, almost half of the loan was repaid by drawings in the years that are missing if the drawings were taken at the rate spoken of by Mr Taylor in his evidence. In the result, I am not satisfied that by January 1996, when Mr and Mrs Taylor were initially paid Newstart allowance, that any part of the beneficiaries’ loan accounts’ balances represented advances made prior to October 1986. But even were I to conclude that it was possible that some part of the accounts’ balances answered that description, I am at a loss to understand how I could determine the amount that represented “old” loans. The Tribunal’s processes, whilst encouraging the absence of formality and technicality, do not permit guesswork. (at [31]-[34])

Subdivision B – Dispositions of assets (general provisions)

Section 52E Disposal of assets [52E.01] Interpretation of s 52E [52E.02] “disposes of assets” – s 52E(1) [52E.03] “inadequate consideration” – s 52E(1)(b) [52E.04] “the purpose, or the dominant purpose, of the person” – s 52E(1)(c)

[52E.01] Purpose of s 52E Section 52E and Subdivision 11B apply special rules to disposal of assets by pensioners. In broad terms, where a person disposes of an asset for inadequate consideration, or the purpose of obtaining a service pension, the disposed of asset is included in the person’s assets, for assets test purposes, for the following five years. Section 52E is similar to s 1123 of the Social Security Act 1991 and to s 6 of the repealed Social Security Act 1947. Note also Division 7 of Part IIIB (ss 48-48E) which makes similar provisions in respect of dispositions of income. In Re Collingwood and Repatriation Commission (1992), the Tribunal cited the following passage from the Second Reading Speech of the Social Security and Repatriation (Budget Measures and Assets Test) Bill 1984:

the Government believes it is necessary to take account of both assets and income in any pension test in order for it to be both a fair measure of need and equitable to all members of the community … This purpose is to ensure that people cannot avoid the test, thereby continue to receive the pension, by transferring or gifting their assets to family or friends. Public subsidy of such arrangements is not a purpose of the pension system.

The operation of the disposition provisions was briefly considered by the Tribunal in Re Batt and SDSS (1992) where the Tribunal commented:

[T]he legislation is clearly intended to attach financial consequences to persons who dispose assets for the purposes of reducing their estate so as to attract a greater rate of pension. (transcript at p 3)

[52E.02] “disposes of assets” – s 52E(1) In Re Rogers and SDSS (1987), the Tribunal dealt with the situation of parents “forgiving” debts owed to them by their children. The Tribunal found this to be a disposition of property within the meaning of s 6(2) of the repealed Social Security Act 1947. See also Re Gibbons and SDSS (1986) to the same effect, although in that case the




Part IIIB (s 52E)

Tribunal treated the disposition as a disposition of income producing property, such as would now be caught under both s 48 and s 52E. In Re Pisano and SDSS (1986), a pensioner and his wife established a family trust company and transferred to it income producing assets, with the effect that both the disposition of income provisions and also the disposition of assets provisions applied. Where the property is only loaned to the trust, while there may be a disposition of income, there is no disposition of property: Re Nadenbousch and Director-General of Social Security (1984). In Re Batt and SDSS (1992), a pensioner, upon separation from his wife, gave her his share of a jointly owned principal home “in consideration for his affection for her and in recognition on his former marriage to her”. The transfer did not affect the wife’s pension because it was her principal home. The Tribunal found that his joint share in the house was “property” (and thus “assets”) and that a disposition for no consideration had occurred. Note that the outcome of this case could have been different if the transfer of the property had been effected by a consent property settlement under the Family Law Act (cf SDSS v Temmen (1993)). In that case, because the Family Court is required to examine consent settlements and ensure that they are appropriate in all the circumstances, it would be arguable that there was no disposition of property, but merely an adjustment of assets between the parties as a consequence of separation. In Re Quo and Repatriation Commission (1993), the applicant was owed a debt by a family trust of which he and his wife were trustees. At a meeting of trustees in 1984, they resolved to accept the forgiveness of the debt owed to them. However they neglected to offer the forgiveness of the debt formally in their personal capacities. In considering whether there had been a disposition of property by the applicants, the Tribunal noted that a voluntary release of a debt must be executed in writing by the donor to be legally effective, and a mere minute of acceptance of the forgiveness by the donee does not suffice. Accordingly the debt was still an asset of the applicant and his wife and there had been no disposition of property. In Re Howlett and SDFaCS (1999), the applicant owed money to a farming partnership. After selling some land, the applicant discharged the debt owed and deposited the balance of the proceeds in her capital account in the partnership. The Tribunal held that discharging a debt owed is not “disposing” of the capital within the meaning of s 1123 [s 52E] and also held that the fact that the balance was put into her capital account within the partnership did not deprive her of the sole right to its use and hence the balance had not been disposed of within the meaning of the section. In Re SDFaCS and Williams (1998), the trustees of the Victorian Superannuation Board decided to pay a death benefit under the fund to the respondent who was the widow of the deceased fund member. At her request, the trustees paid the benefit into a family trust controlled by the respondent. The Tribunal held that this was a disposal of an asset as the trustees had discharged their fiduciary duty by determining that Mrs Williams should be the beneficiary. Thereafter, they had merely been acting on her instructions as to the manner of payment of the funds. To satisfy s 52E(1), it is sufficient if the beneficial interest is disposed, leaving the person as a mere trustee. In this case, the property no longer forms part of the person’s assets, see [5L.02] in Part I. In Re Dennis and SDFaCS (2000), the applicant was the father of a deceased son who had died intestate although he had made an unexecuted will leaving half of his estate to his father and half to his brother. Under the Succession Act 1981 (Qld), the




Part IIIB (s 52E)

father was entitled to the whole of the estate. The applicant gave directions to the administrator of the estate renouncing a half share of the estate in favour of the surviving brother. The Department took the view that this renunciation constituted a disposition of the asset value of half of the estate. The Tribunal rejected this view and, after reviewing the authorities, held that a beneficiary in an estate which has not yet undergone administration has no right to any asset in specie but merely has a right to insist on the due administration of the estate. The applicant’s direction to the administrator to pay half of the estate to the brother of the deceased did not alienate any part of the applicant’s right to insist on due administration. For these reasons the Tribunal held that the partial renunciation by the applicant did not effect any disposition of an asset:

It seems clear that while the estate was in the course of administration Mr Dennis, as the residual beneficiary, had a chose in action being the right to have his son’s deceased estate administered in accordance with the requirements of the Succession Act in particular and generally. That was a proprietary right in the sense that the chose in action is correctly characterised as property and therefore an asset for the purposes of the Act. In alienating half of his expected fruits of that chose in action he did not in any sense transfer the rights to due administration (the chose in action); he maintained those rights as his own. It was essential to his purpose that he did not transmit the chose in action. That is the point of distinction between this case and what occurred in Schultz. There the chose in action transmitted to the Official Receiver so that the fruits of the chose in action eventually became part of the bankrupt estate. Here the relevant asset is the property of the estate which is available for distribution following due administration of the estate. It follows that the applicant, Mr Dennis did not dispose of some of his assets when he directed himself, as administrator of the intestate estate, and the solicitor acting on his behalf to administer the estate giving effect to the unexecuted will. The chose in action remained his property, he did not confer any rights on his surviving son when he made the direction. When he made the direction Mr Dennis had no relevant proprietary interest in the residual estate and therefore it cannot be the case that he diminished the value of his assets. Clearly he diminished the value of his expectation but that expectation is not a proprietary interest capable of being regarded as property and therefore an asset. We may well have a well founded expectation that a backed horse will win a race but until it does we do not have an asset. Similarly a residual beneficiary of a deceased estate must wait for the due administration of the estate before any expectation as to the fruits of the estate is realised and becomes an asset. Mr Dennis did not diminish the value of his assets. Neither did he destroy all or some of his assets. He merely reduced his expectation as to what he would eventually realise from the estate. (at [15]-[20])

In Re Cook and SDFaCS (2003), the applicant was given a farm by her father at negligible cost. At the time she was married. The marriage later failed and the father requested that the applicant re-convey the title to him, possibly to prevent a break up of the farm under a family law property settlement. The Tribunal held that the re-conveyance constituted a disposition of the farm by the applicant daughter for inadequate consideration. The applicant was under no legal obligation to re-convey the farm and the Tribunal declined to find that any moral obligation for doing so was a sufficient basis to negate the fact of the disposition.




Part IIIB (s 52E)

In Re Garbutt and SDFaCS (2001), the applicant’s son died intestate, leaving as his principal asset a lump-sum entitlement payable at the discretion of the Trustees of the Australia Post Superannuation Scheme. After investigation of the circumstances, the Trustees paid 60% of the amount to the applicant, who had previously been partly financially dependent on her son, and 40% to a de facto partner. The applicant, who was in receipt of an age pension and some superannuation, paid out the whole of the amount she received ($165,000) to the surviving siblings of the deceased as she believed that this was her son’s intention (and, she submitted, the subject of a secret trust). The Tribunal held that she was not acting in her capacity as legal personal representative of her son as the money had been paid to her personally in the exercise of an absolute discretion by the APSS Trustees. Accordingly her payment to the other children constituted a disposition of $155,000. In Re SRAAAA and SDFaCS (2003), the applicant paid US$50,000 for the purchase of a Sefer Torah which she then placed on permanent loan to a Synagogue in Jerusalem. The Tribunal held that the long term loan did not constitute a disposition of the asset and the value of the asset had to be included in the applicant’s asset test. Note that s 49C in Subdivision 8 provided that a transfer of a farm interest in accordance with the “Retirement assistance for farmers” provisions of Part IIIB was not a disposal of assets for the purposes of s 52E.

[52E.03] “inadequate consideration” – s 52E(1)(b) The issue of “inadequate consideration”, in the context of the corresponding provision in the repealed Social Security Act 1947, was considered by the Federal Court in Frendo v SDSS (1987). The case concerned a pensioner who gave her son a large sum of capital in return for the right to reside with him in his house for the remainder of her life. The Court said that “consideration” in this context bore its “technical, legal sense”, and said Mrs Frendo “must receive consideration in the sense recognised by the law of contract of an act, forbearance or promise sufficient to establish the existence of a binding contract”. In this particular case, the disposition was not intended to create binding contractual rights; it was not consideration in the legal sense, only a family arrangement. In Re Lomax and SDSS (1989), an age pensioner owned a principal residence of some value. The pensioner determined to sell his principal residence and to buy, with the proceeds, three adjacent units which would house himself and his wife, his daughter and family, and his granddaughter and family. The rationale apparently was that the daughter and the granddaughter would supply caring services for the aged couple. The pensioner apparently sought advice on the effect that this course of action would have on his pension and a local Department of Social Security officer advised that it would have no effect. The issue for the Tribunal was whether the disposition of the two units to the daughter and grand-daughter respectively had been for inadequate consideration. The Tribunal purported to follow the decision of the Federal Court in Frendo v SDSS where the Court had held that the use of the word “consideration” was to take its legal meaning from the law of contract. The Tribunal looked to whether there was any legal contractual consideration flowing from the daughter and granddaughter to the pensioner couple and found that there was not. It was a domestic arrangement involving no binding contract between the parties. On this basis, the Tribunal found that there was no consideration for the diminution in value of the pensioner’s assets.




Part IIIB (s 52E)

See, however, SDSS v Burman (1986) where the Federal Court noted that family arrangements may not necessarily be fully embodied in writing. In Re Follone and SDSS (1987), the Tribunal warned of the danger of elevating the expectation of family members concerning family assets to legal rights in the absence of some extrinsic evidence of intention to create legal rights. In Re McClelland and SDSS (1988), property was transferred from the applicant to her son. The applicant argued that the transfer was payment to the son in consideration for work previously done, and improvements made, to a property in which the son was a partner. The Tribunal commented:

There was no legally binding agreement between [the son] and his parents that in later years he would be paid for his labour and capital … Work done and money expended by one person to benefit the property of another does not necessarily create any lien over the property benefited. (at 15 ALD 317)

In the absence of an equitable lien over the property, the Tribunal held that the transfer of property constituted a disposal of property for no consideration. See also Re SDSS and Doyle (1990), Re SDSS and May (1997) and Re SDSS and Bergmann (1998) to the same effect. In relation to the equivalent provisions in the Social Security Act, the Departmental policy guide (Guide 32.2400) allowed “foregone wages” to be taken into account in determining whether or not a disposition was for adequate consideration. That policy applied: • to a close family member who works on the farm as an employee, but does not

apply to a partner in a farming enterprise; • where the parents transfer the farm to the child, but does not apply where the farm

is transferred to a company, notwithstanding that the company is controlled by the child.

In Re SDSS and Edwards (1993), the Tribunal held that a payment of $81,000 to a son by a cane farmer father did not amount to a disposal for inadequate consideration. The factors which set the case apart from Re McClelland and Re Follone were that the son was never a partner in the farming venture and was underpaid wages over a period of many years when he worked on the cane farm. The parties executed a Deed involving a legally binding promise that a larger sum of back wages would not be sought. See also Re Paltridge and SDSS (1993) and Re SDSS and Koschitzke (1999) which had a similar outcome. In Re Whitaker and Repatriation Commission (1993), the Tribunal followed the DSS Guidelines for ascertaining foregone wages entitled “Deprivation of Assets – Transfer of Farm for Past Contributions” noting that “to rule otherwise would result in a veteran’s assets being calculated on a different basis to that of a Social Security recipient when the legislation pursuant to which the assets were calculated were to all intents and purposes identical”: at [8]. The Tribunal found that the son’s contributions had already been recognised in a reduction of a mortgage amount owing (which occurred more than 5 years earlier and thus was not caught as a disposition) and could not be allowed for twice. In Re Copley and SDSS (1992), the applicant argued that a substantial disposition of assets to a charitable trust was for adequate consideration in as much as he had obtained “God’s grace” from the gift; by such action he had received a better return than he could have by using his money in any other way. The Tribunal rejected this argument, noting:




Part IIIB (s 52E)

[C]onsideration is to be regarded in terms of money or money’s worth. The provision is secular in its orientation and is directed to the things of mammon rather than God. As was pointed out in Re Gellert [No 7302, 11 September 1991], when evaluating the diminishing of a claimant’s assets, it is not relevant to establish what was the dominant purpose behind a scheme of asset-disposal.

A similar approach was taken in Re McGuirk and SDSS (1992) where the Tribunal considered a disposition to Pope John Paul II was carrying out a moral, not a legal, expectation that bequeathed money would be donated to the poor. In Re McCallum and Repatriation Commission (1993), the applicant entered into an old form of mortgage to secure a loan. Under this form of mortgage, the applicant conveyed all his legal interest in the property to the lender, subject only to a contractual right to recover legal title when the loan was repaid. The value of the property greatly exceeded the amount of the loan. The Tribunal held that transferring legal title amounted to a disposition of property and, given the disparity in values, it had been disposed of for “inadequate consideration”. In Re Clarke and Repatriation Commission (1996), a pensioner couple had assets of $100,000 which had been lent to family members in two separate loans, one for $60,000 and the other for $40,000. The interest derived from the loans was $11,420 pa. The loans were called in and the principal of $100,000 was invested in a family trust company upon the terms that the Trust pay the couple an annuity of $7,000 pa. The trustees were family members, who then had the benefit of the use of the capital. The Repatriation Commission referred the matter to the Australian Government Actuary for valuation of the lump sum investment which would be required to produce the equivalent annuity on a commercial basis. The Actuary provided a figure of $52,180. On this basis, the Commission determined that the transfer of the $100,000 to the family trust constituted a disposition of assets to the extent of $37,820 (being $100,000 minus the $52,180 minus the permissible annual disposition of $10,000). Having formed the view that an asset deprivation had occurred, the Commission sought to invoke former s 46ZJ to deem a loss of income on the disposed of part of the assets (ie $37,820). The applicant argued that the $7,000 annuity was adequate consideration, within the meaning of s 52E(1)(b), and accordingly no disposition of assets had occurred. They further argued that, had the valuation methods of the Department of Social Security been adopted, the annuity would have justified the $100,000 investment, ie the consideration would have been adequate. The Tribunal adopted the views expressed by the Federal Court in Frendo v SDSS (1987) to the effect that adequate consideration in the relevant context took its formal meaning within the law of contract. The Tribunal rejected the argument concerning the relevance of the valuation method used by the Department of Social Security and found that the $7,000 per year annuity was inadequate consideration for the investment concerned. The valuation by the Actuary was accepted.

[52E.04] “the purpose, or the dominant purpose, of the person” – s 52E(1)(c)

Section 52E(1)(c) provides that a disposal of assets occurs if a person engages in a course of conduct that diminishes the values of the person’s assets and “the Commission is satisfied that the purpose, or the dominant purpose, of the person was to obtain, or to obtain an increase in the rate of, service pension, income support supplement or a social




Part IIIB (s 52E)

security payment”. Note that this purpose test applies only in s 52E(1)(c) and is not relevant where the person obtained no consideration (para (a)) or inadequate consideration (para (b)). In Re Ridley and Director-General of Social Security (1983), the Tribunal considered a Social Security Act predecessor of s 52E which spoke of a person disposing of assets or income “in order to … obtain a pension at a higher rate …”. The Tribunal construed this to impose a purposive rather than a causative test saying:

There can be no doubt that “in order to” is purposive, not merely causative; so that deprivation of income must have been undertaken for the purpose of obtaining pensions at higher rates and it is not sufficient to prove only that it resulted in their doing so.

In Re Nadenbousch and Director-General of Social Security (1984), the Tribunal adopted the “purposive” test suggested in Re Ridley in a case concerning an age pensioner who made interest-free loans to a family trust. The Tribunal found her purpose was twofold, to minimise tax and to maximise social security benefits, and held that this was sufficient to meet the requirements of the section:

Having considered the evidence, I am satisfied that Mrs Nadenbousch’s depriving herself of income was effected in order to obtain a pension at a higher rate than that for which she would otherwise have been eligible. That was one purpose of the deprivation, and the existence of other purposes does not affect the applicability of section 47. It may be that there are situations in which it could be said that the obtaining of a pension or of a higher rate of pension, while one of the purposes to be achieved by a particular deprivation, was a purpose so insignificant in comparison with other purposes thereof, that it could not be said that the deprivation was effected “in order to” obtain the pension. If there are such situations, as to which I express no opinion, this is not one of them. Accordingly, I propose to affirm the decision that Mrs Nadenbousch deprived herself of income in order to obtain a pension at a higher rate than that for which she would otherwise have been eligible. (at 6 ALD 407)

In Re Henry and SDSS (1986), the Tribunal took the view that the 80 year old applicant, who had reduced the extent of his involvement in farming and in farm management and whose farming property could not have been more profitably utilised, was not caught by the disposition provisions of the repealed Social Security Act 1947. The Tribunal held that the applicant’s lack of active involvement in the farming enterprise was not a course of conduct which was intended to fall within the disposition provisions. In Re Hill and Repatriation Commission (1996), the Tribunal held that the purpose test in s 52E(1)(c) (in its equivalent form for disposition of income) is satisfied if the purpose of obtaining a pension or an increased pension “was not an insignificant purpose”. In Re Menkens and SDFaCS (2000), the applicants were the sole directors of a family trustee company. They resolved to write down the value of the loan accounts owed to them by the family trust and thereby qualified for age pensions. The Tribunal was satisfied that there was a disposition of assets for the purposes of obtaining a social security advantage:

Given that for the present purposes the book value of the beneficiary loan accounts are to be taken as their value, the write-off by the trustees may constitute a disposal of assets as defined in s 1123 of the Act. At the time of the write-off the sole directors of the trustee company were the applicants. It was therefore on their motion that the write-off occurred.




Part IIIB (s 52H)

Notwithstanding the separate legal persona of the trustee company and the beneficiaries of the trust estate, the substance is that the controlling mind of the trustee was that of the applicants whose loan accounts were reduced on their own motion. Therefore, the diminution in the value of the applicants’ loan account resulted directly from their conduct. T 34 (W1998/40 & 41) is a copy of the Unit Trust’s balance sheet as at 31 December 1997 prepared as a special purpose financial report by Mack & Co. The evidence is that these accounts were prepared in response to a request by the applicants to reflect what they considered to be the then realisable value of the business. It has never been suggested that what was done was improper. However, the mere fact that these accounts reflect the write-off of the value of the goodwill from $350,000 to $10,000 is sufficient to satisfy the Tribunal that it was done for the dominant purpose of obtaining a social security advantage for the applicants, namely the age pension. By operation of s 1124 of the Act, the amount of the disposition for each applicant should be taken to be the amounts previously referred to, $267,192 and $64,120 for Mr and Mrs Menkens respectively. (at [19])

Section 52F Amount of disposition

[52F.01] Taking into account set-offs and liabilities In SDSS v Cummane (1990), the Federal Court dealt with a case in which a house, which was not a principal home, was disposed of by a pensioner in return for a life tenancy in respect of the house. The case turned upon former s 6AA(12) of the repealed Social Security Act 1947 which has no counterpart in the VEA or the Social Security Act 1991. In the course of its decision, the Court indicated, inter alia, that but for the effect of former s 6AA(12), the amount of the disposition would need to take account of the value of the life tenancy as a set-off. This would also appear to be the case under s 52F.

Subdivision BA – Dispositions of assets before 1 July 2002

Section 52H Disposal of assets in pension years – members of couples

[52H.01] Relevant cases – s 52H In Re Andrews and SDSS (1996), the applicants made payments totalling $25,000 to their son to pay his legal costs arising out of litigation. The Tribunal found that the payments were loans as it was intended that they be repaid. The applicants asked the Tribunal to treat $10,000 as if it had been a gift, so as to attract the operation of the disposal limit in s 1126(6), the Social Security Act equivalent of s 52H(6). The Tribunal held it had no power to make such a notional retrospective order, and must make its findings according to the facts, ie the transactions were loans.




Part IIIB (s 52J)

Section 52J Dispositions more than 5 years old to be disregarded

[52J.01] “could reasonably have expected … would become eligible” – s 52J(b)

In Re Copley and SDSS (1992), the Tribunal considered s 6AC(9) of the repealed Social Security Act 1947 which is in similar terms to s 52J. The applicant argued that, at the time he was disposing of his assets, “for reasons he did not wish to venture into because they touched very sensitive issues connected with his faith”, he believed that he would die shortly afterwards and hence had no reasonable expectation of ever needing to claim a pension, bringing him within para (b). The Tribunal commented that the “provision is admittedly not easy to understand”, but rejected the applicant’s argument by analysis of the proper interpretation of the provision:

The matter about which the Secretary has to be satisfied is that the disposal must have occurred at the time before which it was reasonable to expect that the person would become qualified or eligible to receive the particular kind of pension that is in issue. The provision is admittedly not easy to understand. It requires the decision-maker to stand in the shoes of the Applicant as at the date of disposition and, in retrospect, to form an opinion whether, at that point of time, the person could “reasonably had expected to become qualified or eligible for pension.” In this respect it is relevant to note that the Applicant was born on 28 January 1918. He was therefore already qualified to receive the age pension as from 28 January 1983, that is, before the time of disposal. Furthermore, whatever his private subjective belief about his impending death might have been, the judgement about his expectations must be made as an objective one. In Mr Copley’s case, even if he had not already been qualified at the relevant time, he would have had to show the Tribunal more convincing evidence to indicate there were objective grounds for a person in the Applicant’s position to have a reasonable expectation that he would never qualify for pension. (at [25])

In Re SDSS and Tripolino (1998), an aircraft engineer was held to have reasonable grounds for expecting his employment to be ongoing at the time when he transferred assets to a family trust. Only transfers made after he had been advised of his pending redundancy were caught by the disposition provisions. In Re D’Souza and SDSS (1998), the applicant accepted a redundancy at age 55 in 1992; at that time he had a number of medical conditions which did not incapacitate him from working. The Tribunal held that his application for disability support pension in 1997 should not be caught by s 1127(b):

The Tribunal’s view is that it would be unreasonable to find that a condition, over and above that which the applicant had for many years when he was working, without the need to take time off work due to sickness, would cause the applicant to have a reasonable expectation that he would qualify for a DSP within 5 years when the Examining Medical Officer, some two and three-quarter years later, did not find the impairment due to that condition on its own to be sufficient. The Tribunal is not satisfied that Mr D’Souza could reasonably have expected, when he disposed of the Rosebud property, that he would become qualified for a DSP within 5 years. The Tribunal, therefore, rejects that finding of the SSAT. (at [14])




Part IIIB (s 52Y)

Subdivision C – Provisions relating to special residences and special residents

Section 52M Entry contribution

[52M.01] Application of s 52M See the detailed discussion of this provision in SDSS v Knight (1996) at [5N.03] in Part I. The Federal Court held that monthly payments of an entry contribution made to a retirement village was “rent” as defined in s 5N and applied in s 52M. See also Re Knevett and SDSS (1996) where a pensioner was held to be an ineligible property owner because of an entry contribution of $125,000 to a retirement village.

Section 52R Members of couples

[52R.01] Application of s 52R A straight forward application of this provision was considered by the Tribunal in Re Miller and Repatriation Commission (2000). See also the detailed discussion of entry contributions in SDSS v Knight (1996) at [5N.03] in Part I.

Subdivision D – Financial hardship

Section 52Y Access to financial hardship rules [52Y.01] Purpose of the financial hardship rules [52Y.02] “unrealisable asset” – s 52Y(1)(c) [52Y.03] “unrealisable asset” – “cannot sell”, “could not reasonably be expected to

sell” [52Y.04] “severe financial hardship” – s 52Y(1)(e) [52Y.05] Discretion to disregard a disposition – s 52Y(1)(b)(ii) [52Y.06] Discretion to backdate application of the hardship provisions – s 52Y(3)(b) [52Y.07] Jurisdiction of the Tribunal to consider hardship

[52Y.01] Purpose of the financial hardship rules The purpose of the financial hardship rules was considered in Re Farrow and SDSS (1986) where the Tribunal referred to the views expressed by the Minister for Health when introducing the Social Security and Repatriation (Budget Measures and Assets Test) Bill 1984:

The exclusion of the principal home and the asset exemption levels mean that the assets test will not affect the majority of pensioners. However, special provision is made to ensure that people affected by the assets test are not placed in severe financial hardship. In keeping with the intention of the assets test, these provisions will generally apply only where it would be unreasonable or impossible to sell or raise money on an asset, and that as a result of not exempting all or part of the assets the pensioner would have insufficient income. They will be administered on a case by case examination of individual circumstances, but will not be generally available to people whose hardship results from having deprived themselves of assets or income.




Part IIIB (s 52Y)

It is important to note that the financial hardship rules apply only where the person is being assets tested, not when they are being income tested: s 52Y(1)(a).

[52Y.02] “unrealisable asset” – s 52Y(1)(c) “Unrealisable asset” is defined in s 5L(11) and (12) in Part I and is in similar terms to the definition of “unrealisable asset” in s 11 of the Social Security Act 1991. Section 5L(11) applies to assets which the person “cannot sell or realise” or “cannot use … as a security for borrowing”. Section 5L(12) provides that an asset is unrealisable if the person “could not reasonably be expected” to sell or borrow against the asset, thus introducing an additional “reasonableness” test into consideration. The distinction between the two subsections has relevance in a social security context because the additional provision applies only to pensions and not to social security benefits, however it is not relevant in a VEA context as s 5L(12) applies in all cases under the VEA (service pensions and income support supplement). The distinction between the two subsections was discussed by the Tribunal in Re McCormack and SDSS (1997). Note also Re Leybourne-Ward and Repatriation Commission (2001) where the Tribunal noted that s 5L(12) had no application because the applicant was expecting to sell his properties, but was having difficulty doing so. The relevance of “unrealisable asset” is that, under the financial hardship rules (ss 52Y and 52Z), the value of unrealisable assets is disregarded when working out the rate of service pension or income support supplement payable (thus excluding those assets from the assets test). Note, however, that a notional amount of income from the asset is included in the income test by operation of s 52Z. In Repatriation Commission v Harrison (1997), the Federal Court noted that it may also be appropriate to utilise the unrealisable asset provisions where the gross value of an asset (shares in a company) taken into account in the assets test is not a true indicator of the overall net worth of the person because of off-setting liabilities; see the discussion at [5L.06] in Part I.

Disposed of asset can not be an “unrealisable asset” In Re Boyd and SDSS (1994), the Tribunal considered whether a disposed of asset (see Subdivision 11B) could be an “unrealisable asset”, taking into account that: • its value was included within the assets test for 5 years; and • having been disposed of, it was beyond the previous owner’s capacity to deal with

it. The Tribunal noted that the asset no longer existed in the hands of the pensioner and that what is maintained is the value of the asset, not the asset itself. Accordingly, in relation to disposed of assets, there existed no asset which could be “unrealisable”. See also Re Cooper and Repatriation Commission (1997) where the Tribunal concluded that an asset which the applicant had disposed of could no longer be an “unrealisable asset”. Note, however, that s 52Y(1)(c) requires only that the person has “an unrealisable asset” and thus the operation of s 52Y can be triggered if the pensioner has an unrealisable asset other than the disposed of asset. In this case, a disposed of asset which is the subject of a determination under s 52Y(1)(b)(ii) could be disregarded by operation of s 52Z(7). See also the discussion at [52Y.05].




Part IIIB (s 52Y)

[52Y.03] “unrealisable asset” – “cannot sell”, “could not reasonably be expected to sell”

“cannot sell” – s 5L(11) In Re Reynolds and SDSS (1986), the Tribunal held that “cannot sell” should not be restricted only to legal incapacity to sell:

The words “cannot sell” must be given their ordinary meaning. “Can” means “to be able” or “to have the power or capacity”. “Cannot sell” must include the lack of legal capacity to sell but in my opinion there is no justification for excluding the alternative meaning “is unable to sell” for whatever reason. Property cannot be sold either because the price sought is too high to attract a purchaser or because even at a fair and reasonable market price no buyer is forthcoming. If a property is offered at auction and bids do not reach the reserve placed on it by the owner the question as to whether it could be sold must be answered by enquiring whether the reserve was reasonable. If no bid is made at all it does no offence to the language to say that it could not be sold. (at 4 AAR 481)

Re Shephard and Repatriation Commission (1989) and Re Nagle and SDSS (1988) highlighted examples of a legal incapacity to sell. In both cases, an age pensioner was a tenant in common in a farm with another party who was not the pensioner’s spouse. The Tribunal noted that the Act did not contain any coercive power to force the other party to consent to sale, and it was unreasonable to expect the pensioner to place only his share of the tenancy in common on the market. See also Re SDSS and Elser (1995) where planning restrictions prohibited subdivision of the property and thus the respondent could not sell the area of land in excess of his principal home and 2 hectare cartilage. See Re VZM and SDFaCS (2000) to similar effect in a case where the applicant was a joint owner of a taxi licence with a person with whom she had little contact. The law in Victoria precluded the sale of a part interest in a taxi licence and there was no evidence that the co-owner would consent to a sale. The Tribunal found that the applicant’s interest in the licence was an unrealisable asset as it could not lawfully be sold. In Re Rabski and SDEWR (2006), a husband and wife held property as joint tenants. The wife held a guardianship order in respect of the husband’s assets which gave her the power to authorise the sale of the property on behalf of both joint tenants. The wife contended that her share of the property ought not be included in the assets test because she could not sell her part of the joint tenancy without her husband/s consent. The Tribunal held that the wife had the power to authorise the sale by virtue of the guardianship order and that it was appropriate for 50% of the total value of the property be assessed as her asset. In Re Webster and Repatriation Commission (1997), the Tribunal held that a loan of $46,000 by a pensioner to his daughter was an unrealisable asset. The loan was made to the daughter, who had health problems and a severe gambling addiction, in order to avoid a bank foreclosure on her mortgage. The daughter had no capacity to repay the loan and had put the house on the market, but had been unable to sell it at auction or by private sale even at a modest price due to market conditions. She had little equity in the house after paying her parent’s loan to the bank, and thus had no capacity to borrow against it. Even if the parents were to have exercised their legal rights to proceed against




Part IIIB (s 52Y)

the house to recover the loan, the bank had a registered mortgage and the residual capital which may have been realised after a forced sale would have been negligible.

“could not reasonably be expected to sell” – s 5L(12) In Re Farrow and SDSS (1986), the Tribunal offered the following guidelines for determining whether an asset can (or cannot) reasonably be expected to be sold or realised:

Without purporting to state all relevant matters exhaustively, it will be necessary to take account of the following factors: - the applicant’s age, health and family circumstances, including those which entitle

him to welfare benefits; - the circumstances in which he came to own his present holdings, his employment

history and present capacity for work; - whether he or his spouse have any actual or potential sources of income apart from

present sources; - the actual size of each holding, its condition and income producing capacity now and

in the future; - whether the applicant might reasonably anticipate future financial advantage by way

of income or capital appreciation; and - whether he is sufficiently established to have reasonable prospects of continuing his

present lifestyle by retaining ownership. In Repatriation Commission v Hall (1988), the Commission argued that the decision of the Full Federal Court in SDSS v Copping (1987) did not apply to the hardship provisions of the VEA and was confined only to the Social Security Act. It also argued that Copping was wrong in allowing consideration of family circumstances and personal factors. The Full Federal Court rejected these arguments, holding that the assets test in the VEA and the Social Security Act should be given a like interpretation and affirming Copping as to the correctness of considering personal factors such as long standing attachment of farm families to their land and the special position of farmers. The Court also observed that “[t]he test of reasonableness takes into account the public or community interest as well as the interests of the claimant for a pension and of other persons with whom the claimant is associated”. In Re Boyd and SDSS (1994), the Tribunal held that it was unreasonable to expect the sale of a motor vehicle which was required for her own transport by an applicant who suffered from a debilitating condition of rheumatoid arthritis. The Tribunal has also recognised subjective emotional factors can also be considered in the reasonableness test, for example attachment to the geographical area: Re Tonkin and SDSS (1988). In Re Webster and Repatriation Commission (1997), the Tribunal held that a loan of $46,000 by a pensioner to his daughter was an unrealisable asset. The loan was made to the daughter, who had health problems, marital difficulties and a severe gambling addiction, in order to avoid a bank foreclosure on her mortgage. The daughter had no capacity to repay the loan and had put the house on the market, but had been unable to sell it at auction or by private sale, even at a modest price, due to market conditions. She would have had little equity in the house after paying her parent’s loan to the bank, and thus had no capacity to borrow against it. Even if the parents exercised their legal rights to proceed against the house to recover the loan, the bank had a registered mortgage and




Part IIIB (s 52Y)

the residual equity which may have been realised after a forced sale would have been negligible. In Re Murphy and SDFaCS (1999), the Tribunal held that a residential property held by the applicant in a one third share, together with his two elderly sisters who lived in the property, was an unrealisable asset. In Re Haldas and SDFaCS (2004), the Tribunal held that vacant land at Cowes on Phillip Island was an unrealisable asset in that it was not reasonable to expect the applicant to sell it. The applicant bought the land many years earlier as an investment for retirement purposes. He had temporarily given up employment at age 61 to care for his aged mother (who was 93 and assessed as needing high level care) and was in receipt of carer payment. The Tribunal noted the public interest in persons being self-funded retirees, as reflected in the exemption of superannuation fund returns in the Act, and the desirability of aged persons being cared for at home, as reflected in the carer payment. The Tribunal further noted the strong emotional attachment the applicant had to the land as it reminded him of his home in the Greek Islands. In Re Myers and SDFaCS (2005), the applicants jointly owned a holiday home with other members of their extended family. The other owners did not want to sell the property and nor did the applicants. The applicants argued that they could not sell even if they wanted to, without the consent of the other owners. The Tribunal noted that s 66G of the Conveyancing Act 1919 (NSW) provided a right in the applicants to force a sale. The Tribunal held that the asset was not unrealisable either by way of sale or mortgage.

The test of whether it is “reasonable” for the Myers to sell or borrow against an asset is an objective one. The Myers desire to provide a holiday home for their extended family must be balanced with the community expectations that those members of the community with assets use those assets to support themselves. (at [30])

Realisation of farm properties The special situation of farmers and family farms has often been the subject of proceedings under the hardship provisions in both the VEA and the Social Security Act; see for example Repatriation Commission v Hall (1988) discussed above. In Re Henry and SDSS (1986), the Tribunal referred to the terms of the Minister’s press release introducing measures which were of particular relevance to farmers. The press release stated:

The department will also accept that it would not be reasonable to expect a pensioner to sell a farm, or land larger than the normal building block, if they have lived on the property for a least 20 years or have been farmers for over 20 years. If there are other special reasons, a period of less than 20 years may be accepted. If a close relative has been working the property for 10 years or more, and relies on it for a living, the department will again accept that the pensioner cannot be expected to sell. (at 11 ALN 12)

The Tribunal said: In determining the question of reasonableness, it is necessary to keep in mind the special relationship which farming families have with the land. In Re Williamson and Repatriation Commission [(1986) 10 ALD 19] emphasis was laid upon the interest which farming families have in handing down a viable farm from one generation to the next and of the concern which they and the community have in ensuring that viable farms continue to




Part IIIB (s 52Y)

operate and support the younger generation and are not broken up simply because the older generation has a need for funds. In Williamson’s case it was pointed out that in farming families it is often understood that a farm will be preserved for the younger generation and will be passed on by one means or another to a member of the younger generation, whatever might be the precise legal arrangements or legal ownership in force. This is indeed one of the aims of a family discretionary trust, namely, to overcome the problems of transfer of ownership from one generation to another. (at 11 ALN 12-13)

Although the Tribunal in Re Williamson and Repatriation Commission (1986) found that it was unreasonable to expect the property to be sold, the Tribunal in Re Henry, applying the same principles, held otherwise. In Re Henry the farm was not viable and its future lay in subdivision. Also no member of the family was likely to take over the property and attempt to gain a livelihood from farming. The Tribunal concluded:

We do not ourselves think it reasonable that the community should support Mr MH Henry and Mrs IF Henry so that the trust is able to maintain the whole of the Glenburn farm while it appreciates in capital value to the ultimate benefit of the four grandchildren. Looking at the farm from the point of view of the children, it seems to us inevitable that, sooner or later, it will be sold as a whole or by way of sub-division. (at 11 ALN 13)

In Re Smith and SDSS (1995), an 81 year old farmer held 8 non-contiguous parcels of land ranging from 4 to 161 hectares. A valuer expressed the view that the holding was not a viable unit and that the sale of smaller portions would have little or no effect on the farm income from wool production. The Tribunal considered that the case was “far more akin to the circumstances in Re Henry than those in Re Williamson” (at [9]) and held that it was not an unrealisable asset. Based on the evidence of the valuer, sale of some land would alleviate his current financial hardship without affecting the viability of the remaining property. In Re Poidevin and Repatriation Commission (1994), a farming couple lived in an historic but decaying house which had been in the family for 80 years. They had sold off excess land to finance the refurbishment of the house, but any further subdivision would have rendered the farm non-viable. The Tribunal noted and applied DVA guidelines in relation to when it was reasonable to expect a farming property to be sold or subdivided:

A person with a long-term attachment to property on which he or she resides would not be expected to sell the property unless it is capable of being subdivided and sold piecemeal. This is because it could result in the person being required to sell his or her home. As a general rule, a long-term attachment will be accepted where a person has lived on a property for 20 years … … A person who has been a farmer for at least 20 years, … would not be expected to subdivide and sell part of the property if it would affect the viability of the enterprise … A farmer … suffering a temporary but substantial reduction in income, because of bushfire, drought, illness of the proprietor, or a downturn in the industry or sector of the industry, would also not be expected to sell …

In Re Fuller and Repatriation Commission (1987), the Tribunal dealt with a situation of a pensioner farmer who had leased his farm to his son. The farm was producing a loss and the son was not in a position to pay rent. The Tribunal held it was not reasonable to expect the pensioner to charge his son rent as this would place the son in a difficult financial position:




Part IIIB (s 52Y)

In regard to this application for review, I am satisfied that receipt by the applicant of any amount from his son for the use of his property would have meant that his son and his son’s family would undergo significant deprivation, which I consider to be unreasonable in the circumstances. It would also have meant that in fact the station, which is economically only capable of supporting one family, would have been used to support two families. This is not to say that every farmer who has an asset can expect to transfer that asset to a child without any requirement for the child to make some repayment for its use. Each case must depend on the particular economic, family and rural circumstances which exist. It is very difficult to consider any single fact situation which may come before this Tribunal and state that the facts of the particular case are the same or similar to those in any other case. In each application for review, the question is always a matter of judgment and balance bearing in mind all of the appropriate factors. (at 14 ALD 222)

See also Re Shephard and Repatriation Commission (1989) to the same effect. Re Simcock and Repatriation Commission (1987) is similar to Re Fuller. The case concerned a pensioner who sold his farm to his son and took a mortgage over the property. The son was unable to make mortgage payments and the Tribunal held it would be unreasonable to expect a father to force the son to re-finance $250,000 at high interest rates when the property was not really viable. In Re Howlett and SDFaCS (1999), the Tribunal, citing Re Lumsden and SDSS (1986), referred to the DSS Guidelines which reflected the policy announced in the Ministerial press release discussed above, and held that it was not reasonable to force the sale, at less than the Shire valuations, of subdivided lots in a property which had been farmed for generations. In Re McKay and Repatriation Commission (1986), the Tribunal noted that it was appropriate for delegates of the Repatriation Commission to follow the DSS guidelines, however they must not be regarded as obligatory and excluding the ultimate discretion vested in the delegate. Once an asset, including a farm, has been disposed of, the proceeds raised are then to be treated as any other asset and the special consideration for farms has no role to play: Re Pearce and Repatriation Commission (1989).

Realisation of insurance policies In relation to the reasonableness of being required to surrender life insurance policies, the decisions of Re Nagle and SDSS (1988) and Re Roche and SDSS (1987) demonstrate the factual nature of the determination to be made. In Re Nagle, The Tribunal held that the applicant should not be required to surrender a life insurance policy in order to pay for her current upkeep. It accepted that the purpose of the policy was to pay for nursing care for the applicant’s severely disabled brother, in the event that the applicant predeceased her brother. However, in Re Roche, the Tribunal dealt with the case of a pensioner farmer who had a life insurance policy with a substantial surrender value. The Tribunal decided to treat insurance policies like any other asset and held that it would not create severe hardship for those policies to be surrendered. Re Lumsden and SDSS (1986) was to the same effect. In Re Wright and Repatriation Commission (1989), a retired farmer had given his son the farm as a gift. The son paid the life insurance premiums of the father on the understanding he would be the beneficiary of the life policy. The Tribunal held that it was not unreasonable to expect the pensioner to surrender the policy and use the proceeds for his own support given his previous generosity to his son.




Part IIIB (s 52Y)

[52Y.04] “severe financial hardship” – s 52Y(1)(e) Section 52Y(1)(e) requires that the Commission must be satisfied that “severe financial hardship” would result if s 52Y was not applied. “Severe financial hardship” is not defined in the VEA or in the equivalent provision of the Social Security Act (s 1129). In Re Lumsden and SDSS (1986), the Tribunal stated:

The expression “severe financial hardship” is not defined. In its relevant sense “severe” means “hard to sustain or endure; arduous”: The Shorter Oxford English Dictionary 1973, pp 1957-8. “Financial” means “of or pertaining to finance or money matters”: ibid p 752. “Hardship” includes severe suffering; extreme privation: ibid p926. “Severe financial hardship” is the equivalent of “arduous financial suffering”. The meaning of the words is not in doubt: They are a clear direction by the legislature that the section is only to be applicable when the requisite severity of financial hardship is present. (at 10 ALN 227)

In Repatriation Commission v Hall (1988), the Federal Court said that “severe financial hardship” does not require proof of destitution, rather regard should be had to the context in which they appear:

The levels of pensions and benefits which the Veterans’ Entitlements Act and the Social Security Act provide and the levels of income and assets which will bring about a reduction in the rate of pensions or benefits provide some guide to the level of income which, in Australia, is accepted as requiring the provision of government assistance. It would be wrong to read the assets test provisions as requiring destitution when the income test provisions do not. What is or what is not severe financial hardship is a matter to be resolved in each case by the Repatriation Commission and, on review, by the Administrative Appeals Tribunal. (at 15 ALD 86)

In Re Sottosanti and SDSS (1988), the Tribunal said that severe financial hardship is not assessed by some fixed objective standard, but rather has to have regard to the pensioner’s particular situation. It will for example depend upon: (i) the current level of the pensioner’s (and spouse’s) income. If their joint income

is close to, or exceeds, the maximum rate of pension payable, they will generally not be seen to be suffering “severe financial hardship” (see also Re Reynolds and SDSS (1986), Re Calvert and Repatriation Commission (1986), Re Murphy and SDFaCS (1999));

(ii) whether they have other cash assets they can call upon (see also Re Doyle and SDSS (1986), Re Seager and Repatriation Commission (1990)).

In this respect the Tribunal adopted the Department’s guidelines to the effect that a pensioner should be allowed to retain a certain level of cash and assets reserve to meet the vicissitudes of life without taking themselves outside the scope of “severe financial hardship”. See also: Re McKay and Repatriation Commission (1986); Re Pardew and SDSS (1986); Re Smith and SDSS (1986); Re Bailey and SDSS (1986); Re Buesnel and SDSS (1986); Re French and SDSS (1986); Re Boord and SDSS (1986); and Re Dolling and SDSS (1986). In Re Poidevin and Repatriation Commission (1994), the Tribunal noted and applied the DVA Guidelines on “severe financial hardship”:

1. the total annual rate of pension payable to a person under the assets test, plus all income, must be less than the maximum annual rate of pension applicable to the person;




Part IIIB (s 52Y)

2. readily available funds do not exceed … $10,000 combined for members of a couple; and

3. there is no other course of action which the person could reasonably be expected to take to improve his or her financial position.

In Re Cottrell and Repatriation Commission (2003), while the applicant’s rate of service pension was nil, he was in receipt of a Special Rate Pension and both he and his wife retained eligibility for Pensioner Concession Cards and pharmaceutical allowance. The Tribunal held that this did not constitute “severe financial hardship”.

Lifting the corporate veil Generally the corporate veil on family companies and trusts cannot be lifted for the purposes of determining a pensioner’s property (see [5L.04] in Part I). However, when it comes to determining whether a pensioner will suffer “severe financial hardship”, the Tribunal has said it will consider all the pensioner’s circumstances including assets and income available to him or her from family trusts and companies: Re Eimberts and Repatriation Commission (1988); Re Hall and Repatriation Commission (1986). Although Re Hall was appealed to the Federal Court in Repatriation Commission v Hall (1988), the issue of the corporate veil was not considered by the Court. The Tribunal may also look behind the corporate veil to determine whether a property, which is ostensibly in the control of a company, is an unrealisable asset or whether it could reasonably be sold or used as security; see Re McDowall and SDSS (1994).

[52Y.05] Discretion to disregard a disposition – s 52Y(1)(b)(ii) Section 52Y(1)(b)(ii) gives the Commission a discretion to disregard a disposed of asset (or disposed of income) when considering application of the financial hardship rules. It is in similar form to s 1129(1)(b) of the Social Security Act 1991 and s 7(1)(b) of the repealed Social Security Act 1947. The leading case on the discretion is Re Twelftree and Repatriation Commission (1986) where the Tribunal suggested the following considerations are relevant to exercise of the discretion:

(1) Has the disposal of property deprived the grantor of income and thereby left him in circumstances of financial hardship?

(2) Was the sole purpose or dominant purpose of that disposal to produce that result? (3) Did the grantor know or should he have known that his action would produce that

result? (4) If the grantor had not disposed of that property in that manner and for that

consideration what would have been the effect on his pension rate? (5) Were there circumstances which made it reasonable for the grantor to do what he did?

(at 10 ALD 43) In Re Rogers and SDSS (1987), the Tribunal said that the prima facie position should be that the Secretary should not waive the disposition, ie good cause will need to be shown for the discretion to be exercised.

In our view, the ultimate effect of exercising that discretion is another matter to be taken into account. Clearly, the legislature has taken the view that, prima facie, a person who has disposed of property without adequate consideration is not to be given the benefit of [s 52Y]. In this case, to give Mrs Rogers the benefit of [s 52Y] would be, ultimately, to continue the community’s support for a property which is not viable.




Part IIIB (s 52Y)

Re Noble and SDSS (1989) illustrates these principles. The case concerned a pensioner couple who owned a farm which was heavily encumbered to secure their son’s debt. The son had not honoured his obligation under the loan to the bank and the couple were paying his loan to preserve the farm. They had also made loans of sizeable sums to their daughter. The farm generated approximately $47,500 per annum, almost all of which went on their son’s loan. The Tribunal said that the pensioners had placed themselves in financial hardship by making their son’s repayments to the bank when they were not legally obliged to do so and, for this reason, coupled with the fact of the loans to the daughter, declined to apply the hardship test. See also Re McClelland and SDSS (1988) where a pensioner paid a large sum to a son allegedly for past services by the son on the farm; the son had no contractual right to the money. The Tribunal held that the disposition would not be disregarded. In Re Hall and SDSS (1988), the Twelftree principles were applied favourably to a pensioner who disposed of a farm to her son. Basically the farm could not support two families and the son took over her debt which was associated with the farm. The pensioner was not found to have had ulterior motives. No doubt the fact that the son took over a large debt associated with the farm weighed heavily in the Tribunal’s determination. See also Re Fuller and Repatriation Commission (1987). Re Gates and Repatriation Commission (1991) is another example where the Tribunal was prepared to disregard the disposition of a farm to the son in circumstances where, on the facts, the Tribunal was satisfied that the pensioner’s actions were not motivated by a desire to obtain a pension. The Tribunal was not, however, prepared to disregard the pensioner’s disposition of his interest in a tractor sales business to the son. In Re SDFaCS and Cummins (2002), the applicant applied for a partner social security payment but was caught by the disposal of assets and income provisions of the Act. The applicant’s husband had entered into a transaction with his father to aggregate their farms in a trust arrangement to improve the effectiveness of the farming operation. Both the husband and his father transferred their farms to the trust free of charge. The Secretary took the view that the transfer of the husband’s farm was a disposition of an asset for inadequate consideration. The Tribunal concurred with this view and then considered whether to exercise the discretion under s 1131(1)(d)(ii) (which is equivalent to s 52Y(1)(b)(ii)) to disregard the disposition. The Tribunal exercised the discretion on the bases that the disposition had not been undertaken for the purpose of obtaining a pension, that the father had no capacity to pay the husband for his farm (nor indeed did the husband have any capacity to pay the father for the transfer of his farm to the trust), and that the transfer led to no loss of income. See also the discussion of “unrealisable asset” at [52Y.02].

[52Y.06] Discretion to backdate application of the hardship provisions – s 52Y(3)(b)

In Re Crawley and SDFaCS (2005), the Tribunal exercised the equivalent discretion in the Social Security Act (s 1129(2)) to backdate the application of the hardship provisions by 2 months to the date when the applicants’ pensions were cancelled under the assets test. The Tribunal described the “special circumstances” of the case:

Taking all the evidence into account, the circumstances that are special are the following: • The applicants were very vocal in later 2003 and early 2004 in telling Centrelink that

they could not afford the costs associated with providing answers to the financial




Part IIIB (s 52Y)

questions that they were being asked by Centrelink during the time that they were being reviewed for their assets.

• Mr Crawley was first told by letter dated 9 March 2004 (T12) that his disability pension was cancelled from 8 March 2004, that is, the day before the letter from Centrelink was dated. The letter to Mrs Crawley was dated the same day that her cancellation commenced, that is, 10 March 2004. Assuming that each letter would take a day or so to reach the applicants, this left them with no time in which they might commence to re-arrange their financial circumstances in advance of the cancellation of their payments.

• As pointed out at the hearing the letters advising the cancellation are insufficient as notices of decision. The disability support pension cancellation letter (T12) did not advise Mr Crawley about appeal rights. Another letter was sent (T13) but it, like the cancellation letter sent to Mrs Crawley, incorrectly states the relevant section of the Act under which the cancellation took place.

• As set out more fully at the hearing, more likely than not there was a discretion available for Centrelink to consider setting a later date of effect under s118 of the Administration Act for each of the cancellation decisions (T13 and T14) which would have allowed the applicants to re-organise their financial affairs. That is, the date of effect of the cancellation decisions could have been set prospectively rather than retrospectively.

• Mr Crawley was making daily contact in some instances, and was repeatedly throughout March trying to obtain help and answers from Centrelink, and in particular was alerting Centrelink to their concerns about the effects of the cancellation of their payments. They requested that the cancellations be treated instead as temporary suspensions. At the very least this request should have alerted someone in Centrelink to advise them that while this could not be done, (as it cannot, under the Act) alternative consideration could be given to an application under the financial hardship provisions. The applicants should have been supplied with the forms to apply under the hardship provisions when they were making these enquiries.

• The evidence shows that the applicants were, between March and May 2004, in financial hardship. This is one of their special circumstances.

It is not an easy task for a person to quickly re-arrange financial circumstances, particularly when real estate is involved. The properties appear to have been quite tightly leveraged and certainly the family’s ability to sustain repayments on the mortgages must have relied on the continuation of income support payments from Centrelink. Selling property involves contact with real estate agents for marketing; obtaining valuations for price setting; all the properties were mortgaged and it appeared from tax returns that there was a fine balance sustained with rental income and repayments as well as other outgoings; and the applicants had to consider the additional costs that accompany selling property. All these things take some time, and would not have been assisted by the withdrawal of the income support payments at short notice. The lack of notice of the cancellations meant that they were given no leeway with time and they were not given the assistance of timely information from Centrelink. The Tribunal agrees with Mr Crawley’s submission that the relevant time for consid-ering special circumstances was at the time of Centrelink’s decision to pay them under the financial hardship provisions. The Tribunal rejects Mr Howard’s submission that the Tri-bunal should take into account the subsequent successful sales of some of the properties. Clearly the exercise of this discretion relates to past events. It is a provision for backdating a payment. It is not relevant that the applicants survived this difficult period and, because of subsequent sales, are in a better financial position. The exercise of this discretion for special circumstances must be considered at or about May 2004. (at [23]-[25])




Part IIIB (s 52Z)

[52Y.07] Jurisdiction of the Tribunal to consider hardship Section 52Y(1)(d) of the Act requires that a written request be lodged with the Department to activate the financial hardship provisions. This raises the question whether the Tribunal has jurisdiction to consider financial hardship when it is reviewing an assets test decision where no request has been lodged with the Department. In Re McDowall and SDSS (1994), the Tribunal held that it had jurisdiction to consider hardship, where no request had been made:

Under s 13, the Secretary has the general administration of the 1947 Act. The Act sets out a scheme for the lodgement of claims for pensions, benefits and allowances, the qualifications for each of them makes provisions for the circumstances and manner in which they are payable. The Secretary may review a decision and he may do so even after an application has been made to the SSAT or the AAT (section 172). Where a person seeks to take advantage of the hardship provisions, he or she must lodge a notice to that effect. This is not a claim and need not be treated as a separate claim founding a separate review process. It seems to us that it is an integral part of the consideration of the original claim for a pension, benefit or allowance and should be treated as such even though a decision about it will often follow a little time after a decision about the value of a person’s assets. It is also an integral part of a consideration of whether a pension, benefit or allowance should have been cancelled. For these reasons, we consider that we have jurisdiction to consider the hardship provisions in this case. Despite that conclusion, we would have granted the Secretary an adjournment had we considered that he had not been given sufficient notice. As it was, he did not seek that adjournment and we do not consider that he was disadvantaged. (at [58]-[60])

Some caution should be exercised about this decision in the context of the VEA as s 57 in Part IIIB separately identifies a decision “in relation to a request under section 52Y” as being subject to review by the Commission, and thereafter by the Tribunal. Note also the Full Federal Court decision in Lees v Comcare (1999) which (in a different statutory context) raises some doubts on the capacity of the Tribunal to deal with issues other than those considered in the internal review decision.

Section 52Z Application of financial hardship rules [52Z.01] Effect of s 52Z [52Z.02] Annual rate of ordinary income from unrealisable assets – s 52Z(3)(c) [52Z.03] “could reasonably be expected to be obtained” – s 52Z(5)(b) [52Z.04] Effect of s 52Z(7)

[52Z.01] Effect of s 52Z Section 52Z(1) applies only to “unrealisable assets”; it does not apply to disposed of assets which the Commission has determined to disregard pursuant to s 52Y(1)(b)(ii). The latter situation is dealt with s 52Z(7), discussed at [52Z.04] below. Section 52Z(1)-(6) provide that, where unrealisable assets are disregarded, certain actual and notional income sums are to be deducted from the pension. Section 52Z(3) provides for the reduction of the pension, inter alia, by the “notional annual rate of ordinary income”.




Part IIIB (s 52Z)

[52Z.02] Annual rate of ordinary income from unrealisable assets – s 52Z(3)(c)

In Re SDFaCS and Self (2000), the Tribunal considered the interpretation of the equivalent s 1130(3)(c) in the Social Security Act 1991. The case concerned two loans totalling $749,425 made to a family company some years previously which had become unrealisable by virtue of the parlous state of the family company. The Department argued that “the person’s annual rate of ordinary income” in s 52Z(3)(c)(i) should be calculated using the provisions for deeming income from financial assets (Division 3), which would have the effect of deeming a 3% income on the first $50,600 of the unrealisable asset (the loan) and 5% on the balance of the loan. The Tribunal held that [s 52Z(3)(c)(i)] referred only to any actual annual return on the unrealisable asset and, if no such return existed, the notional annual rate of return under [s 52Z(3)(c)(ii) and s 52Z(5)] applied. The Tribunal said:

The interpretation sought by the applicant would appear to negate to a significant degree the beneficial nature of the legislation where a person would suffer severe financial hardship because of the inclusion of an unrealisable asset in the calculation of the rate of pension. It appears anomalous to accept that the value of an unrealisable asset, such as the loan by Mr Self, which is not capable of realisation and not capable of earning income, is to be disregarded for the purpose of the assets test but included as a financial asset at face value for the purpose of calculating a deemed income. In my view, the SSAT approach produces a more logical and appropriate interpretation of the relevant provisions. Subsection (1) of s 1130 clearly and unequivocally requires the “value of any unrealisable asset … to be disregarded in working out the person’s social security pension rate”. The applicant’s approach requires the “value” of such asset to be regarded as a normal financial asset and taken into account for the purpose of subsection (3)(c)(i) by calculating the deemed annual rate of ordinary income pursuant to s 1077 [VEA s 46E]. This, in my view, is not what is intended by s 1130. This view would appear to be supported by other deemed income provisions, quite different to those in section 1077, in ss (3)(d) and 5(a) of s 1130. Given the clear intention of s 1130, it is appropriate to calculate either actual income or a reasonable commercial return on a unrealisable asset to be deducted from a pension rate calculated on an assets test which excludes unrealisable assets. A person may well have an asset which is unrealisable but from which income is or can be derived. Here it is clear that no income is or can be derived from the loan to the Trust. To deem the bulk of it to earn 5% so reducing the pension rate to nil is unrealistic and, in my view, contrary to the intent and meaning of the section. Section 1130 has its own deemed income provision for unrealisable assets in subsection (5). Consequently, the correct approach is to deduct from the maximum pension rate under the assets test, after excluding unrealisable assets, the greater of the actual ordinary income derived from unrealisable assets or the notional or deemed rate of income under subsection (5). This latter amount is the lesser of 2.5% of the value of the unrealisable asset or the amount that could reasonably be expected to be obtained from a purely commercial application of those assets. In this case, no amount could be expected to be obtained from a commercial application of the loan to the Trust. It is incapable of being repaid, not transferable for value and the Trust is incapable of paying interest on the loan. The notional rate of ordinary income is, therefore, nil and the ordinary income is nil. (at [10]-[11])




Part IIIB (s 52Z)

[52Z.03] “could reasonably be expected to be obtained” – s 52Z(5)(b) Section 52Z(5)(b) requires, in arriving at the “notional annual rate of ordinary income” from unrealisable assets, a determination of “the amount per year that could reasonably be expected to be obtained from a purely commercial application of the person’s and the person’s partner’s unrealisable assets”. This sum is contrasted with the amount arrived at by taking 2.5% of the value of the unrealisable assets, and the lesser sum is taken into account in calculating the pension reduction. The “reasonably” test in this provision occurs in an analogous context to the test of reasonable expectation in the definition of “unrealisable asset”; see [52Y.03]. In Re Butler and SDSS (1986), the Tribunal expressed the view that the same meaning should be adopted in both contexts and also held that all the circumstances of the use of property must be taken into account when determining the annual rate of income that could reasonably be expected to be derived from the property. In SDSS v Copping (1987), the Full Federal Court discussed “reasonably” in the equivalent social security context:

I think that the word “reasonably”, in the context which [s 52Z] supplies, directs the Secretary’s attention to, inter alia, all the circumstances, including the personal relations of those concerned in the property, which in his judgment might reasonably be taken into account by “the person” or “the person’s spouse”, as the case may be, in deciding how the property was to be exploited to produce income. And he is required, in my opinion, to have regard to the annual rate of income that could be reasonably expected to be derived from, or produced with the use of, that property in all the circumstances, including those circumstances to which I have just referred. The construction suggested does not direct inquiry merely as to the annual rate of income likely in fact to be derived from, or produced with the use of, the property by “the person” or “the person’s spouse”, as the case may be, but rather inquiry as to what annual rate of income the Secretary, or the Administrative Appeals Tribunal on review, considers would be likely to be derived from, or produced with the use of, the property by that person if that person made decisions concerning the exploitation of the property which in all the circumstances, including personal circumstances, the Secretary, or the Tribunal on review, considered reasonable. (at 12 ALD 638-639)

In Dineen v SDSS (1988), the Federal Court commented: In my view it is inherent in the reasoning of the Full Court [in Copping] that the Secretary, or the Tribunal on a review, in a case such as this, should pose the question:- how much income might be expected to be produced by economic exploitation of the property after allowance is made for relevant and reasonable considerations of personal and family circumstances. There must be a presumption that a person in the position of the present applicant will do his reasonable best to obtain income from the property, consistent with his personal capacities, family obligations and other relevant circumstances. … In my view it is unnecessary to bring into account the interest of the community – by which I presume is meant the taxpaying community – in carrying out the exercise required by sub-s [52Z(5)] of the Act. One begins with the assumption that income will be derived or produced to the extent that it is reasonable to do so, and then makes any necessary allowance for the particular circumstances of the case. (transcript at p 21)

In Re Shephard and Repatriation Commission (1989), the applicant was a tenant in common in fee simple with his brother in a small farm which was not economically viable because it was too small. The applicant lived in a run down house on the farm,




Part IIIB (s 52Z)

which was run by his brother’s son. The Tribunal was called upon to apply s 52Z(5), finding that: • the only way of making the farm viable was to lease it to a neighbouring farmer; • the family had a long-standing association with the farm; • the nephew was doing the best he could with the farm, out of which the pensioner

received free board; and that it would be unreasonable to expect the nephew to pay rent to the pensioner (see also Re Allman and SDSS (1987)).

The real difficulty was that the pensioner’s brother owned a half share in the farm and there is no power in the Act to compel him to join with the pensioner in leasing the farm. This being the case, the pensioner could not lease it. (Re Nagle and SDSS (1988) encountered the same problem.) Thus the lesser figure of 2.5% of the value of the property and the amount that could “reasonably” be expected to be obtained from a commercial application of the property, was the latter, which was nil. See also Re Avery and SDSS (1988) where a non-viable farm was taken over by a son. In Re Bennett and SDFaCS (2003), the Tribunal distinguished the approach in Chopping and Dineen. The applicant objected to being required (notionally) to lease 150 acres adjacent to their principal home for agistment on the basis that it would spoil their view and amenity of use of the property. The Tribunal held this was not a sufficient reason to disregard the notional earnings on the asset.

[52Z.04] Effect of s 52Z(7) The distinction between the Commission disregarding disposed of assets (s 52Y(1)(b)(ii)) on the one hand, and a determination that an asset is an “unrealisable asset” on the other hand, is further emphasised by s 52Z(7). This subsection provides that, in the former case, the assessment of the rate of entitlement under the hardship provisions proceeds on the basis that the disposed of asset was not disposed of, and is still an asset in the person’s hands. On the other hand, where an asset is “unrealisable”, s 52Z(1) provides that the asset is not included in the asset test, subject to the effect of s 52Z(3); see [52Z.03] above. In Re Sieber and SDSS (1986), the Tribunal discussed the rationale behind the equivalent provision in the repealed Social Security Act 1947:

Section 6AD(3A) [s 52Z(7)] is an amendment which effectively ensures that, for the purpose of calculating the pension under the hardship provisions, property disposed of is treated in the same way as if the property had been retained. If such an amendment had not been made, then persons disposing of property would, if the hardship provisions, in particular, sub-s 6AD(1)(b) [s 52Y(1)(b)(ii)] applied to them, be significantly better off than if they had retained the property. This difference in treatment could possibly lead to abuse. The amendment therefore rectifies that possible area of abuse.

In Re Boyd and SDSS (1994), the applicant made a gift to her son and also forgave a debt owed by a family company which the company had no capacity to repay. The Tribunal decided to disregard the forgiven loan to the family company pursuant to the equivalent provision in the Social Security Act 1991 (s 1129(1)(b)(ii)). As a consequence of this decision, s 1130(9) required the loan be treated “as if the person had not disposed of the assets”. The Tribunal then reasoned that, as the forgiven loan was notionally included as an asset by force of s 1130(9), it was inherently unrealisable within the meaning of s 11 (s 5L) as it was no longer actually available to the applicant. This being the case, it was an asset which was unrealisable within s 1130(1) and




Part IIIB (s 52ZN)

accordingly should not be included in the calculation of the applicant’s entitlements under s 1130 (other than in the restricted circumstances of sub-s (5)). The situation with the gift was different. There was no determination under s 1129(1)(b)(ii) which could enliven s 1130(9), accordingly it was said that no asset in specie existed which could be disregarded under s 1130(1); rather the value of the disposed of asset was maintained in the assets test.

Division 11A – Means test treatment of private companies and private trusts

Subdivision A – Introduction

Section 52ZN Simplified outline [52ZN.00] Legislative history – Division 11A Division 11A (ss 52ZN–52ZZZV) was inserted by item 9 in Schedule 2 to the Social Security and Veterans’ Entitlements’ Legislation Amendment (Private Trusts and Private Companies – Integrity of Means Testing) Act 2000 (No 132/2000), commencing on 13 November 2000, as part of measures to apply the service pension means test where a person holds and controls assets in private trusts or private companies outside the bounds of the current means test. The assets and income of the private trust or company “will be attributed to the person or persons who control the company or trust, or to the person or persons who were the source of the capital or corpus of the company or trust” (Explanatory memorandum, 0). The attribution of assets and income under Division 11A commenced on 1 January 2002. In Re SDFaCS and Cocks (2002), the Tribunal outlined its understanding of the purpose of the new Part providing for private companies and private trusts:

The Amending Act 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 “income support entitlements are based on a person’s level of resources not on the way in which he/she holds those resources” (refer Second Reading Speech Hansard/House of Representatives 17 August 2000 at p 19226). 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 a person who controls or has contributed to these structures” (refer Second Reading Speech Hansard/Senate 3 October 2000 at p 17711). (at [63]-[64])

Subdivision C – Designated private trusts

Section 52ZZB Designated private trusts

[52ZZB.01] “excluded trusts” – s 52ZZB “court-ordered trust” Section 52ZZB(4) provides that the Commission may, by legislative instrument, declare that each trust included in a specified class of trusts is an “excluded trust” for the




Part IIIB (s 52ZZB)

purposes of this section. The Veterans’ Entitlements (Means Test Treatment of Private Trusts – Excluded Trusts) Declaration 2001 (F2005B00072) was made under this section and provided that a “court-ordered trust” was an excluded trust. In SDFaCS v Geeves (2003), the Federal Court confirmed that a trust fund of $900,000 ordered by the Supreme Court of Queensland and held by the Public Trustee of Tasmania for the benefit of the respondent was a “court-ordered trust” within the meaning of the equivalent Declaration under Part 3.18 of the Social Security Act 1991. An appeal was dismissed by the Full Federal Court in SDFaCS v Geeves (2004). The Full Court made one additional order to the effect that the court-ordered trust was not an “asset” within the meaning of s 11 of the Act [VEA s 5L]. The effect of Geeves was reversed by the Veterans’ Entitlements (Means Test Treatment of Private Trusts – Excluded Trusts) Declaration 2005 (F2005L00874), which commenced on 13 April 2005, and which removed the exemption for court-ordered trusts.

“fixed trust” Clause 6 of the 2005 Declaration provided that a fixed trust is an “excluded trust” if it was created before 9 May 2000 but not if, after that date, “the trust has been varied under the trust deed” or “there has been a transfer of property (other than income generated by the trust) to the trust”. In Re Carugno and SDFaCSIA (2006), in relation to similar provisions in Part 3.18 of the Social Security Act 1991, the trust in question was established before 9 May 2000 and it contained no power for the trustees to subsequently vary its terms. The trust provided for fixed benefits to defined beneficiaries; the only discretionary element was the timing of the distribution of the trust assets to the beneficiaries. The Tribunal considered the meaning of the term “fixed trust” which it saw as standing in juxtaposition to a discretionary trust:

As can be seen, the beneficiaries of the Trust are ascertainable and their beneficial interests are fixed. There is no provision in the Trust deed conferring power or authority on the trustees or any other person to vary or revoke the Trust terms or beneficiaries or their beneficial interests. In those terms the Trust is fixed. The terms of Trust do not specify the time or method of distributions. Those matters are within the discretion of the trustees. The description “discretionary trust” has been applied to trusts in which power is reserved to withhold income and capital. However, as Gummow J observed in Vegners’ case (supra at ALR 522) a trust will not be purely discretionary “where the donee of the power of selection had a discretion only as to the time and method of making payments to beneficiaries”. On that basis, despite the existence of that limited discretion (which may reflect imprecise drafting rather than the intention of the settlors) I am satisfied that the Trust was established as a fixed trust. (at [15])

In Re Carugno, the applicants were the trustees of the trust. The terms of the trust had been informally varied over the years on several occasions, including after 9 May 2000, notwithstanding the lack of any express power to do so in the trust deed. The Secretary took the view that this variation took what was otherwise a fixed trust outside the terms of an excluded trust. The applicants contended that such variations were unlawful and therefore void so that the trust was still an excluded trust. The Tribunal held that the informal variations were nevertheless efficacious unless and until a court of competent jurisdiction declared otherwise. After examining the purpose and intent of the statutory provisions, the Tribunal held that the informal variations to the trust after 9




Part IIIB (s 52ZZH)

May 2000 were fatal to the trust’s status as an excluded trust. The Tribunal also held that the act of the applicants in declaring themselves trustees for the benefit of the trust of certain property after 9 May 2000 constituted a “transfer” of property to the trust and this was independently fatal to the trust’s status as an excluded trust.

Subdivision E – Controlled private trusts

Section 52ZZH Controlled private trusts

[52ZZH.01] Application of the control test – s 52ZZH(2) In Re SDFaCS and Linton (2006), the trustee of the Linton Family Trust was a family company Tonlin Enterprises Pty Ltd. In 1993, the respondent and his wife ceased to be beneficiaries of the trust and in 2001 they ceased to be directors of the trustee company. The four adult children of the respondent became directors of the trustee company, however the respondent continued as company Secretary and retained the power to remove or appoint the trustee. The evidence suggested that the children and their parents reached decisions about the trust by consensus after family discussions. The Tribunal held that the respondent clearly met the control test under s 1207V(2)(b) [s 52ZZH(2)(c)] and possibly also under para (h):

However, it seems to me that it is equally true, on the evidence of Mr Bruce Linton and of Mrs Heather Berry, that all of the directors of the trustee company, Tonlin, exercised control of the trust in the way contemplated under s 1207V(2)(h). Their evidence was that the family had meetings and discussions before they took any action as trustee. Mrs Linton senior was also a member of the family and no doubt present at these discussions. The evidence is that the family reached decisions on the trust by consensus. In other words, the directors of Tonlin, as trustee of the trust, were accustomed or “might reasonably be expected to act in accordance with the directions, instructions or wishes of a group in relation to the individual”. This is a test of control under s 1207V(2)(h). It follows, in my opinion, that each of the directors and possibly Mrs Linton as well were captured by the control test for the purposes of the Act and for the attribution of assets for calculation of Mr Frederick Linton’s portion. (at [16])

The Tribunal did not accept that 100% of the assets should be attributed to the respondent, noting that at lease five people met the control test and that another one of them was also claiming social security benefits. The Tribunal remitted the matter to the Secretary to recalculate the appropriate attribution of assets to the respondent. In Re Pavlakis and SDFaCSIA (2006), the Tribunal noted that the control test is broad in its application:

[A] trust will be a controlled private trust as a result of a wide range of direct and indirect relationships, including, as applies in this case, where an associate of the individual is the trustee of the trust. Associate is widely defined in s 1207C(2) of the Act, and certainly captures the relationship where Mr Pavlakis and his wife are the sole shareholders of the trustee company (s 1207V(2)(a)) and the arrangements would be covered also by s 1207V(2)(b) and possibly also s 1207(2)(h). In relation to s 1207(2)(b), the trust is a controlled private trust because a group, defined in the Act to include associates, which in turn includes relatives (and therefore including Stellios and Nectarios Pavlakis, the appointers under the trust) were able to remove or appoint the trustee. (at [9])




Part IIIB (s 52ZZH)

[52ZZH.02] Control can be relinquished In Anstis v SDFaCS (2002), Kenny J made some passing references to the equivalent provisions in Part 3.18 of the Social Security Act 1991 concerning controlled private trusts. The principal issue in the decision concerned whether the applicant, a solicitor practising in social security law, had standing to seek judicial review of a Departmental Instruction made in relation to Part 3.18 (he didn’t). Kenny J said:

Broadly speaking, under the Social Security Act, a pension claimant must satisfy both an assets test and an income test. Effectively, a pensioner receives the lower of the two amounts that result from the application of the assets test and the income test. Part 3.18 of the Social Security Act is entitled “Means Test Treatment of Private Companies and Private Trusts”. ‘Part 3.18 introduced, from 1 January 2002, a system for the attribution to individuals of the assets and income of private companies and private trusts. Subsection 1207X(2) of the Social Security Act, which is in Pt 3.18, concerns private trusts. The subsection relevantly provides that, for the purposes of Pt 3.18, if a trust is a “controlled private trust” in relation to an individual (and par 1207X(2)(b) is satisfied), then the individual is an “attributable stakeholder” of the trust (unless the respondent determines otherwise). Further, pursuant to pars 1207X(2)(d) and (e), if the individual is an attributable stakeholder, then the individual’s “asset attribution percentage” and “income attribution percentage” in relation to the trust is either 100%, or such lower percentage as the respondent determines. Pursuant to subs 1207V(1), for the purposes of Pt 3.18, a trust is a “controlled private trust” in relation to an individual if the trust is a “designated private trust” (as defined in 1207P(1)) and the individual passes the “control test” in subs 1207V(2) or the “source test” in subs 1207V(3). Subss 1207V(2) and (3) must be read with s 1207C which sets out who are “associates” of an individual. The effect of these provisions is, as counsel for the respondent submitted, that there would be very few private trusts that would fail to pass the control test set out in subs 1207V(2): see, e.g., par 1207(2)(d). The applicant disputes the lawfulness of statements made by the department apparently in connection with the administration of these provisions. The parties agreed that the department issued a written statement (which the applicant terms “the Instruction”) concerning resignations from private trusts after 1 January 2002. This statement (which, for convenience, I too call “the Instruction”) was entitled “Relinquishing Control of a Trust”, and described the circumstances in which “[a] genuine resignation from a private trust will generally be accepted [by officers of the department] as having occurred”. The Instruction relevantly stated:

A genuine resignation from a private trust will generally be accepted as having occurred where both the controller and their partner:

• relinquish all formal roles and control in respect of the trust; and • relinquish all beneficial interest in the trust; and • make a written declaration that they will not exert any control over, or benefit in

any way from the trust. According to the applicant, the effect of the Instruction is that a pensioner, or a would-be pensioner, must give up all his or her interest in a trust in order to receive a pension, or to avoid the cancellation or reduction of a pension. The applicant claims that the Instruction is contrary to law and that the Social Security Act, properly construed, does not require such a complete relinquishment of all trust interests. (at [3]-[6])




Part IIIB (s 52ZZJ)

Subdivision F – Attributable stakeholders and attribution percentages

Section 52ZZJ Attributable stakeholder, asset attribution percentage and income attribution percentage

[1207X.01] “attributable stakeholder” – s 1207X(1)(a), (2)(c) [1207X.02] Exercise of the discretion to set a percentage less than 100%

[52ZZJ.01] “attributable stakeholder” – s 52ZZJ(1)(a), (2)(c) In Re Mounsey and SDFaCS (2003), the applicant held two shares in a family company which owned an industrial property and his brother and sister owned another two shares. As he held 50% of the direct voting interests in the company, he passed the control test (s 52ZZC(2)(a)) and therefore his asset attribution percentage was 100%, unless the Secretary determined a lower percentage under s 52ZZJ(1)(b)(ii). The Tribunal held that there was “no reason” (at [20]) to determine a lower percentage. In Re Lymberopoulos and SDFaCS (2005), the applicants were the sole appointers of the trustee of a family trust and sole directors of the trustee company. The trust operated a petrol station for years and their children worked at the petrol station for minimal wages. The petrol station was eventually sold and the proceeds were used to invest in another business (Rosehill Vineyards) with other stakeholders. In 2003 the vineyards returned a profit which was paid to the trust. The Secretary took the view that the whole of this profit should be attributed to the applicants’ incomes as they had control over the family trust. The issue for the Tribunal was whether there should be any reduction in the attributed percentage by reason of the children’s involvement in generating the capital which in turn was invested in the Rosehill venture. The Tribunal found as a fact that the applicants (the parents) had the full control of the businesses and assets at all times. No legal or equitable rights had arisen in the children over the assets of the trust invested in the Rosehill Vineyards. The Tribunal declined to reduce the percentage attribution on the basis of any moral expectation by the children to a share of the profits. The Tribunal considered Principles 25 and 31 of the Social Security (Attributed Stakeholders and Attribution Percentages) Principles 2000 and suggested that the applicants should restructure their affairs to ensure that they personally received the full benefit of the investment of the trust funds to support themselves. The children would in due course obtain the benefit of the investment through their parents’ estates. In Re Spence and SDEWR (2006), the applicant/controller of a trust (s 52ZZH(2)) borrowed money from the trust to purchase a principal home in her own name. The Tribunal held that the loan was an asset of the trust even thought the principal home would have been an exempt asset in the applicant’s hands. Section 1207X(2) of the Social Security Act [VEA s 52ZZJ(2)] attributed 100% of the trust assets to the applicant and therefore precluded her from the parenting payment.

[52ZZJ.02] Exercise of the discretion to set a percentage less than 100% In Re Smith and SDFaCS (2004), the applicant was a director and shareholder of a company set up by his son; he claimed that he took on this role under duress from his son and that he played no part in the affairs of the company. The Tribunal found that his




Part IIIB (s 52ZZJ)

evidence was unreliable and refused to exercise the discretion to reduce the attribution percentage to less than 50%. The Tribunal said:

The evidence is that the company meets the description of a designated private company as provided for in s 1207N of the Act [s 52ZZA] and set out above. I am also satisfied that the 50% shareholding that the applicant has and the joint directorship that he had until May 2003 meant that he meets the requirements for being a controller of the company for the purposes of s 1207Q of the Act [s 52ZZC]. To assist in the application of s 1207X of the Act [s 52ZZJ], the Secretary has published, pursuant to s 1209E of the Act, the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000. Part 2 of those Principles sets out the matters to be considered in determining whether a person should not be an attributable stakeholder and Part 3 of those Principles sets out the matters to be considered in determining what attribution percentage less than 100% may be adopted for an individual. I have had regard to those matters in this case. Whilst the applicant has maintained that he has had no involvement in the operation of the company, his evidence demonstrates that he has had some role to play in some of its activities. Certainly, he has signed documentation as a director and examples of these were included in evidence at T16 and T38. He served as a collector of mail for the company and, although the evidence is not entirely clear because of its inherent unreliability, it would also seem that he has had the benefit of living in premises at Miami that are owned by the company and at 15 Chesterfield Avenue Bonogin where the circumstances of ownership are less clear. Reference was made above to a receipt that was prepared in respect of rent for the Miami premises. The applicant said that this was the only such receipt that had been generated and he also indicated that the rent was paid to a person by the name of Geoff Hillman who had the same PO Box address as the company. I have also noted that, in file references relating to the rental circumstances of the applicant, he is described as stating that he contacted his landlord by paying him from time to time when he saw him “down the pub” (T9). Indeed, these uncertainties in relation to asset usage and ownership form part of the difficult situation facing the respondent in its attempts to determine what the financial circumstances of the applicant are. I am satisfied that any discretion to attribute a percentage other than 50% of the income and assets of the company should not be exercised in the applicant’s favour. (at [22]-[23])

In Re Dalianis and SDFaCS (2003), the Tribunal reduced the attribution percentage to 50% in a case where an age pensioner was sole appointor of a family trust which was primarily used as a tax minimisation vehicle by his son. The Tribunal said:

Under s 1207X(2) of the Act the applicant is an attributable stakeholder. In exercising its discretion with respect to the applicant’s income attribution percentage, the Tribunal notes that s 1209E(1) of the Act requires the Tribunal to comply with the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000 (the principles). These provide that if a person meets one or more of the following factors then the attribution percentage may be less than 100 per cent if such a decision is warranted: • circumstances arising from the legal structure of the trust; • circumstances arising from the administrative arrangements of the trust; • whether the individual can reasonably be expected to exercise effective control in

relation to the trust-and the extent of any control; • whether the individual has made a contribution to the trust; • past benefits from any distribution; • any future benefit from a distribution; • whether the individual derives any other benefit from the trust;




Part IIIB (s 52ZZK)

• whether the individual is an attributable stakeholder of any other trust or company; and

• any other circumstances that affects the involvement of the individual with the company or the trust.

The Tribunal notes that under a discretionary trust an appointor generally has the power to dismiss or appoint a trustee, veto a trustee’s decision, exercise control over the trustee in another manner or change the terms of the trust deed. Therefore, the applicant could be seen to exercise significant control of the trust. In addition, there is no dispute that the applicant contributed a significant sum of money to the trust in 1996 or 1997. On the other hand, the Tribunal accepts the evidence from the applicant and Mr Dalianis that the applicant has not had day-to-day involvement in the trust or exercised effective control, and was not aware of his nomination of appointor at the time of his claim. The Tribunal also accepts that the only distribution by the trust was to the applicant’s wife in 2000/2001. Having applied the Principles to these circumstances, the Tribunal concludes that the appropriate asset attribution percentage for the applicant is fifty per cent. Fifty per cent of the value of the assets amounts to $665,834, which exceeds the allowable limit of $433,500, for eligibility for the disability support pension. (at [14]-[15])

In Re Pavlakis and SDFaCSIA (2006), the applicant and his wife were “income only beneficiaries” of the Pavlakis Family Trust and, under the trust deed, could not ever receive a distribution of the capital of the trust. The “default beneficiaries” of the capital of the trust were their children and grandchildren and, if the trust failed to vest in any of those named beneficiaries, two identified charities would take the benefit. On this basis, the appropriate asset attribution percentage for the applicant was 0%. The income of the Trust was attributed 50% to the applicant and 50% to his wife. In Re Briggs and SDEWR (2007), the two applicants were trustees of a family trust. The trust deed provided the trustees with an absolute discretion concerning the distribution of the trust funds. The applicants argued that, because they had not in fact ever accessed the trust funds, the assets of the trust should not be included in their respective assets tests. The Tribunal rejected this argument, citing Re Edstein and SDFaCS (2004) to the effect that the capacity to access the trust funds is sufficient to have those funds included in their respective assets tests.

Subdivision G – Attribution of income of controlled private companies and controlled private trusts

Section 52ZZK Attribution of income

[52ZZK.01] Attribution of income In Re Backer and SDFaCS (2002), in relation to equivalent s 1207Y of the Social Security Act 1991, Mr and Mrs Backer each held a 35% shareholding in a private company which was the trustee of the Backer Family Trust. They were the primary beneficiaries of the Trust. For taxation reasons, the Trust held the proceeds of the sale of the couple’s macadamia nut farm, shown in the books of the Trust as “Beneficiaries Loan Accounts”. Under Part 3.18 of the Social Security Act, the Tribunal held that the income earned by the Trust in 2000-01 of $15,292.39 was attributed income of the couple. In addition, the amount of the loan was treated as a financial asset under the Act with an amount of ordinary income deemed to have been received ($5,488.47 each). After a consideration of Part 3.18, the Tribunal held that the Act clearly takes into




Part IIIB (s 52ZZK)

account both attributed income and deemed income for the purposes of the income test. The Tribunal said:

Part 3.18 of the Act commenced operation on 1 January 2002. From the simplified outcome of the Part in s 1207 of the Act [s 52ZN], it can be seen that it sets up a system for the attribution to individuals of the income of private trusts (see s 1207Y of the Act [s 52ZZK]) where the trust is a designated private trust (s 1207P of the Act) and also a controlled private trust in relation to the individual who passes a control test or a source test (s 1207V of the Act [s 52ZZH]). Further, the individual must be an attributable stakeholder of the trust (s 1207X of the Act). Under s 1207(1) of the Act, a trust is a designated private trust unless it falls into one of the categories listed in the provision. These are set out above and there is no evidence before the Tribunal that the trust in this case meets any of those requirements. I am satisfied that the trust is a designated private trust under the Act. The control test is set out in s 1207V(2) of the Act. Mr Backer will satisfy that test if he or his associate is the trustee of the trust. In accordance with s 1207C(1) of the Act [s 52ZQ], the company in this case will be an associate of Mr Backer if it is sufficiently influenced by him and this has been conceded by him. I am satisfied that Mr Backer satisfies the control test and that the trust is a controlled private trust under the Act. Under s 1207X(2) of the Act [s 52ZZJ], Mr Backer will be an attributable stakeholder of the trust unless the Secretary otherwise determines. No such determinations are in place in that regard and I am satisfied the Mr Backer is an attributable stakeholder of the trust under the Act and that his income attribution percentage in relation to the trust is 100%. This means that the terms of s 1207Y of the Act are applicable in this case and it provides for the attribution of the trust’s income, other than excluded income, to Mr Backer. The trust’s profit and loss account for the year ending 30 June 2001 records a net profit of $15,216. In Mr Backer’s case, provided there is no excluded income, the amount to be attributed to Mr Backer as part of his ordinary income is $15,216. Under ss 1207Y(2) to (4) of the Act [s 52ZZK], the Secretary may determine, in compliance with relevant decision-making principles, that a specified amount is excluded income. The relevant decision-making principles were published in the Commonwealth Government Gazette on 18 January 2002 and are called the Social Security (Attribution of Income) Principles 2002 (see T5/36,37). There, circumstances are set out where double counting of attributable income may be avoided. However, these apply where there has been a distribution to a beneficiary of the trust or the transfer of capital of the trust. I am satisfied that those circumstance do not arise in this case. The ordinary income of Mr and Mrs Backer includes both the deemed income and the attributed income. I have noted their concern that the legislation has operated unfairly by introducing the concept of attributed income and by assessing it along with the deemed income level. However, the Act is clear that this must be done. Paragraph 1207Y(1)(e) of the Act requires that the attributed income be considered in addition to any other ordinary income of the individual. (at [26]-[32])

In Re Geidans and SDFaCS (2003), the applicant had formally divested himself of control of a company which owned a farm by transferring the shares to his son. The evidence was to the effect that the applicant was the sole contributor to the assets of the company and the sole resident of the farm. The son took no interest in the company or the farm and the applicant continued to live on the farm and would probably do so for life. The applicant argued that his percentage ownership of the company was less than 100%, in fact nil. The Tribunal applied the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000 and made the following general observation:




Part IIIB (s 52ZZK)

Clearly it is envisaged under Part 3.18 of the Act that an asset attribution of less than 100% is possible. The intention of the legislation would however be easily defeated if, as in this case the divesting of the legal interest over a limited period with no other significant change in the individual’s relationship to the company occurring, or in the circumstances generally, was sufficient in itself. Mr Posa has submitted that Mr Geidans has done more than that. In addition to divesting himself of his shares, Mr Geidans due to his age, health and lack of interest is no longer able to run the company and in particular its asset the property, or even enjoy the benefit of the property. The Tribunal accepts that Mr Geidans has taken progressive steps to divest himself of legal control of the company. Notwithstanding this fact there is no evidence to show that the running of the company has been effectively transferred to anyone else, even if that is Mr Geidans’ desire. The Tribunal accepts that as outlined in the letter from his GP Mr Geidans has a number of health conditions which would render him unable to do physical work on the property. However the property is no longer a working farm and there is no evidence that Edgar himself undertakes any regular work on the property. Mr Geidans lives on the property and he alone has the ongoing benefit of it to the extent he can. In the absence of Edgar being contactable or his whereabouts even being known, it is difficult at this time to envisage decisions being made about the property by Edgar alone or even in conjunction with his father. The Tribunal has heard that Indra, Mr Geidans’ daughter is a co-director but there was no evidence that she played any role other than having mail for the company forwarded to her. For these reasons I can find no basis at this time to justify the asset attribution percentage at less than 100%. (at [45])

In Re Major and Repatriation Commission (2003), the applicant and his wife were the sole directors of a family trust company and sole trustees. The applicant’s daughter was a beneficiary of the trust along with the applicant and his wife. The applicant argued that the Attribution Principles should be invoked and trust property should be apportioned evenly between the three beneficiaries rather than 100% to the applicant (and his wife). The applicant argued that the reference to an “individual” in s 52ZZK(1)(b) included all stakeholders and not just those whose pension entitlement was under consideration. It followed from the applicant’s submission that the respondent was required to conduct an inquiry into the extent of control and participation by all stakeholders. The Tribunal rejected this agreement and held that “individual” meant only the individual whose entitlement under the Act was under consideration. The Tribunal attributed 50% to the applicant and 50% to his wife. In Re Pavlakis and SDFaCSIA (2006), the Tribunal (similarly constituted) attributed trust income 50% to the applicant husband and 50% to his wife, noting that “the Principles allow a husband and wife, to each of whom 100% may otherwise be attributed under s 1207X, to be attributed 50% each to avoid double counting that may otherwise occur by applying s 1207X on its own” (at [41]). In Re Lindeman and Repatriation Commission (2004), the Tribunal held that the applicant had not lost “effective control” of the designated private company simply by reason of the fact that she suffered a degree of intellectual impairment requiring her son to manage her affairs. The son managed the applicant’s affairs on her behalf and for her benefit. In Re Edstein and SDFaCS (2004), the Tribunal held that, in terms of the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000, it was irrelevant that the applicant had not in fact accessed any of the designated trust funds; it was sufficient that he had the capacity to access them.




Part IIIB (s 52ZZR)

Section 52ZZO Permissible reductions of business and investment income

[52ZZO.01] Loan repayment not a permissible reduction of investment income

In Re Bourton and SDFaCS (2005), the applicants had an income of $35,991 attributed from the taxable income of an investment company controlled by them. During the financial year the company repaid a loan of $28,000 owed to the applicants. The Tribunal refused to accept that this loan repayment could be used to reduce the income attributed from the company:

It seems clear that Mr Bourton has confused two separate and discrete issues. One is that a company controlled by them derived an income of $35,991 and that income is attributable to them as if they had derived that amount of income in their own right. The repayment of the loan is a separate and distinct matter, unrelated to the derivation of income by the company. It is not the case that the repayment of part of their loan has been included as income. The amount attributed to them would be the same whether the company had repaid $40,000 or nil. It is clear that, contrary to Mr Bourton’s submission, amounts utilised by the company in repayment of a loan are not deductible in arriving at the ordinary income of the company. The repayment of the loan by the company was an application of income rather than a loss or outgoing incurred to derive its income, or for the carrying on of its business for the purpose of deriving income. The difference may be clearer to Mr and Mrs Bourton if it is said that the attribution of income of a controlled company is to treat such income as if it were derived by the individual. The repayment of the loan was made to provide funds needed in the purchase of a new home. The argument of Mr Bourton is equivalent to saying that they would be entitled to deduct from personal income such part of that income as is used to repay a debt or purchase a new home. There is no doubt that such application of income for expenditure of a capital nature can not reduce the net income. (at [6]-[7])

Subdivision H – Attribution of assets of controlled private companies and controlled private trusts

Section 52ZZR Attribution of assets

[52ZZR.01] “excluded asset” – s 52ZZR(2) In Re Kimpton and Repatriation Commission (2005), the Tribunal exercised the discretion conferred in s 52ZZR(2)) to declare certain loans to be “excluded assets” notwithstanding that no application to this effect had previously been made to the Commission. The assets in question were old loans made by a family company which had long since ceased trading and had been wound up. The Tribunal found that the company had no realistic chance of recovering those loans from the family members. The Tribunal noted that, in any event, if the family company did recover the loans from the family members, the company would only disburse the proceeds back to the same family members on its winding up. On appeal in Repatriation Commission v Kimpton (2006), the Federal Court affirmed the Tribunal’s right to apply s 52ZZR(2) to find assets of a company to be “excluded assets” notwithstanding that the original decision maker had not addressed




Part IIIB (s 52ZZR)

the issue. The Court noted that the Tribunal was bound to approach this issue by reference to the promulgated decision-making principles, but only to the extent that relevant principles existed. The Court said that the principles as promulgated were not exhaustive such that the Tribunal needed to find some relevant existing principle before any decision could be taken to declare an asset exempt. However, if a relevant principle did exist, the Tribunal was bound to give effect to it. In the present instance, no relevant promulgated principle existed and therefore the Tribunal could approach the exercise of the power constrained only by reference to the purpose of the legislative provisions. French J said:

The novelty and generality of the provisions of Div 11A raise the possibility of unfair and unintended consequences in the application of its provisions to people claiming or in receipt of service pensions. The power under s 52ZZR(2) to determine that assets, otherwise attributable to an individual, should be excluded assets is provided to avoid such cases. Its generality makes that purpose apparent. That purpose is also reflected in the passage quoted by the Tribunal from the Explanatory Memorandum which refers to the object of the relieving provisions in the amending Act as “… to ensure that people are not treated unfairly or affected unintentionally as a result of this measure”. The power conferred by s 52ZZR(2) allows for flexibility of response to the great variety of circumstances that may present for decision by the Commission. At the same time the exercise of the power should be consistent across similar cases. The ability of the Commission to promulgate decision-making principles with which it must comply in the exercise of its discretion enables the development of consistent approaches to like cases. As the experience of the Commission in the application of s 52ZZR grows, classes of similar cases requiring similar treatment will no doubt emerge. Efficient and consistent decision-making in such cases will be assisted by the promulgation of decision-making principles. It cannot however, by making such principles, fetter its discretion so as to limit it to a particular class of case. That would amount to a confinement of the broad power which the Parliament has conferred. The authority to make decision-making principles, which are a species of delegated legislation, does not sanction limitation by the Commission of the range of cases which it may consider for the purpose of determining whether otherwise attributable assets are to be excluded. Decision-making principles have been made by the Commission. They are the Veterans’ Entitlements (Attribution of Assets) Principles 2001. Section 6 of those principles deals with determinations under s 52ZZR(2). That section applies “… if an individual (the Investor) who is not an attributable stakeholder of a company, makes a genuine transfer of capital to the company for shares in the company”. It goes on to set out the conditions under which a transfer of capital will be regarded as a genuine transfer of capital. It is not in dispute that this principle has no application to the treatment of the loans receivable by KS and KPS as excluded assets. The argument advanced by the Commission seemed to amount to the proposition that the existing decision-making principles exhaustively define the circumstances in which an asset could be determined to be an excluded asset. If the principles had that effect they would, in my opinion, be unlawful. The Commission is required in making a determination under s 52ZZR(2) to “comply with any relevant decision-making principles”. There were no decision-making principles relevant to this case in existence at the time the Tribunal made its decision. Standing as it did in the shoes of the Commission, it was free to exercise the discretion under s 52ZZR(2) in favour of the Kimptons subject to that exercise falling within the purposes of the legislative scheme of which it formed part. The Tribunal did not err by not referring to the decision-making principles relied upon by the Commission. (at [46]-[50])




Part IIIB (s 52ZZW)

Section 52ZZT Effect of charge or encumbrance on value of assets

[52ZZT.01] “collateral security” – s 52ZZT(2)(a) In Re SDEWR and Bouthier (2007), the Tribunal discussed the meaning of “collateral security”, in the equivalent context of s 1208G of the Social Security Act 1991. A $400,000 loan taken out for the purposes of purchasing a child care centre was secured by a charge over the childcare company’s assets and also by mortgages over other properties jointly owned by the respondent. The Tribunal held that only a proportion of the loan could be offset against the company’s assets. The Tribunal said:

Mr Gray acknowledged that, on one interpretation, the $400,000 loan was embraced by s 1208(3), meaning in turn that Ms Bouthier would benefit from the fact that there is no exception for collateral security in s 1208G(4). The Tribunal does not accept this alternative hypothesis advanced by Mr Gray. Rather, it accepts the rebuttal, also advanced by Mr Gray, that it would be impractical to attempt to apply the formula in s 1208G(3) to specific assets such as stock in trade prior to crystallisation. It is the Tribunal’s opinion that s 1208G(3) was not intended to apply in such circumstances, a conclusion which was not contested by Mr Hall. The Tribunal is of the opinion that the correct interpretation of the application of s 1208G in the current circumstances is that the charge over the company’s assets which forms part of the security for the $400,000 loan falls within s 1208G(2)(a) and that, as a consequence, a proportionate allowance must be made for the value of the three other properties which also represent security for the loan. This conclusion is consistent with the plain wording of the legislation and with its apparent intent. Although the term collateral security is not defined by the legislation, its meaning in this context is uncontentious, namely, that it is a reference to parallel or additional security: see In re Athill; Athill v Athill (1880-81) LR 16 Ch D 211. The charge over the company’s assets represented parallel security for the $400,000 loan, standing on an equal footing with the mortgages over the two Walsh Street properties and the Clarendon Street property. Accordingly the Tribunal considers the SSAT erred in concluding that Ms Bouthier’s assets during the relevant period be calculated on the basis that the entire $400,000 loan be deducted from the company’s assets. (at [23]-[25])

Division 11B – Private financial provision for certain people with disabilities

Subdivision A – Special disability trusts

Section 52ZZZW What is a special disability trust?

[52ZZZW.00] Legislative history – s 52ZZZW Division 11B (ss 52ZZZW-52ZZZWQ) was inserted by item 29 in Schedule 7 to the Families, Community Services and Indigenous Affairs and Other Legislation (2006 Budget and Other Measures) Act 2006 (No 82/2006) with effect from 20 September 2006. The Division authorises the creation of trusts of up to $500,000 for the benefit of a person who is severely disabled. The trust income and assets are not taken into account in the income and assets tests. Providing eligibility conditions are met, the




Part IIIB (s 54)

transfer of funds into the trust may not constitute a disposal, for VEA purposes, by the donor.

Division 13 – Recipient obligations

Section 54 Secretary may require notification of an event or change of circumstances

[54.00] Legislative history – notice provisions [54.01] General effect of s 54 [54.02] “requires the person to inform the Department” – s 54(1) [54.03] “change of circumstances” – s 54(1)(d) [54.04] “may be given personally or by post” – s 54(4)(b) [54.05] “to the extent that the person is capable of complying with it” – s 54(6) [54.06] Information given on behalf of the person [54.07] Notices – strict compliance is required [54.08] Notices – cut-off date for information [54.09] Notices – use of e-mail

[54.00] Legislative history – notice provisions The notice provisions in the VEA were originally contained in s 124 of the Act. However, as part of the restructuring of the Act in 1991, the notice provisions for service pension and income support supplement were moved into a new Part III of the Act (including new s 54) and s 124 (the notice provision for disability pension) was renumbered as s 127. Transitional arrangements were included in the Veterans’ Entitlements (Rewrite) Transition Act 1991 including s 8 which provided for survival of instruments (including notices) which were in force on 1 July 1991. Section 8 was considered by the Tribunal in Re Johns and Repatriation Commission (1996):

The Veterans’ Entitlements Amendment Act 1991, which immediately preceded the coming into operation of the Transition Act, provided a new Part III which related to service pensions and included in the new provisions was s 54 which, as can be seen above, is in very similar terms to s 127 in so far as relevance to service pensions is concerned. The Tribunal cannot see any difference in the legal effect of s 54 and s 127 in so far as they relate to service pensions. It is abundantly clear, having regard to the words 127 notices have effect as if they were instruments made under s 54 of the Act in accordance with s 8(1) of the Transition Act, ie they are deemed to be notices under s 54 of the Act. (at [17])

[54.01] General effect of s 54 Section 54 should be read in conjunction with s 54A (notice requiring a person to make a statement in writing about a matter that might affect payment of service pension) and s 54AA (notice requiring service pensioner to produce documents or appear before an officer of the Department to answer questions). Note also ss 127 and 128 in Part VIII which are the equivalent notice provisions for disability pensions. Section 54 is similar to s 68 of the Social Security (Administration) Act 1999, to repealed s 68 (age pension notices) of the Social Security Act 1991 (there were mirror provisions in other payment modules) and to s 163(1) of the repealed Social Security




Part IIIB (s 54)

Act 1947. Decisions on notice provisions in the social security jurisdiction in most cases are applicable to the VEA, but care must be exercised because some amendments of the social security provisions were not carried through to the VEA. In Kerslake v Repatriation Commission (1996), the Federal Court made some general observations on the operation of the notice provisions in Part IIIB of the Act:

Division 13 of Pt IIIB of the Act provides a system for the giving of notices to service pensioners requiring them to inform the Department if a specified event or change of cir-cumstances occur. Division 13 can be regarded as a system of continuing self-assessment. Section 54(1) provides for the giving of such a notice. Refusal or failure to comply with a notice is an offence (s 54(6)) as is knowingly giving false or misleading information (s 54(7)). When information is provided pursuant to a s 54 notice, the pension will be automatically adjusted to accord with the pensioner’s entitlement in light of the event or change of circumstances disclosed. Division 15 of Part IIIB makes provision for such variation or termination. (at 63 FCR 448)

[54.02] “requires the person to inform the Department” – s 54(1) In Re Smith and SDFaCS (1999), an age pensioner was given a notice under an equivalent provision in the Social Security Act requiring her to inform the Department if she or her partner started work or if their combined income became more than $76.00 per week. Several years later, the Department sought to raise an overpayment because her husband had commenced work in a position subsidised under a Commonwealth employment program but she had not notified the Department personally of that fact. The evidence showed that the husband had notified the Department when he commenced work. This, in the opinion of the Tribunal, constituted the necessary notice by the pensioner spouse:

Ms Koller made the point that the initial letter did not state that there were only certain ways to tell the Department if the combined income exceeded $76 per week or that a partner started work. It was submitted that Mrs Smith discharged her obligation when Mr Smith lodged the Job Search Allowance Continuation form advising of his return to work. It was conceded by the Department’s representative that the Department knew Mr Smith was working. Having regard to all the circumstances and the submissions on behalf of both parties, the Tribunal is satisfied that there was no omission or failure to comply with the notice dated 16 September 1992 (Exhibit A3). The Department was notified that Mrs Smith’s partner was working, and the Tribunal is satisfied that that was sufficient for the Applicant to have complied with her obligation to the Department. (at [26]-[27])

The Tribunal also rejected a Department submission that the pensioner had a continuing obligation to advise changes in her husband’s income:

Mr Kenny, on behalf of the Department, made submissions concerning the requirement that Mr Smith was obliged to notify the Department of his specific earnings. In particular, it was contended that Mr Smith did not notify the Department of his earnings in such a way as to fulfil the obligations of his spouse. … The Tribunal considers that the “things” which Mrs Smith was required to notify the Department of, were not cumulative in respect of the same event. Mrs Smith was required to notify her husband was working which the Tribunal has already found she did. The Tribunal does not accept the submissions that the Department had to know the actual income Mr Smith was earning. It is a matter of common experience that partners do not know their partner’s earnings, and the Tribunal




Part IIIB (s 54)

noted the Applicant’s submission that the Department could obtain that information by making its own enquires. (at [28])

In Re Ross and SDFaCS (2005), the Tribunal did not accept the approach taken in Re Smith, holding that each separate notification obligation must be met by a Centrelink client:

I do not accept that Smith’s case is a correct statement of the law. In my view the clear purpose of identifying and specifying different obligations in notices is to ensure that Centrelink obtains the detailed information required to correctly assess what amount a person should be paid. Two separate obligations were set out in notices to Mrs Ross and she discharged only one of her obligations when she notified that her husband started work. She did not discharge the second obligation to tell Centrelink that their weekly income was more than $76. Whilst I agree that a simple enquiry on Centrelink’s part could have ascertained this, I do not accept that the responsibility for providing the information suddenly passed from Mrs Ross to Centrelink. (at [13])

In Re Leslie and SDFaCS (2000), a pensioner couple earned unpredictable casual income from managing motels on a relief basis. The applicants notified Centrelink whenever they earned casual income and this income was averaged over a 12 week period for income test purposes. In the absence of any notification of income from the couple, Centrelink continued to assess their pension entitlement on the assumption that the income disclosed earlier was ongoing until the applicant advised otherwise. The Tribunal held that Centrelink should only have taken the casual income into account for the periods notified by the applicant, and, beyond the 12 week averaging period, no income should have been assumed. The Tribunal rejected an argument by the respondent that the applicants had a duty to notify a decrease in income, even though the periodic review forms sent to them only required notification of an increase in income.

[54.03] “change of circumstances” – s 54(1)(d) In Re Salvona and SDSS (1988), the Tribunal found that the applicant had lived in a de facto relationship throughout the period in which he received benefit. It held that the claimant’s repeated failure to disclose this fact on review forms did not amount to a failure to comply with s 163(1) of the Social Security Act 1947 [s 54], as “the applicant’s circumstances did not change during the whole of the time he was receiving benefits”. Re Salvona was reversed on appeal to the Federal Court in SDSS v Salvona (1989), but this point made by the Tribunal was not at issue in the Federal Court hearing. Note s 54B which authorises reference to a document, served with the notice, which sets out the specified circumstances.

Advance notification of a change of circumstances In Re Cunningham and Repatriation Commission (1997a), the Tribunal considered that the applicant had complied with the requirement to notify a change in circumstances in s 54 because he had telephoned the Department of Veterans’ Affairs in advance of a move into Government housing to let them know about his forthcoming move. The Tribunal commented:

What the applicant did was to effectively notify the Department in advance of that which the deemed s 54 notice required of him. The Tribunal is of the view that the nature of the




Part IIIB (s 54)

applicant’s notification was such as to discharge his obligation. It provided the necessary information to the Department in advance and provided it with an adequate opportunity to adjust the applicant’s rate of pension. The Tribunal does not consider that it would be appropriate to adopt a strict interpretation of the applicant’s obligation and suggest that notification in advance does not constitute notification of the fact occurring. Having complied with the s 54 notice, it follows that the precondition contained in para (d) of s 56B has not been met and therefore, s 56B cannot operate automatically (or at all) to reduce the applicant’s rate of pension from the day immediately after the change in circumstances occurred. (at 48 ALD 374)

[54.04] “may be given personally or by post” – s 54(4)(b) In Re SDSS and Dossis (1990), Ms Dossis failed to return a family allowance review form (concerning income and assets), 1 of 400,000 in Victoria alone posted out in October 1989. The allowance was cancelled on 28 December 1989 and not reinstated until she completed a new claim in May 1990. Ms Dossis said that she did not ever receive the form and did not find out about the cancellation until she asked for an account balance in May 1990. The Department gave evidence about their mailing procedures which included a computerised system of printing the letters by DSS and then delivery to a mailing agency which folded, enveloped and posted them. DSS led evidence from the Ms Dossis’ file that the mail address printed by the computerised system would have been correct. Relying on s 29 of the Acts Interpretation Act 1901, the Tribunal concluded that the letter should be deemed to have been received. The Tribunal concluded that “properly addressing” a letter (as required by the Acts Interpretation Act) is intended to be “the place at which it is likely that the notice or letter is to be delivered and, by its delivery, will be received by a person to who it is addressed or will be brought to the attention or notice of that person”. The Tribunal distinguished Re Todd and SDSS (1989) (discussed below) on the basis that, in that case, the letter was not “properly addressed” – it was forwarded to “an address both vacated by the Applicant and where the Applicant had previously notified DSS of her vacating those premises”. The Tribunal drew attention to the difference between “delivered” and “receipt”. Ms Dossis gave evidence of her mail being tampered with, such that the Tribunal was inclined to accept that the review letter had not been received by her. Finding support also in Fancourt v Mercantile Credits Ltd (1983) and Australian Trade Commission v Solarex Pty Limited (1987), the Tribunal concluded that the review form was delivered to Ms Dossis:

Section 29 however deems documents which were posted to have been delivered. It does not speak of receipt. There clearly is a material and significant difference between mail being delivered and mail being received. Receipt of mail is a personal act whereas mail delivered means no more than the depositing or leaving of mail at the place indicated by the address appearing on the envelope. (at 21 ALD 631)

In Re Todd and SDSS (1989), the applicant’s husband notified the Department that he and his family intended to travel around Australia for a year. They completed the form provided by the Department and returned it to a Department office. They also arranged for redirection of mail to Todd’s mother. They were unaware that separate files were held for unemployment benefit and family allowance. Ms Todd did not receive a family allowance review form and payment was cancelled. The new occupants of their previous residence gave evidence that they had returned a DSS letter to the Department.




Part IIIB (s 54)

The Tribunal found that the letter was not “properly addressed” in terms of the Acts Interpretation Act 1901 as Ms Todd had informed DSS that she was leaving that address. In Re SDSS and Shanahan (1991), the Tribunal held that a notice had been properly addressed and “given” in a situation where the recipient’s postal redirection arrangement had failed to work properly through fault of Australia Post. In Re Zaleski and SDSS (1991), the Tribunal, citing Re Dossis with approval, examined the Department’s mailing procedures and concluded that a notice had been properly addressed, prepaid and posted. It commented that “it would be absurd for the Department to be required to prove as a fact the service of each letter, given that 200,000 are posted twice yearly”. The Tribunal deemed service of the relevant notice to have been effected, applying s 29 of the Acts Interpretation Act 1901 and deciding that the proper addressing, pre-paying and posting had not been proved to the contrary. In Re SDSS and Garratt (1991), the Tribunal applied Re Todd to determine that a notice was not given in a situation where two letters were returned to the Department marked “not at this address”, putting the Department on notice that “the address was unsafe for the purposes of the [second] notice” (transcript at p 6). The Tribunal distinguished Re Shanahan on the basis that “the Department was on notice that the address was no longer her place of residence, whereas in Shanahan’s case the Department was on no such notice and could not be said to be at fault in continuing to use the address” (transcript at pp 7-8). Re Garratt was reversed on appeal to the Federal Court in SDSS v Garratt (1992), but on another point. In Re O’Connell and SDSS (1991) (upheld on appeal in SDSS v Sevel & O’Connell (1992)), the Tribunal summed up the position in relation to the giving of notices as:

Posting to the last recorded address in the absence of some clear fault on the part of the Department, or absent the notification by a beneficiary of an appropriate alternative point or means of contact (as was the case in Todd) constitutes a proper addressing of the notice in terms of the Act read with s 29 of the Acts Interpretation Act 1901. (at 23 ALD 414)

Where an employee was required to give a notice of election to a Department, it was not sufficient to place the form in an out tray for circulation through the Department’s internal mail system; the notice was never received by the relevant Authority and was not “given” to it: Re Martin and Defence Force Retirement and Death Benefits Authority (1994). Proper service by post of a notice was accepted in Re Van Brummelen and SDSS (1995) where there was a minimal misspelling of the client’s name, but the postal address was accurate. This case also includes discussion of the special problems arising from service of notices upon people with an intellectual impairment.

[54.05] “to the extent that the person is capable of complying with it” – s 54(6)

In Re Lynch and Repatriation Commission (1995), the Tribunal considered s 127(4), the equivalent notice provision for disability pension. Mrs Lynch, who was about 80 years of age, was served a notice under the Act to advise the Department if her income or assets exceeded a specified limit. She failed to advise receipt of DFRDB superannuation consequent upon her husband’s death. At the time she was suffering from Alzheimer’s disease, but this was not known by her family who, in consequence, did not read her mail although they did assist her in her affairs. The Tribunal acknowledged the illness




Part IIIB (s 54)

of the applicant, but found “on the balance of probabilities that the failure to comply with section 127 is a contravention of the Act”. In Re McCagh and SDSS (1995), the applicant suffered from an intellectual disability and was in receipt of disability support pension under the Social Security Act. He failed to advise DSS when he gained employment through an employment agency and failed to declare income received over a period of more than a year. The Tribunal heard evidence from a psychologist to the effect that the applicant: • had intellectual abilities in the moderately retarded range; • was illiterate and his capacity to recognise cash, count objects and add or subtract

was severely impaired; • was not capable of understanding his full obligations to the Department; • was not capable of independently initiating the notification process; • had a strong expectation that other people would either carry out such tasks for him,

or supervise his completion of them. The Tribunal had no difficulty in determining that he was not capable of complying with the equivalent notification requirement under the Social Security Act. However, it held that this defence was relevant only to the issue of criminal liability (ie s 54(6)), and did not excuse the failure to comply with the Act for the purposes of raising an overpayment. See also Re Fenby and Repatriation Commission (1996). Note that s 202 in Part XII makes provision for the Commission to set up a trust where a veteran is unable to manage his or her own affairs.

[54.06] Information given on behalf of the person The obligation to provide correct information is not diminished because the form is completed by another person: Re Di Prinzio and SDSS (1991), citing Re Pepi and Director-General of Social Security (1984). In Re Johns and Repatriation Commission (1996), the Tribunal commented that there is no suggestion of agency in the wording of the obligation to notify; the obligat-ion is on the person in receipt of the pension and no other person. The applicants were not entitled to rely upon another Department (the Department of Defence) informing DVA of changes in their compensation payments. The Tribunal acknowledged that special arrangements may be required where the person is not capable of notifying the Department, eg because of the physical or mental health of the person. See s 202 in Part XII for these arrangements. Re Johns was followed in Re Junor and SDSS (1997) where the Tribunal held that it was not sufficient for a person in custody to rely upon friends to notify the Department of his incarceration. The evidence showed that it was possible for him to contact the Department by telephone while he was in custody, but he had failed to do so. See also Re Neivandt and SDFaCS (2000) to the same effect where a pensioner relied on a prison social worker who said “don’t worry, we’ll look after it” when asked about advising Centrelink as to his DSP. In Re Smillie and SDFaCS (2003), the applicant was informed at induction at the Arthur Gorrie Correctional Centre that Centrelink had already been informed of his imprisonment. The Tribunal held that an overpayment was properly raised, but waived the debt in the special circumstances of the case. Note Re Dimitrievski and SDSS (1993), where the Tribunal did not place any reliance on apparently inconsistent statements in two forms completed by another




Part IIIB (s 54)

person and signed by the applicant who had little knowledge of English. The Tribunal cited with approval a passage from Re Priftis and SDSS (1986):

Mrs Priftis gave her evidence with the assistance of an interpreter. It was clear that she some ability in the English language but preferred to rely on the interpreter for the greater part of the time. The Tribunal found her to be a consistent and convincing witness. Mr. Vacietis of the Department, who appeared for the respondent, pointed out various inconsistencies between, on the one hand, documents on the file recording statements which had been made from time to time to officers of the respondent, and, on the other hand, the evidence given by Mrs Priftis at the hearing. He also sought to rely on statements in the passenger cards signed by Mrs Priftis on leaving and on returning to Australia. It was clear on inspection of the copies of the cards that, although they were signed by Mrs Priftis, they had been filled in by some other person on her behalf. Evidence of inconsistencies may be relied on either to establish facts or to cast doubt on the credit of the witness who appears to have made the inconsistent statements. However, the Tribunal considers that where it is apparent that a person who has given evidence is substantially dependent on an interpreter in order to communicate in the English language there is little to be gained by pointing out apparent inconsistencies between the words which one interpreter has chosen to use and the words which another interpreter has chosen to use to convey the meaning intended to be expressed by that person. Languages are not the same as each other and translation is an art, not a science. Words do not have precise equivalents in other languages. For example, in this case the same establishment is described as a “store” in Mrs Priftis’ signed statement at T12, a “shop” in her signed statement at T17, a “store” at T21, a “milkbar” in a field officer’s report of an interview with her at T21, and “a small coffee house” in her oral evidence. These distinctions are significant. We appreciate that these statements are, as a matter of practice, read over to the speaker (by an interpreter where necessary) before being signed; and we would not wish to suggest that the departmental officers do not do all that is within their power to ensure that what is recorded and signed is an accurate record of what the speaker wished to say. Nor have we any reason to doubt the competence of the interpreters concerned. Naturally there are occasions when the inconsistencies are clearly significant, and statements in documents which are inconsistent with the oral evidence given at the hearing have been in the past, and will continue to be in the future, accepted by the Tribunal in preference to that oral evidence. But care should be used in relying upon apparent inconsistencies in documents where the documents are based on communications through interpreters. The Tribunal also considers that it is unwise to place too much weight upon forms which can be seen to have been completed by one person and signed by another, particularly when the signatory has been shown to have difficulty with the English language. However conscientious, patient and understanding the departmental officer or other person who completed the form may be, and even if it is as assumed (in the absence of evidence) that the form, like the statements referred to earlier, has been read over to the person signing before the signature was affixed, there is a natural tendency, which is common knowledge, for people to sign what is put in front of them, without argument other than as to obvious errors of fact. (at 31 ALD 153-154)

In Re Greene and Repatriation Commission (1999), a partner service pensioner applied for a NZ surviving spouse pension by lodging the relevant application form with the Department of Veterans’ Affairs, which forwarded it to the NZ Department of Social Welfare on her behalf. The Tribunal held that the mere lodgment of the application form by the Department could not give rise to a conclusion that it had been given notice of the outcome of the application.




Part IIIB (s 54)

[54.07] Notices – strict compliance is required An important issue in relation to notices is whether strict compliance with the terms of the legislation is required for the notice to be valid. By and large, the authorities suggest that strict compliance is required, particularly where non-compliance gives rise to a criminal offence or some other punitive sanction such as loss of pension: Project Blue Sky v Australian Broadcasting Authority (1998); WA Pines Pty Ltd v Bannerman (1980); Bannerman v Mildura Fruit Juices Pty Ltd (1984). In Re SDSS and Carruthers (1993), the Tribunal (O’Connor J presiding) referred to “the long standing common law principle that statutes are to be construed strictly where penalties apply” (at 31 ALD 567) in deciding that the Department had failed to comply with a notice requirement under s 163 of the repealed Social Security Act 1947 because the notice failed to specify the manner of notification as required by s 163. An instruction in the notice that the recipient was “required to tell the Department” if certain circumstances arose was insufficient. In Blandon v Buxton-Barber (1994), Underwood J in the Supreme Court of Tasmania held that strict compliance with the notice provisions was required to found the criminal offence of knowingly or recklessly giving information that is false or misleading in response to a notice under the Social Security Act. In cases where the notices did not state that they were “recipient statement notices” as required by the Act, the appellant was acquitted. His Honour also queried whether, in one case, the required legislative reference was in fact specified in the notice because it was not printed on the notice itself, but was at the bottom of the page in a section where the DSS client was to write in their statement in response to the notice. In Re Vitalone and SDSS (1995), the Tribunal held that no overpayment existed because the applicant had sufficiently complied with her obligation under the Social Security Act to inform the Department of her receipt of income. Her husband attended a DSS office with details of his wife’s wages, but the counter officer failed to attend to the matter properly. Mathews J held that an oral notification was sufficient compliance with the requirement in the notice to “tell us within 14 days” and made some most interesting observations about the Department’s obligations in this situation:

I think it much more likely that the incident occurred as Mr Vitalone described, and the officer failed to understand the significance of what Mr Vitalone was telling her. His English, as I have already commented, is quite limited. Assuming this to have been the case, then the situation is essentially attributable to a lack of communication between Mr Vitalone and the Department. It is a lack for which the Department, not the applicants, should bear responsibility. Mr Vitalone did his best to comply with the notice which he and his wife had received. If his English was too limited for the department officer to understand the significance of what he was saying, then it was incumbent upon the officer to obtain appropriate assistance. Her failure to do so is attributable to no fault on the part of Mr Vitalone. As for Mrs Vitalone, she had requested her husband to convey the relevant information to the Department, and she understood that her request had been fulfilled. Section 163 is a penal provision. Non compliance with it is potentially punishable by imprisonment. Accordingly, it needs to be interpreted in a manner which is favourable to the individual concerned. It should certainly not be constructed so as to impose strict liability. An element of fault on the part of the individual concerned is thus inherent in the concept of “refusing or failing” to comply with the section. This element is, in my view,




Part IIIB (s 54)

entirely absent in the case of the applicant’s response to the respondent’s letter of 7 September 1989. (38 ALD 174)

Re Vitalone was distinguished, on the basis of the actual wording of the notice requirement, in Re SDSS and Donald (1997). Re Vitalone was followed and applied in Re Derriman and SDFaCS (2002) where the applicant advised that he was in receipt of superannuation in his original application for invalid pension in 1991 but did not subsequently respond to notices requiring him to tell the Department if his income “goes above $74.00 a week”, an amount which he already exceeded at the date of the application. In Re Hales and SDSS (1997), the Tribunal discussed whether a failure to comply with notices given under former s 132(1) of the Social Security Act 1991 constituted a failure to comply with the section (with debt creation consequences):

In the Tribunal’s opinion, although s 132(1) of the Act does not expressly impose an obligation on the recipient of a notice given under that subsection to comply with that notice, it does so impliedly. That implied obligation arises from the express authorisation of the respondent, by that subsection, to give to a recipient of DSP “ a notice that requires the person to inform” the DSS if a specified change of circumstances occurs. It follows that a failure by a recipient of such a notice to inform the DSS of the matter specified therein constitutes not only a failure to comply with a notice given under s 132(1), but also a failure to comply with s 132(1) itself. This view is consistent with the approach taken by the Federal Court in Greenwood (above) (see 26 ALD at p 566) and by the Tribunal in McCagh (above) (see Decision No 10618 at p 12) and Re Moss and Secretary, Department of Social Security Unreported, Decision No 10387, 31 August 1995, at pp 6-7. (at [29]) … Before parting with this issue, the Tribunal observes that the question whether non-compliance with a notice given under s 132(1) – or under any of the equivalent notification provisions in other Parts of the Act – also, of itself, constitutes a failure to comply with the relevant provision of the Act is not free from doubt. It is, for example, arguable that subs. (1) of s 132 does not itself impose any obligation on a recipient of a notice given under that subsection to comply with that notice and that, consequently, a failure by the recipient to comply with the notice does not of itself constitute a failure to comply with s 132(1) of the Act. It is, furthermore, arguable that the only provision of s 132 which imposes an obligation on a recipient of a notice given under subs. (1), and with which such a recipient might fail to comply, is subs. (5) which imposes, in negative terms, an obligation not to refuse or fail to comply with such a notice “without reasonable excuse”. If this proposition is correct it would follow that, if the recipient had “reasonable excuse” for refusing or failing to comply with the notice, the refusal or failure by that person to comply with the notice would not constitute a failure to comply with s 132 of the Act. Such a consequence would, of course, have important implications for the operation of s 1224(1) of the Act. If, however, as the Tribunal infers, it was the intention of the legislature that a failure to comply with such a notice should itself constitute a failure to comply with the provision of the Act which authorised the giving of that notice, the relevant authorisation provisions of the Act should, in the Tribunal’s opinion, be amended so as unequivocally to reflect that intention. This could simply be done by adding to s 132(1) of the Act – and to the equivalent authorisation provisions in other Parts of the Act – a form of words to the effect that the recipient must comply with the notice given under that subsection. (at [31]-[32])

The decision of the Tribunal in Re Hales was upheld by the Federal Court in SDSS v Hales (1998), however the interpretation of s 132 was not in issue in the appeal. See also Re Perkich and SDSS (1997) where the Tribunal reached a similar conclusion.




Part IIIB (s 56B)

In Gidaro v SDSS (1998), the Federal Court considered that a politely couched request in a letter – “ Please return the forms within 42 days” – was not a requirement to do so:

Politeness is, certainly, a virtue. But not if it masks the intended effect of an official document, rendering it ambiguous and misleading. At the least, the recipient of the letter could not properly have any confidence that it purported to be a notice under s 69A [Social Security Act 1991]. (at 83 FCR 152)

In Theo v SDFaCS (2005), the Full Federal Court held that it was sufficient for a notice under s 63 to state that it was a “notice under the social security law”; the section (unlike s 196) did not require specification that it was a notice under the section.

[54.08] Notices – cut-off date for information In the absence of a cut-off date in the notice for the information requested, the recipient is required to provide all relevant information up to the date of the notice: Dunlop Olympic Ltd v Trade Practices Commission (1982).

[54.09] Notices – use of e-mail In Re Ryan and SDEWR (2006), the applicant preferred to receive information from Centrelink by e-mail as the postal service in China where he was living was unreliable. Centrelink advised the Tribunal that e-mail was not a “manner approved by the Secretary” (Social Security (Administration) Act s 72(1)(b)) and that certain notices must be delivered by mail, thus justifying a requirement that the applicant supply a postal address. The Tribunal held hat it did not have jurisdiction to consider the issue.

Division 15 – Variation and termination

Section 56B Automatic rate reduction – recipient not complying with section 54 notification obligations

[56B.01] Review of decisions under s 56B There is some difference in the cases whether the Tribunal has jurisdiction to review rate reduction decisions under s 56B; see for example Re Lobik and Repatriation Commission (1995), Re Cunningham and Repatriation Commission (1997a), Re Johns and Repatriation Commission (1994), Re Westerman and Repatriation Commission (2006) and Re Holt and Repatriation Commission (2006). In Re Nelson and Repatriation Commission (2007), Deputy President Forgie surveyed all of the decisions on this issue (at [32]), noting that the vast majority of the decisions based their conclusion that the Tribunal had no, or very limited, jurisdiction to review because of the self executing nature of the provision. Having regard to Federal Court authority such as Australian Postal Corporation v Forgie (2003) and Director-General of Social Services v Hales (1983), the Tribunal concluded that it had jurisdiction to review a reduction on rate of service pension:

Having regard to the differences, it is difficult to see how the “automatic” characterisation of a provision such as s 56B can be attached to any aspects of it other than that the service




Part IIIB (s 56D)

pension must be paid at a reduced rate and that it will be paid at that reduced rate from the specified day. There is no room for any discretion to be exercised by the Commission. Beyond that, it cannot be said that there is anything automatic about the provisions. It is essential that there be some assessment of whether the conditions have been met. That assessment cannot be carried out automatically. Take, for example, whether the occurrence of the event or change in circumstances specified in the notice has led to a rate reduction. Not every event or change in circumstances specified in a notice leads to a rate reduction. It may be that it does so but only of a small amount that is to be disregarded by virtue of s 56DA. Even if it does lead to a larger rate reduction, nothing in s 56B automatically determines the impact of the event or change of circumstances on the rate and so the rate at which it becomes payable. It is clear from the words of s 56B that Parliament did not intend that it would do so. Section 56B(1)(e) refers to a situation in which “because of the occurrence of the event or change in circumstances, the person’s rate of pension … is to be reduced” (emphasis added). The reference to the fact that the person’s rate of pension “is to be reduced” is a clear reference to an assessment’s having been made apart from the operation of s 56B as to the rate of pension that was properly payable to a person in the circumstances of which the Commission had become aware and of which the person had not informed it. A similar assessment must be made whether the conditions specified in ss 56B(a)-(d) have been met. Again, the section does not do so automatically. A decision must be first be made as to whether the person was given a notice under s 54 at all and if it specifies the relevant event or change of circumstances. If not, s 56B can have no application. This was understood by the Tribunal which considered whether Mr Deason had failed to comply with a notice he had been given under the VE Act. It decided that he had and it is clear from its reasons that failure to comply was an important prerequisite for the “automatic” operation of s 59(1)(b). Unfortunately, I find myself in disagreement with the Tribunal’s conclusion in Re Stewart when it decided that The Tribunal concluded that no notice had been sent to Mr Stewart but accepted the Commission’s submission that “… subs (2) of s 98AAA operated to reduce the rate of pension paid as a matter of law and did not require any determination made by or on behalf of the Commission. It seems to me that, for all practical purposes, an assessment or decision of some sort by the Commission is essential before s 56B can be taken as coming into effect. Its power to do so is implicit in the requirement that the conditions must exist before the specified outcome takes effect. The manner in which it must do so is specified elsewhere in the VE Act ie in the Rate Calculator. Although not expressly stated in s 56B, it is implicit from its terms that the Commission has power to determine the reduced rate. Unless it does so, there could be no way in which the “new rate”, to which the pension is reduced, could be determined. (at [58]-[62])

See also the discussion of self-executing provisions at [175.05] in Part X.

Section 56D Rate reduction determination

[56D.01] s 56D operates independently of the notice provisions In Kerslake v Repatriation Commission (1996), the applicant did not seek to challenge the fact that there had been an overpayment because of a failure to advise a change of circumstances, but he did argue that the adverse decision could not be backdated in accordance with s 56D because a condition precedent of his liability was the service of a notice under the Act requiring him to indicate a change of circumstances and his failing to comply with such a notice. The Court dismissed the appeal, holding that s 56D




Part IIIB (s 56G)

provides a separate source of power (from the notice provisions) for a decision to reduce a pension and noting that there is nothing in the language of s 56D to suggest that the power it confers is conditional on non-compliance with a notice.

Section 56G Date of effect of favourable determination [56G.01] Setting the date of effect [56G.02] “change of circumstances” – s 56G(2)

[56G.01] Setting the date of effect Section 56G (and s 56GA in relation to advice of an additional dependent child) sets the date of effect of a determination under: • s 56C – decision to increase rate of service pension or income support supplement; • s 56F – resumption of service pension or income support supplement after

suspension. Broadly, the date of effect is: • where a change of circumstance is notified – the later of the date of notification or

the date of change of circumstance (s 56G(2); • in certain special cases involving the death of a partner – on the day after the death

(s 56G(2)(a), (2B), (2C)); • in any other case – on the date of the determination or such earlier or later date

specified in the determination (s 56G(3). See Re Stephenson and Repatriation Commission (2001) for an example of the application of s 56G(2). In that case, a decision to increase a rate of pension could not be backdated any earlier than the date on which the applicant advised the Department that his wife’s investments had decreased even though the investments had been decreasing over a period of several years. Similarly, in Re Short and Repatriation Commission (2007), the applicant had received six notices about his entitlement to rent assistance between June 1998 and October 2006, but he did not notify the Department of increases in his rent until 5 October 2006. His higher level of rent assistance could not be backdated before 5 October 2006. See Austin v SDFaCS (1999) for discussion of the equivalent, but not entirely similar, provisions in the Social Security Act 1991.

[56G.02] “change of circumstances” – s 56G(2) In Re Murray and Repatriation Commission (1994), the applicant applied for service pension on several occasions, but was rejected each time on the basis of his assets. Finally, after discovering from his eye specialist that blind service pension existed and that it was free from assets testing, he applied for, and was granted, service pension, but only from the date when he advised the Commission that he was blind. The applicant argued that s 56G(3) should be applied, so as to allow backdating of the pension earlier than the date of notification of the change in circumstances. The Tribunal held that s 56G(2) applied because the favourable determination arose from advice of a change in circumstances:

The Tribunal is of the view that in order to determine the issue in dispute in this case it is first necessary to determine what is meant by the use of the phrase “change of




Part IIIB (s 56H)

circumstances” in s 56G(2)(a) of the Act. The Macquarie Dictionary (Second Revision, The Macquarie Library Pty. Ltd., 1987) defines “circumstance” as follows, at page 344-345:

circumstance … 1. A condition, with respect to time, place, manner, agent, etc., which accompanies, determines, or modifies a fact or event. 2. … the existing condition or state of affairs surrounding and affecting an agent … 3. An unessential accompaniment of any act or event; a secondary or accessory matter; a minor detail. 4. … the condition or state of a person with respect to material welfare … 5. An incident or occurrence …’

The Shorter Oxford English Dictionary (Third Edition, Clarendon Press, 1973) provides the following definition, at page 340:

Circumstance … 1. That which stands around or surrounds; surroundings … 2. … The adjuncts of an action or fact … 3. The state of … affairs surrounding and affecting an agent …’

The Tribunal is of the view that there is no reason to depart from the ordinary every day meaning of the word “circumstance” and accordingly finds that, in the context of s 56G of the Act and that section’s context within the Act as a whole, the meaning to be attributed to the word “circumstance” is the state of affairs surrounding and affecting the rate of pension payable to a veteran and a “change of circumstances” is a change in those affairs surrounding and affecting the rate of such a pension. The Tribunal further finds that the phrase “In any other case” as used in s 56G(3) of the Act refers to cases where a favourable determination is made which does not fall within the ambit of s 56G(2). That is, s 56G(3) would apply in cases as outlined by the respondent in oral submissions and in exhibit R3. Examples of such cases are circumstances where the person does not advise of a change in circumstances but rather the department is alerted to the change by way of “Automatic Runs” – for example where managed investments are updated in the computer system as to new rates of return, or where a review of earnings takes place by way of the department asking a person’s employer for salary or wage particulars for 6 months; or in the case of administrative error. In cases involving circumstances such as those outlined a date of effect could, pursuant to the provisions of s 56G(3) of the Act, be backdated. (at [14]-[15])

Section 56H Date of effect of adverse determination [56H.01] “contravened a provision of this Act” – s 56H(4) [56H.02] “false statement or misrepresentation” – s 56H(6)(a) [56H.03] Discretion to set a date earlier than the date of the determination – s 56H(4)-

(8)

[56H.01] “contravened a provision of this Act” – s 56H(4) In Re Van Asch and Repatriation Commission (1994), the Tribunal found that the applicant’s assets substantially exceeded the assets test limit and that this situation had probably existed since the introduction of the assets test in March 1985. It was argued by the Commission that s 56H(4) was applicable (thus allowing backdating to 1985 of the determination to cancel her pension) because the applicant had failed to advise the Commission of her asset position at that time. The Tribunal noted that s 56H(4) applies only to a contravention of “a provision of this Act”, ie the Veterans’ Entitlements Act 1986, and not to any other Act:

As appears from Re Heaney and Repatriation Commission (T88/63, 18 April 1990, unreported), there is nothing in the 1986 Act, nor in the Veterans’ Entitlements




Part IIIB (s 56H)

(Transitional Provisions and Consequential Amendments) Act 1986 (Cth), which could cause the words “this Act” in s 56H(4) to be construed so as to include a provision of the Repatriation Act 1920. I therefore conclude that the determination of 22 August 1991 was not one that was made because the applicant had contravened a provision of the 1986 Act. It follows that, whilst the respondent properly cancelled her pension, it had no power to cancel it retrospectively. (at 35 ALD 178)

The Tribunal also noted that a letter from the Department in December 1986 failed to comply with the applicable notice provisions:

At the hearing, counsel for the respondent initially sought to justify the retrospective cancellation of the applicant’s pension on the basis that sub-section 56H(4) was applicable because the applicant had failed to advise the respondent of her asset position when she, like all other service pensioners, was sent a letter from a Deputy Commissioner of the Department of Veterans’ Affairs in December 1986. However that contention was abandoned during the hearing, and properly so. Failure to respond to that communication would only have constituted a contravention of the 1986 Act if the communication was a notice under paragraph 127(1)(f) served on the applicant by the Secretary to the Department (or his delegate) requiring the applicant to furnish to the Department a notice or statement. It was conceded during the hearing that in December 1986 the Assistant Commissioner did not hold the necessary delegation from the Secretary. Further, the letter he wrote to the applicant did not require her to do anything, but simply implied that in certain situations the Department would like her to volunteer certain information.

[56H.02] “false statement or misrepresentation” – s 56H(6)(a) In Re Kerslake and Repatriation Commission (1995), the Tribunal held that the applicant had made a misrepresentation in his 1986 claim for service pension by leaving blank a question in the claim form whether he was living in a de facto relationship. An overpayment was raised from the date of claim in 1986. The decision was upheld by the Federal Court on appeal in Kerslake v Repatriation Commission (1996); the applicant did not seek to challenge the finding that there was a misrepresentation, but did argue that the adverse decision could not be backdated under s 56D; see [56D.01] in this Part.

[56H.03] Discretion to set a date earlier than the date of the determination – s 56H(4)-(8)

In the circumstances set out in s 56H(4)-(8), the Commission has a discretion to set a date of effect earlier than the day on which the determination is made. In most cases, the date of effect will be set by reference to the date of the relevant non-compliance or misrepresentation, however the section does give a discretion as to the date of effect. In Re Creek and Repatriation Commission (1991), the Tribunal exercised the discretion favourably to the applicant (in respect of an earlier form of the section) because of administrative failures by the Department of Veterans’ Affairs:

In coming to that conclusion we have taken into account, on the one hand, that the respondent should ensure generally that public moneys are not paid out except in accordance with the provisions of the relevant legislation and that it has a duty to ensure that, so far as is possible, all veterans in similar circumstances are treated in a similar manner. On the other hand, we have taken into account that, where failure to comply with a provision of the Act is the result of ignorance of what was required for compliance and where that ignorance is the result of difficulty in understanding the applicable legislative




Part IIIB (s 57)

provisions, particularly where the department administering the legislation has itself demonstrated that difficulty by failing to administer it in accordance with those provisions, that is a strongly mitigating factor. We have taken into account also that the financial resources of the applicant and his wife, as disclosed in their statements of assets, are small and, in view of their ages, are unlikely to be increased in future, so that recovery of overpayments resulting from a determination specifying an earlier date would cause hardship. We have reached our conclusion as to the exercise of the discretion given by s 58(2) less readily than we would have done if the applicant had made a better effort to ascertain what his obligations were. However, we have decided that in all the circumstances to which we have referred the proper exercise of the discretion was not to specify a date earlier than the date of the determination. (at [24])

Note however the effect of s 56A and s 56B which provide for automatic termination and automatic rate reduction (respectively) where there is a failure to comply with a s 54 notification obligation. In such cases, there is no discretion as to date of effect because the provisions operate automatically.

Division 16 – Review of decisions

Section 57 Claimants and service pensioners may seek review of certain decisions

[57.01] Internal review of Repatriation Commission decisions [57.02] s 57 does not permit review of decisions to recover overpayments

[57.01] Internal review of Repatriation Commission decisions Division 16 of Part IIIB (ss 57-57H) provides for internal review by the Repatriation Commission of decisions in relation to: • service pension; • income support supplement; and • a financial hardship request under s 52Y. Section 57(1) deals with review by claimants and s 57(2) deals with requests for review by persons already in receipt of service pension or income support supplement. Note that the decisions which are reviewable are described in detail in the section and some decisions by the Commission which impact on service pensioners (for example, approval of forms, recovery of overpayments, etc) can not be reviewed under s 57. Division 16 should be read in conjunction with Division 6 of Part II (s 31) which provides for internal review by the Commission of decisions in relation to claims for disability pension (including Part IV pensions), applications for increased disability pension and applications for attendant allowance under s 98.

[57.02] s 57 does not permit review of decisions to recover overpayments

In Re Knight and Repatriation Commission (1993), the applicant had been overpaid service pension for a number of years because of his failure to notify income from employment. The Tribunal held that the decision to recover the overpayment could not be classified as a decision to reduce the rate of service pension and accordingly there was no jurisdiction for the Tribunal to review the decision. McMahon DP said:




Part IIIB (s 57A)

This is not the first time a question of this nature has arisen, nor is it the first time that the jurisdictional difficulties have been pointed out. In Re Deason and Repatriation Commission (1991) 23 ALD 637 at 647 Deputy President Johnson concluded that there was no jurisdiction in this Tribunal to review a decision to recover. There is certainly no jurisdiction to review a decision to waive any part of the overpayment. In my view there is no jurisdiction to review even whether an overpayment exists. In the present case, the primary and review decisions go no further than this first step. Even if one could infer automatic progression to the next steps (and one can not) there would still be no jurisdiction vested in this Tribunal. I respectfully share the view of Senior Member Allen expressed in Re Stewart and Repatriation Commission 20 ALD 737. If a subsequent decision was made to deduct instalments of the overpayment from the service pensions of Mr & Mrs Knight, this would not amount to a decision affecting the rate of their pension. There is a clear distinction between rate and amount, as Senior Member Allen pointed out, referring to Harris v Director-General of Social Security 57 ALR 729 at 731. The overall rate of pension will remain constant. If a deduction is to be made, certainly the cash available to Mr & Mrs Knight will be less than the standard rate of pension. Deductions, however, can be made for a variety of reasons without affecting the rate. A decision to make deductions for an overpayment is not a decision reducing the rate of pension. The rate of service pension referred to in s 57(2)(c) is the rate calculated by reference to earlier statutory provisions. In the case of age service pension, for example, it is the rate calculated in accordance with s 36N. (at 18 AAR 372)

See also Re Hildebrand and Repatriation Commission (1996) and Re Nelson and Repatriation Commission (2007) to the same effect. Recovery of overpayments is discussed at s 205 in Part XII.

Section 57A Application for review [57A.01] Request for review must be made within 3 months – s 57A(1)(a) [57A.02] Form of request for review

[57A.01] Request for review must be made within 3 months – s 57A(1)(a)

The 3 month period is fixed and cannot be extended by the Tribunal: Re Gresty and Repatriation Commission (1992); Re Edwards and Repatriation Commission (1995); Re Graf and Repatriation Commission (1999).

[57A.02] Form of request for review In Re Gresty and Repatriation Commission (1992), the Tribunal rejected a submission that a letter to the Minister for Veterans’ Affairs asking for review of a decision could be taken as a request to the Department under s 57A. In cases under the Social Security Act, the Tribunal has on occasions taken a broad view of what constitutes a “request” for review. Thus, in Re SDSS and Trevisan (1990), there was a long history of contact between the Department of Social Security and the respondent about a reduction in pension because of an alleged disposition of assets, and of expressions of concern by both the respondent and her solicitor. The Tribunal found that an application for review had been made:




Part IIIB (s 58D)

The respondent stated in her evidence that she had contacted the Department on numerous occasions, expressing her unhappiness with the Department’s decision to include the assets transferred to her husband and that it was her opinion that this was a matter continuing to be reviewed by the Department. She was not aware that she had to specifically request a review. The Tribunal, taking into account the evidence as a whole, is satisfied and finds that her repeated enquiries and expression of concern could only have been interpreted by any reasonable person as being a request for review of her situation. That any officer of the Department in dealing with her dismissed this as otherwise would be wrong and insensitive. (at [17])

In Re Eatt and SDSS (1992), in a letter to the Department explaining why she could not yet provide income details, the applicant closed her letter by saying that she was “looking forward to hearing from you in the near future”. The Tribunal accepted this as a request for review. In Re Frost and SDSS (1995), Ms Frost applied for carer pension in July 1992 and included details of rent paid in her application. The pension was granted but the rate, which was reduced by the income test, did not include rent assistance. She inquired about the rate within 3 months of grant but was given inaccurate information as to why the rate was less than expected. She finally sought and gained payment of rent assistance in January 1994 but the payment was only backdated for three months. The Tribunal rejected a DSS argument that the applicant’s inquiry to the Department was “merely a query as to rate of pension” and not a request for review:

[The Department] … urging that the Tribunal should find that the applicant somehow forfeited her entitlements by failing to use the magic word “review”. That is high-handed nonsense which totally ignores the scheme of the legislation. It reflects a Departmental attitude that is totally at odds with the attitude shown for many years now by the Department of Veterans’ Affairs. That Department treats, properly so in the view of the Administrative Appeals Tribunal, the most informal query as a request for review – that is, it does so if that is necessary in the particular circumstances of a case. If however, it is a matter calling only for correction of error, then correction is effected forthwith. I am of the view that on the facts of Mrs Frost’s case the concept of review should not have entered into the arena. She applied for her pension. She indicated that she was a rent-payer and she advised at the outset the amount of that rent. The quantum of her entitlement as originally assessed was erroneous. The error was entirely that of the Department. Immediately, but with negative results, she queried the matter. She continued to query the matter until January 1994. In the face of her constant queries the Department consistently compounded its error. (at [10]-[12])

See also the discussion of form of application for AAT review at [175.07] in Part X.

Division 17 – Administration of pension payments

Subdivision A – General administration of pension payments

Section 58D Agents

[58D.01] Payment to agents Section 58D(1) requires a written request by the person before an agency arrangement can be approved by the Commission. Accordingly, where a person is incapable of




Part IIIB (s 58M)

making such a request, it may be necessary to utilise State/Territory guardianship laws which could empower a guardian to make the necessary request. See Re Van Brummelen and SDSS (1995) for consideration of the situation where a pensioner is incapable of managing their own affairs but does not accept that fact. See also Re Every and SDSS (1993), where the Tribunal found that the Department of Social Security had not undertaken sufficient inquiries to ensure that the recipient’s mother would use the payments for the benefit of her adult son who was in a coma. Section 122 in Part VIII is the equivalent provision for disability pension and allowances. Section 202 in Part XII authorises the Commission to establish a trust arrangement where a veteran is no longer competent to manage his or her own affairs.

Subdivision B – Payment of pension outside Australia

Section 58K Age, invalidity and partner service pensions and income support supplement generally portable

[58K.01] Effect of s 58K Section 58K provides that service pension and income support supplement generally continue to be payable if the pensioner is outside Australia (in contrast to most social security payments which have limited portability). While the pensioner is outside Australia, rent assistance is not payable (SCH6-C3(e)) and the payability of pharmaceutical allowance is restricted (SCH6-D2(1)). Note s 58M which provides that pension may not be portable if the person has been in Australia for less than 12 months before departure overseas.

Section 58M No portability if claim based on short-term residence

[58M.01] “circumstances that could not be reasonably foreseen” – s 58M(2) [58M.02] “The Commission may determine” – s 58M(2)

[58M.01] “circumstances that could not be reasonably foreseen” – s 58M(2)

Section 58K provides that a person’s right to commence, or to continue, to be paid service pension or income support supplement (ISS) is not affected if the person leaves Australia, that is, unlike the majority of social security payments, service pension and IIS are fully portable. Where, however, a claim for service pension or IIS is made within 12 months of a former Australian resident returning to Australia and again becoming an Australian resident, s 58M(1) prevents portability of pension and ISS for a period of 12 months. Essentially, this provision is intended to prevent veterans from returning to Australia simply to claim pension and then returning to their usual place of residence overseas with full portability. Section 58M(2) is an alleviating provision, intended to cover those situations where the veteran genuinely intended to stay in Australia after the claim, but was required by unforeseen circumstances to leave Australia again within the 12 month non-portability period.




Part IIIB (s 58M)

Section 58M is similar to s 1220 of the Social Security Act 1991 and its predecessor, s 62 of the repealed Social Security Act 1947. The test whether circumstances could not be reasonably foreseen is subjective rather than objective: Re Petropoulos and Director-General of Social Security (1984). In Re Petropoulos, the Tribunal considered the case of a young Greek mother who returned to Australia in the hope of reconciliation with her husband. The Tribunal had to determine whether it was reasonably foreseeable that she would have to return to Greece when her husband failed to meet her:

In our opinion, the test must be subjective rather than objective. You must look at the situation through the eyes of the applicant. Do not ask yourself whether it would have been reasonable for the man on top of the Clapham omnibus to come to Australia with such hopes and expectations that were subsequently unfulfilled. Do not retrospectively botanise and classify emotions. Do not pin dead hopes to a board and then examine them like a lepidopterist. The Social Security Act does not operate in an ideal world peopled by logical rational thinkers. It is there for fallible mortals who need help. It is there to be administered humanely and beneficially. Here you should ask yourself was it reasonable for the applicant in her particular situation with her particular background, to assume that the hopes that she packed with her belongings, when she left Athens in July 1981, could be unpacked in Sydney and grow into longed for realities within a very short time? Given her circumstances, the background of her marriage and her family background, both in Greece and Australia, can one regard her conduct in returning home in February 1982, dejected and disappointed, as being reasonably foreseeable? We think not. (at 6 ALN 140)

Inaccurate advice as to entitlement from the Department is not a “circumstance” that can be considered to determine whether the subsection might apply. The subsection is not “concerned with matters relating to the grant of the pension itself or advice, wherever obtained, in connection with eligibility for the grant of the pension”: Re Burnet and Director-General of Social Services (1982); followed in Re Cvitan and SDFaCS (2002). “The giving of the advice … [stands] outside the scope of the circumstances from which the reasons for leaving arose and the foreseeability thereof”: Re Pasini and Director-General of Social Services (1982). The same approach was taken in Re Scrivano and Director-General of Social Security (1983). In Re Hasapis and SDSS (1991), Mr Hasapis returned to Greece because of a deterioration in his wife’s medical condition, certified by a medical practitioner, and vandalism of their house there; a further reason for return was to visit their daughter. The Tribunal noted that there was no medical evidence of treatment of Mrs Hasapis by any other practitioner either in Australia or Greece, and held that the deterioration of her health was not reasonably foreseeable. The Tribunal decided to exercise the discretion in the applicant’s favour, noting:

(a) Mr Hasapis has a long connection with Australia as a taxpayer. (b) There is no evidence of whether he is entitled to benefits in Greece. (c) His length of stay in Australia after his “return” in December is approximately nine

months and there is no suggestion that he received any incorrect advice from the Department.

(d) Both Mr and Mrs Hasapis are Australian citizens. (e) There is no direct evidence of any attempt “to exploit the system”. (f) There is a dearth of direct evidence as to whether Mr Hasapis is in financial hardship.




Part IIIB (s 58M)

In Re Economidis and Repatriation Commission (1992), the pensioner’s wife suffered a deterioration in her pre-existing medical condition, which could not be handled by relatives in Greece. The Tribunal accepted that this deterioration could not be reasonably foreseen, noting that the applicant had been in Australia for six months of the period. The Tribunal said:

The unforeseeable circumstance in this case was the deterioration of Mrs Economidis’ health. On the basis of the reports of Dr Ressopoulos, the Tribunal accepts and finds that Mrs Economidis’ health had been stable for a significant period before the applicant went to Australia in 1986 due to treatment and rest in an environment which had proven most suitable to her over the years. Further, the Tribunal finds that thereafter her condition deteriorated, necessitating the applicant’s return. The Tribunal considers and finds this circumstance to be one of an unforeseeable nature. Given the stable nature of Mrs Economidis’ condition at the time the applicant returned to Australia, the possibility that her health would deteriorate while the applicant was in Australia was a remote one. In the circumstances the applicant, or any reasonable person, could not have been expected to foresee that his wife’s health would deteriorate. She had relatives in Greece and therefore the applicant could reasonably be assured that she would seek their assistance if in difficulties, rather than attempt activities not in line with her state of health. It would not be reasonable to believe otherwise. The Tribunal is satisfied that the applicant was assured his wife would be well cared for while he was away and that he (or any reasonable person) could not have foreseen the possibility of a significant deterioration in her health. When looking at the ‘totality of the circumstances of the situation, which circumstances may extend beyond the specific factors of which the sub-section speaks’ (Re Munna supra) ‘one may well ask oneself … whether the applicant has such a connection with Australia as would impose a duty on the Australian tax payer to support him’ (Re Vaitoudis and Director-General of Social Security (1984) 6 ALN N343 at N345). The Tribunal considers there is much in the applicant’s case to answer this affirmatively. He worked and lived in Australia for 21 years, from 1965 to 1986. Thereafter he continued to vote in the Australian elections and clearly stated his affinity for Australia, which he considers to be his home country. The Tribunal accepts this evidence and is satisfied that the applicant would prefer to live in Australia but it is not practical for him to do so while his wife remains in ill-health. (at [24]-[25])

The Tribunal has discussed the following circumstances in relation to the requirement that circumstances should not be reasonably foreseen: • Re Munna and Director-General of Social Services (1981): where the applicant

knew that she had either a malignancy or real possibility of a malignancy when she arrived in Australia, the Tribunal held it to have been reasonably foreseeable that she would require further medical treatment. Thus, her reason for leaving Australia – “her health” – arose from reasonably foreseeable circumstances.

• Re Fremder and Director-General of Social Security (1983): where the applicants had a son who had recently married and lived in Israel, it was reasonably foreseeable that the son would be called up for military service and that his wife would have a child.

• Re Schroders and SDSS (1988): the applicants returned to Australia to claim age pensions, not knowing that they would be required to reside in Australia for at least 12 months. They had not organised their affairs in the Netherlands to permit such an extended stay and returned after 3 months. The Tribunal rejected a number of other proffered circumstances including remarriage of their daughter, so that they




Part IIIB (s 58M)

could not continue to live with her, and a call from the applicant’s publisher asking him to return for consultations with the editor of his novel. This case also raised the issue as to whether the applicants were ever “residing in Australia” so as to allow them to claim the age pension; see s 5G in Part I.

• Re Peponas and SDSS (1990): the applicant’s husband was too ill to accompany her to Australia. Several months later he came to Australia, requiring the administration of oxygen on the flight. His health deteriorated further in Australia and he returned to Greece five months later because the climate there was better suited to his chronic obstructive airways disease. The Tribunal held that it was clearly foreseeable that a deterioration of health could occur, and also expressed doubts as to whether a further deterioration did in fact occur in Australia.

• Re Battaglia and SDSS (1991): the applicant’s son suffered from Downs Syndrome and had lived in Italy for 13 years from the age of 5. His parents brought him to Australia, with air tickets valid for only 12 months, to visit a grandfather who was dying of cancer and died 5 months after arrival. The Tribunal considered that it was reasonably foreseeable that the son would become unsettled by removal “from a familiar environment to an unfamiliar environment in a country where he did not speak the language.” The death of the grandfather, and its contribution to his becoming unsettled, was also reasonably foreseeable, given that the grandfather was suffering from cancer. The Tribunal discounted deterioration in an abdominal condition which was pre-existing.

• Re Viskovich and SDSS (1993): the Tribunal found that the eruption of civil war in Croatia and the concern the applicant thereby felt for the safety of her parents who lived in Croatia could not reasonably have been foreseen.

• Re Vrbanc and SDSS (1994): the Tribunal accepted that circumstances could not reasonably be foreseen where the applicants responded to a relative’s telephone call and returned to Croatia to protect their property from an influx of refugees.

• Re Karydakis and SDFaCS (2001): while in Australia, the applicant was served with a witness subpoena from a Greek court requiring her to give evidence as a prosecution witness in relation to a home invasion and assault which she had earlier suffered in Greece. The Tribunal was satisfied that, when she left Greece to travel to Australia, she was unaware that she might be required to attend court.

In Ruhl v SDSS (1995), the Federal Court held that there was ample evidence by which the Tribunal could be satisfied that the applicant’s departure from Australia did not arise from unforeseen circumstances. He had travelled from Columbia to Australia on a return air ticket which had to be used within three months and in fact stayed for only one month. In addition, the applicant had sent a statutory declaration to the Court in which he referred to his age and his advanced heart disease and stated: “Therefore, I cannot fulfil one’s obligation to reside in Australia for one year or more”. In the Court’s opinion, this statement clearly confirmed that he did not propose to reside in Australia for 12 months.

[58M.02] “The Commission may determine” – s 58M(2) If the pre-conditions are satisfied, the power to abridge the time in s 58M(2) is to be exercised “having regard to the totality of the situation, which … may extend beyond the specific factors of which the subsection speaks”: Davies J in Re Munna and Director-General of Social Services (1981).




Part IIIB (s 58M)

In Re Burnet and Director-General of Social Services (1982), the Tribunal considered it necessary:

to take into account such matters as the sufficiency or reasonableness of the reason claimed by the person concerned to be the reason for his leaving, or wishing to leave, Australia, in addition to whether the reason arose from circumstances that could not reasonably have been foreseen at the relevant time.

In Re Vaitoudis and Director-General of Social Security (1984), after noting the circumstances surrounding the applicant’s return to Greece, the Tribunal characterised the issue raised by the discretion as:

whether the Applicant has such a connection with Australia as would impose a duty on the Australian tax-payer to support him? (at 6 ALN 345)

Another matter of relevance in Re Vaitoudis was that the applicant had initially left Australia because her family could no longer afford to live here due to ignorance of social security entitlements. In Re Pasini and Director-General of Social Services (1982), the Tribunal considered matters of relevance to be: • the length of previous residence in Australia of the applicant and of his or her

family; • whether the applicant is entitled to social security benefits in another country; • the length of stay in Australia following the “return” to Australia; • inaccurate advice to the applicant from the Department or its officers. Although ultimately it was unnecessary to decide this question, the Tribunal in Re Petropoulos and Director-General of Social Security (1984) suggested that the following matters would have been relevant to the exercise of the discretion: • the fact that the applicant and her children were Australian citizens; • inaccurate advice as to portability from Departmental officers; • the fact that the applicant was in no way trying to “exploit the system”; • the financial hardship of the applicant and her family. On the basis of these factors, the Tribunal would have exercised the discretion in favour of the applicant. In Re Dracup and SDSS (1985), the Tribunal found that the circumstances causing the claimants to leave Australia could reasonably have been foreseen and were in fact foreseen. However, the Tribunal noted that, even had the precondition under the subsection been satisfied, it would not have been appropriate to exercise the discretion favourably:

the legislative intention underlying it is to prevent people formerly residing in Australia and who would not qualify for the grant of age pension by reason of not being physically present in Australia … from making fleeting return visits to Australia in order to qualify for a grant, and then departing again for overseas … In this case the applicants left Australia and have evinced a clear intention of severing their former associations with this country. Their return here was made solely for the purpose of qualifying for age pensions. They evidenced a clear intention to leave as soon as possible after this purpose had been achieved. Further, the circumstances of the departure were such as to make it difficult to resist the inference that they intended to mislead the Department. (at 9 ALN 47)



Part IIIB (s 46)

Table of Cases for Part IIIB Achkar and SDFaCS [2001] AATA 684 Aconley and SDSS (1996): 2(5) SSR 67; AATA 11040 Agnew and SDSS (1998): 52 ALD 426 Allman and SDSS (1987): 12 ALD 239 Andrews and SDSS (1996): AATA 11062 Anstis and SDFaCS (1999): 30 AAR 122 Anstis v SDSS (1999): 94 FCR 421; 59 ALD 706; 30 AAR 189 Anstis v SDFaCS (2002): 123 FCR 536; 195 ALR 245; 70 ALD 716 Austin v SDFaCS (1999): 92 FCR 138; 57 ALD 330; 29 AAR 528 Australian Postal Corporation v Forgie (2003): 130 FCR 279; 202 ALR 63; 76 ALD 578; 38 AAR 35 Australian Trade Commission v Solarex Pty Limited (1987): 8 ALR 439 Avery and SDSS (1988): 14 ALD 563 Avery and SDFaCSIA [2007] AATA 1523 Backer and SDFaCS (2002): 72 ALD 491 Bailey and SDSS (1986): AATA 3040 Banister and SDSS (1993): AATA 8652 Bannerman v Mildura Fruit Juices Pty Ltd (1984): 2 FCR 581; 55 ALR 367 Batt and SDSS (1992): 72 SSR 1035; AATA 8389 Battaglia and SDSS (1991): AATA 7278 Beer and Repatriation Commission [2006] AATA 395 Bennett and SDFaCS (2003): 74 ALD 163 Bergmann; SDSS and (1998): 53 ALD 737 Berry and SDSS (1995): AATA 10378 Bersee and SDFaCS (2003): 72 ALD 461 Blandon v Buxton-Barber (1994): 121 FLR 458 Bohun and SDSS (1996): AATA 10864 Boord and SDSS (1986): 10 ALD 318 Bourton and SDFaCS [2005] AATA 482 Bouthier; SDEWR and [2007] AATA 1904 Boyd and SDSS (1994): 83 SSR 1221; AATA 9652 Briggs and SDEWR [2007] AATA 38 Brown and SDFaCS (2004): 79 ALD 349 Browne; SDSS and (1992): 68 SSR 966; AATA 8031 Buesnel and SDSS (1986): AATA 2873 Burman; SDSS v (1986): 10 ALN N29 Burnet and Director-General of Social Services (1982): 4 ALN N79; 8 SSR 81 Butler and SDSS (1986): 11 ALD 131 Calvert and Repatriation Commission (1986): 9 ALD 541 Cantlay and SDFaCS (1999) 57 ALD 473 Cantlay; SDFaCS v (2000): 59 ALD 472 Carruthers; SDSS and (1993): 31 ALD 567 Carugno and SDFaCSIA (2006): 93 ALD 189 Cayeux and SDFaCS [2000] AATA 434 Cheney and SDFaCS (2002): 34 AAR 496 Christensen and SDSS (1995): 37 ALD 795; 85 SSR 1239 Clarke and Repatriation Commission (1996): 45 ALD 391 Clayton and SDSS (1996): 42 ALD 796; 2(6) SSR 79 Cocks; SDFaCS and (2002): 72 ALD 306; 36 AAR 21 Collingwood and Repatriation Commission (1992): 26 ALD 519 Cook and SDFaCS (2003): 72 ALD 467 Cooper and Repatriation Commission (1997): AATA 11584 Copley and SDSS (1992): 66 SSR 932; AATA 7697 Copping; SDSS v (1987): 12 ALD 634



TABLE OF CASES 103

Cottrell and Repatriation Commission [2003] AATA 911 Crawley and SDFaCs [2005] AATA 325 Creamer and SDFaCSIA [2006] AATA 519 Creek and Repatriation Commission (1991): 23 ALD 672 Cummane; SDSS v (1990): 20 ALD 1; 93 ALR 566; 11 AAR 407 Cummins; SDFaCS and (2002): 67 ALD 383 Cunningham and Repatriation Commission (1997): 45 ALD 379 Cunningham and Repatriation Commission (1997a): 48 ALD 364; 26 AAR 65 Cvitan and SDFaCS (2002): 72 ALD 539 D’Angelo and SDFaCS [2003] AATA 712; 76 ALD 726 Dennis and SDFaCS [2000] AATA 853 Derriman and SDFaCS [2002] AATA 215 Di Prinzio and SDSS (1991): 24 ALD 516 Dimitrievski and SDSS (1993): 31 ALD 140 Dineen v SDSS (1988): 17 ALD 91 Dalianis and SDFaCS [2003] AATA 1053 Dixon and Director-General of Social Security (1984): 5 ALN N536; 20 SSR 213 Dolling and SDSS (1986): 11 ALN N129 Donald; SDSS and (1997): AATA 12461 Donges and SDFaCS (2003): 72 ALD 713 Donovan and SDFaCS (2003): 73 ALD 285 Donovan v SDFaCS [2003] FCA 438 Dossis; SDSS and (1990): 21 ALD 628 Dowd and SDFaCS [2004] AATA 1043 Downes; SDFaCS and (2002): 70 ALD 100 Doyle and SDSS (1986): 5 AAR 257; 10 ALN N193 Doyle; SDSS and (1990): 59 SSR 803; AATA 6346 Dracup and SDSS (1985): 9 ALN N45; 29 SSR 358 D’Souza and SDSS (1998): 3(3) SSR 31; AATA 12765 Drummond and SDSS (1998): 54 ALD 263 Duckworth and SDSS (1995): 39 ALD 674 Dunlop Olympic Ltd v Trade Practices Commission (1982): 62 FLR 145 Eatt and SDSS (1992): 28 ALD 268 Economidis and Repatriation Commission (1992): AATA 8017 Edstein and SDFaCS (2004): 79 ALD 88 Edwards and Repatriation Commission (1995): AATA 10086 Edwards; SDSS and (1993): AATA 8768 Eimberts and Repatriation Commission (1988): 16 ALD 19 Ekis and SDSS (1998): 57 ALD 219; 26 AAR 439 Ekis; SDSS v (1998): 85 FCR 382; 52 ALD 246; 28 AAR 36 Elliott and SDSS (1997): AATA 12222 Elovalis and Repatriation Commission (1997): AATA 11616 Elser; SDSS and (1995): 2(4) SSR 51; AATA 10470 Estate of Ridgway and Repatriation Commission (1996): 45 ALD 712; 24 AAR 341 Every and SDSS (1993): 29 ALD 604; 17 AAR 184 Fancourt v Mercantile Credits Ltd (1983): 154 CLR 87; 48 ALR 1 Farquhar and Repatriation Commission (1998): AATA 12833 Farrow and SDSS (1986): 5 AAR 1; 10 ALN N151 Fawthrop and Repatriation Commission (1993): 36 ALD 140; 19 AAR 290 Fenby and Repatriation Commission (1996): 42 ALD 629; 12 VeRBosity 41 Fielden and SDSS (1998): 3(7) SSR 98; AATA 13415 Finley and SDFaCS [2005] AATA 18 Fitzgerald and SDSS (1992): 72 SSR 1034; AATA 8379 Follone and SDSS (1987): 11 ALD 477 Fremder and Director-General of Social Security (1983): 5 ALN N258; 15 SSR 149 French and SDSS (1986): AATA 2923




Frendo v SDSS (1987): 77 ALR 682; 13 ALD 681; 7 AAR 517 Frost and SDSS (1995): AATA 10360 Fuller and Repatriation Commission (1987): 14 ALD 220 Garbutt and SDFaCS [2001] AATA 566 Garratt; SDSS and (1991): AATA 7463 Garratt; SDSS v (1992): 109 ALR 149; 27 ALD 321; 16 AAR 223 Garvey; SDSS v (1989): 22 FCR 132; 91 ALR 245; 11 AAR 125; 19 ALD 348 Gates and Repatriation Commission (1991): 62 SSR 860; AATA 6732 Geeves; SDFaCS v (2003): 38 ALD 165 Geeves; SDFaCS v (2004): 136 FCR 134 Geidans and SDFaCS (2003): 75 ALD 768 Gidaro v SDSS (1998): 83 FCR 139; 154 ALR 550; 50 ALD 173; 27 AAR 161 Goodfellow; SDSS and (1994): 37 ALD 309 Gordon and SDFaCS [2005] AATA 331 Gowans and Repatriation Commission (1988): 14 ALD 377; 7 AAR 521 Graf and Repatriation Commission [1999] AATA 239 Greene and Repatriation Commission [1999] AATA 899 Gresty and Repatriation Commission (1992): AATA 7779 Haager and SDFaCS (2000): 59 ALD 537 Haagar; SDFaCS v (2001): 115 FCR 25; 66 ALD 111; 33 AAR 430 Haldas and SDFaCS [2004] AATA 910 Hales; Director-General of Social Services v (1983): 47 ALR 281; 78 FLR 373; 5 ALN N162 Hales and SDSS (1997): AATA 12159 Hales; SDSS v (1998): 82 FCR 154; 51 ALD 695; 153 ALR 259; 26 AAR 511 Hall and Repatriation Commission (1986): AATA 3014 Hall and SDSS (1988): 15 ALD 566 Harris and Repatriation Commission (2001): 34 AAR 137 Hasapis and SDSS (1991): AATA 7227 Hawkins and SDFaCS [1999] AATA 34 Haynes and SDFaCS (1999): 3(9) SSR 137; AATA 62 Henry and SDSS (1986): 11 ALN N10; 32 SSR 403 Hildebrand and Repatriation Commission (1996): 42 ALD 133 Hill and Repatriation Commission (1996): 45 ALD 347 Hill & Johnston and SDFaCS (2005): [2005] AATA 115 Hollis v Vabu Pty Limited t/a Crisis Couriers (2001): 207 CLR 21; 75 ALJR 1356; 181 ALR 263 Holt and Repatriation Commission [2006] AATA 537 Hope and SDSS (1990): 56 SSR 750; AATA 5842 Howlett and SDFaCS [1999] AATA 317 Hughes and SDSS (1992): 25 ALD 754; 67 SSR 947 Huntly; SDEWR and [2007] AATA 1660 HXCC and SDFaCSIA [2007] AATA 1510 James and Repatriation Commission (1993) AATA 9012 Jenkins and SDEWR (2007): 94 ALD 763; 9(2) SSR 3 Jessep and SDFaCS [2001] AATA 478 Johns and Repatriation Commission (1994): 20 AAR 548 Johns and Repatriation Commission (1996): 40 ALD 769 Joyce and Repatriation Commission (1995): AATA 10410 Junor and SDSS (1997): 48 ALD 326 Juric-Kacunic and SDFaCS (2003): 72 ALD 771 Karydakis and SDFaCS (2001): 66 ALD 362 Kerslake and Repatriation Commission (1995): 40 ALD 125 Kerslake v Repatriation Commission (1996): 63 FCR 444; 40 ALD 547 Kimpton and Repatriation Commission [2005] AATA 916 King and Repatriation Commission (1990): 12 AAR 375 Kirkman and SDSS (1990): 20 ALD 400 Klewer and SDFaCS [2001] AATA 729



TABLE OF CASES 105

Knevett and SDSS (1996): AATA 10973 Knight and Repatriation Commission (1993): 18 AAR 370 Knight; SDSS and (1996): 42 ALD 765 Koschitzke; SDSS and [1999] AATA 835 Laming and SDFaCS [2005] AATA 1137 Lees v Comcare (1999): 56 ALD 84; 29 AAR 350 Lennen and SDSS (1995): AATA 10184 Lenthall and SDSS (1987): 14 ALD 275 Leslie and SDFaCS [2000] AATA 857 Letcher and SDSS (1995): 88 SSR 1276; AATA 10416 Lindeman and Repatriation Commission (2004): 39 AAR 17 Linton; SDFaCS and (2006): 89 ALD 775 Lobik and Repatriation Commission (1995): 42 ALD 331 Lomax and SDSS (1989) 18 ALD 71 Lumsden and SDSS (1986): 10 ALN N225; 34 SSR 430 Lymberopoulos and SDFaCS [2005] AATA 801 Lynch and Repatriation Commission (1995): 39 ALD 793 Major and Repatriation Commission [2003] AATA 826 Mason and SDFaCS (2004): 83 ALD 460 May; SDSS and (1997): 50 ALD 590 McCagh and SDSS (1995): 2(3) SSR 34; AATA 10618 McCallum and Repatriation Commission (1993): AATA 8971 McClelland and SDSS (1988): 15 ALD 315 McDowall and SDSS (1994): 37 ALD 117 McGuirk and SDSS (1992): AATA 7929 McKay and Repatriation Commission (1986): 10 ALD 253; 5 AAR 263 McLaughlin; SDSS v (1997): 81 FCR 35; 48 ALD 536; 26 AAR 390 Martin and Defence Force Retirement and Death Benefits Authority (1994): AATA 9909 Menkens and SDFaCS [2000] AATA 22 Miller and Repatriation Commission (2000): 61 ALD 972 Mills and SDSS (1997): 2(11) SSR 155; AATA 12040 Moffatt and SDFaCS (2003): 76 ALD 767 Mounsey and SDFaCS (2003): 74 ALD 296 Mulholland and SDSS (1997): AATA 12481 Munna and Director-General of Social Services (1981): 4 ALN N120; 4 SSR 41 Murphy and SDFaCS [1999] AATA 264 Murray and Repatriation Commission (1994): AATA 9657 Myers and SDFaCS (2005): 89 ALD 505 Nadenbousch and Director-General of Social Security (1984): 6 ALD 398 Nagle and SDSS (1988): 15 ALD 486 Neivandt and SDFaCS [2000] AATA 1115 Nelson and Repatriation Commission (2007): 94 ALD 418 Noble and SDSS (1989): 18 ALD 621 Nock and SDFaCS (2003): 77 ALD 172 Nock v SDFaCS [2005] FCA 217 O’Connell and SDSS (1991): 23 ALD 408 Paltridge and SDSS (1993): AATA 8495 Panagis and SDSS (1997): AATA 11664 Papamihail; SDSS and (1997): 2(12) SSR 164; AATA 12205 Pardew and SDSS (1986): AATA 3072 Pasini and Director-General of Social Services (1982): 4 ALN N228; 7 SSR 68 Pavlakis and SDFaCSIA (2006): 90 ALD 372 Pearce and Repatriation Commission (1989): AATA 5396 Pepi and Director-General of Social Security (1984): 7 ALD 155 Peponas and SDSS (1990): 21 ALD 432 Perkich and SDSS (1997): 49 ALD 137




Perrone and SDFaCS (2004): 83 ALD 369 Petropoulos and Director-General of Social Security (1984): 6 ALN N137 Pisano and SDSS (1986): 34 SSR 434; AATA 2855 Poidevin and Repatriation Commission (1994): AATA 9905 Port and SDFaCS (2001): 65 ALD 550 Priftis and SDSS (1986): 9 ALN N248 Project Blue Sky v Australian Broadcasting Authority (1998): 194 CLR 355 Quo and Repatriation Commission (1993): 30 ALD 601 Rabski and SDEWR [2006] AATA 679 Ractivand and SDFaCS (2004): 86 ALD 332 Radovanovic and SDFaCS (2000): 61 ALD 530 Repatriation Commission v Kimpton (2006): 91 ALD 385 Repatriation Commission v Hall (1988): 15 ALD 84 Repatriation Commission v Harrison (1997): 78 FCR 442; 46 ALD 193 Repatriation Commission v Tsourounakis (2007): 98 ALD 191; 23 VeRBosity 52 Reynolds and SDSS (1986): 15 ALN N155; 4 AAR 478 Riches and SDSS (1995): AATA 10590 Ridley and Director-General of Social Security (1983): 5 ALN N96; 13 SSR 127 Roberts and Director-General of Social Security (1983): 5 ALD 526 Robertson and Repatriation Commission (1994): 34 ALD 615 Roche and SDSS (1987): 14 ALD 199 Rogers and SDSS (1987): 14 ALD 178 Ropert and SDSS (1999): 56 ALD 759 Ross and SDFaCS (2005): 88 ALD 443 Ryan and SDEWR (2006): 90 ALD 800 SAAJ; SDEWR and (2006): 92 ALD 491 Salmon and SDEWR [2007] AATA 1386 Salvona and SDSS (1988): 15 ALD 621 Salvona; SDSS v (1989): 18 ALD 289; 10 AAR 521 Samek and SDSS (1988): 16 ALD 295 Saunders and SDFaCS (2002): 72 ALD 264 Schroders and SDSS (1988): 54 SSR 725; AATA 5704 Scrivano and Director-General of Social Security (1983): 12 SSR 117; AATA 964 Schulz and Repatriation Commission [2003] AATA 769 Schulz v Repatriation Commission [2004] FCA 718 SDEWR and Huntly [2007] AATA 1660 Seager and Repatriation Commission (1990): AATA 5648 Self; SDFaCS and [2000] AATA 118 Sevel & O’Connell; SDSS v (1992): 38 FCR 540; 110 ALR 627; 16 AAR 446; 28 ALD 626 Sgouros and SDFaCS [2000] AATA 99 Shanahan; SDSS and (1991): 23 ALD 623 Shephard and Repatriation Commission (1989): 18 ALD 261 Short and Repatriation Commission [2007] AATA 1934 Sieber and SDSS (1986): 12 ALD 174 Silich and Repatriation Commission (1997): AATA 12471 Simcock and Repatriation Commission (1987): 14 ALD 542 Sleep and Repatriation Commission [2007] AATA 69 Sleep v Repatriation Commission [2007] FCA 1890 Smart and SDSS (1990): 59 SSR 802; AATA 6475 Smillie and SDFaCS (2003): 74 ALD 495 Smith and Director-General of Social Services (1982): 4 ALN N231 Smith and SDFaCS (1999): 3(9) SSR 133; AATA 152 Smith and SDFaCS (1999a): AATA 267 Smith and SDFaCS (2004): 79 ALD 159 Smith and SDSS (1986): 12 ALD 134 Smith and SDSS (1995): AATA 10330



TABLE OF CASES 107

Smith; SDSS and (1992) 29 ALD 385; 17 AAR 124 Sottosanti and SDSS (1988): 14 ALD 601 Spence and SDEWR (2006): 91 ALD 739 SRAAAA and SDFaCS (2003) 73 ALD 699 Stephenson and Repatriation Commission [2001] AATA 668 Tabain and SDEWR [2006] AATA 616 Taylor and SDEWR (2007): 42 AAR 44 Temmen; SDSS v (1993): 17 AAR 349 Theo v SDFaCS [2005] FCAFC 239 Thomas and SDFaCS (1998): 3(7) SSR 99; AATA 13456 Thomas; SDSS and (1993): 32 ALD 657 Todd and SDSS (1989): AATA 5266 Tonkin and SDSS (1988): 15 ALD 763; 45 SSR 583 Trevisan; SDSS and (1990): AATA 6581 Trewin and SDFaCS (2002): 69 ALD 774 Tripolino; SDSS and (1998): 51 ALD 748 Truscott and SDSS (1989): 52 SSR 682; AATA 5462 Twelftree and Repatriation Commission (1986): 10 ALD 34 Unicomb and SDSS (1996): AATA 10915 Unicomb v SDSS (1998): 82 FCR 96; 50 ALD 405 Vaitoudis and Director-General of Social Security (1984): 6 ALN N343; 23 SSR 276 Van Asch and Repatriation Commission (1994): 35 ALD 171 Van Brummelen and SDSS (1995): 37 ALD 729; 22 AAR 76 Viskovich and SDSS (1993): 74 SSR 1072; AATA 8600 Vitalone and SDSS (1995): 38 ALD 169 Vrbanc and SDSS (1994): AATA 9388 VZM and SDFaCS (2000): 60 ALD 303 WA Pines Pty Ltd v Bannerman (1980): 30 ALR 559; 41 FLR 175 Watson and SDFaCS (2003): 73 ALD 88 Webster and Repatriation Commission (1997): AATA 12126 Westerman and Repatriation Commission [2006] AATA 530 Whitaker and Repatriation Commission (1993): AATA 8879 Williams; SDFaCS and (1998): AATA 13487 Williamson and Repatriation Commission (1986): 10 ALD 19 Worner and SDEWR [2006] AATA 560 Wright and Repatriation Commission (1989): AATA 5334 Wright and SDSS (1994): 82 SSR 1196; AATA 9736 Zaleski and SDSS (1991): AATA 7154 Zangari; SDFaCS and (1998): 54 ALD 155



PART IIIB – PROVISIONS APPLICABLE TO … IIIB (s 46) PART IIIB – PROVISIONS APPLICABLE TO...

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Transcript of PART IIIB – PROVISIONS APPLICABLE TO … IIIB (s 46) PART IIIB – PROVISIONS APPLICABLE TO...