Bell; Secretary, Department of Social Services and (Social services second review) [2023] AATA 190 (8 February 2023)

Last Updated: 20 February 2023

Bell; Secretary, Department of Social Services and (Social services second review) [2023] AATA 190 (8 February 2023)

Division: General Division

File Number(s): 2022/0769

Re: Secretary, Department of Social Services

APPLICANT

And Meegan Bell

RESPONDENT

DECISION

Tribunal: Senior Member R Bellamy

Date: 8 February 2023

Date of Written reasons: 20 February 2023

Place: Brisbane

The decision under review is set aside and substituted with a decision that:

(a) As at 31 August 2020 Mrs Bell's total assets included $190,647 in loans owing to her from Northern Rivers Property Pty Ltd;

(b) On 1 September 2020 Mrs Bell disposed of those assets and received inadequate consideration as part of that asset disposal; and

(c) From 1 September 2020, an asset amount of $180,447 is to be included in the value of her assets for a period of five years from that date.

............................[SGD]................................
Senior Member R Bellamy

Catchwords
Rate of Social Security payment – Carer payment – whether assets disposed of for less than their value – characterisation of cash injections into private company where they were recorded as loans but regarded by claimant as investments

Legislation
Social Security Act 1991
Social Security (Administration) Act 1999

Cases

Bennett; Secretary, Department of Social Services and (Social services second review) [2019] AATA 5828

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

Secondary Materials

Social Security Guide – Guides to Social Policy Law

REASONS FOR DECISION

Senior Member R Bellamy

20 February 2023

1. This matter primarily concerns the way in which amounts of money that were advanced by Mrs Bell and her husband to a private company are to be characterised for the purposes of the Social Security Law. That is because Mrs Bell is in receipt of a Centrelink Carer Payment and that payment is subject to an assets test.
2. Specifically, Section 210 of the Act, in combination with the Pension Rate Calculators in
   s 1064 of the Act provide for a reduction in the rate of Carer Payment if a person’s assets exceed a certain amount.

3. Mrs Bell receives carer payment, based on the care she provides for her disabled adult son. On 1 September 2020, she and her two adult sons signed an agreement that effectively forgave loans to a company, Northern Rivers Property Pty Ltd (“NRP”), in her name and the name of her self-managed superannuation fund (“SMSF”). Centrelink subsequently determined that she had disposed of the assets (the loans) for $190,447 less than their combined value, and recorded the amount of $180,447^[1] as an assessable asset for a period of five years from 1 September 2020. This impacted the rate of Mrs Bell’s carer payment.
4. On 28 July 2021, an authorised review officer (“ARO”) affirmed this decision.
5. On 26 October 2021, Mrs Bell sought review of the ARO’s decision in the Social Services and Child Support Division of this tribunal (“SSCSD”). On 21 December 2021 the SSCSD set aside the ARO decision and remitted the matter to the Chief Executive Centrelink for reconsideration in accordance with the following findings:
   • Mrs Bell’s interest in NRP was an investment, not a loan; and
   • The full value of the NRP shares Mrs Bell transferred on 1 September 2020 was $200 or less.
6. The Secretary sought review of the SSCSD decision to the General Division of the Tribunal.
7. The relevant legislation is contained in the:
   • Social Security Act 1991 (“the Act”); and
   • Social Security (Administration) Act 1999 (“the Administration Act”).
8. The relevant policy is contained in the Social Security Guide – Guides to Social Policy Law (“the Guide”). The Guide is not binding upon a decision maker. However, it should be followed unless there are cogent reasons not to.

THE EVIDENCE

9. The following was not disputed. NRP was registered on 3 September 2002 as an Australian Proprietary Company limited by shares. Mrs Bell’s late husband, Mr Stephen Bell, was a director of NRP until he had to relinquish that position in 2013 due to ill health. There were two other Directors, Mr Mitchell and Mr Forrester. The company undertook property development projects with some initial success. Around 2008, NRP acquired a new director and the company undertook a project to develop a business park in Lismore.
10. I have the company’s financial statement from 2009 to 2019 before me. They record that in 2008 there was an unsecured loan in the amount $8,267 owing to Mr and Mrs Bell, and that in 2009 the amount was $158,267. In 2010 the loan amount was $85,267.
11. In 2010, a section of public road suffered damage related to the development project. Consequently, construction ceased and NRP became involved in expensive litigation.
12. In 2011, due to Mr Bell’s deteriorating health, he resigned as a director of NRP, although his name continued to appear on the company financial statements until 2013. In 2013 Mr Bell passed away. NRP’s financial statements for the financial years 2011 through to 2020 show, as liabilities:
    • an unsecured loan from “S&M Bell” in the amount of $170,307 in 2011; and
    • unsecured loans from “S&M Bell” in the amount of $180,307 and from “S and M Bell Super Fund” in the amount of $10,340 in the financial years from 2012 to 2020.
13. The financial statements also include loans from other individuals and entities. The total company liabilities in the financial statements, which include the loans from Mrs and Mrs Bell and their SMSF are consistent with the total liabilities declared in the company’s tax returns.
14. On 1 April 2020 Mrs Bell claimed the Carer Payment in respect of the care she provided to her son. The payment was granted and paid from 23 March 2020. On 25 June 2020 Mrs Bell was transferred to Age Pension (it is not apparent why), but after contacting Centrelink and expressing a preference to remain in receipt of Carer Payment that payment was restored.
15. On 1 September 2020 Mrs Bell and her two sons executed an agreement for the sale of 200 shares in NRP at a cost of a dollar per share to JM Forrester, GM Forrester and Blue Dolphin Racing Pty Ltd who she identified as the remaining shareholders in NRP (“the sale agreement”). The sale agreement said:

NORTHERN RIVERS PROPERTY PTY LTD

AGREEMENT FOR THE SALE AND PURCHASE OF SHARES IN THE COMPANY

IT IS AGREED THAT THE SHARES HELD BY LJ BELL, MW BELL AND ML BELL

AND THE S AND M BELL SUPERANNUATION FUND BE SOLD TO EXISTING

SHAREHOLDERS AS FOLLOWS:

49 TO J M FORRESTER

49 TO G M FORRESTER

102 TO BLUE DOLPHIN RACING PTY LTD

IT IS AGREED THAT THE COMPANY HAS NO VALUE DUE TO NO ASSETS AND LARGE LOSSES AND IT IS AGREED THAT THE SHARES BE PURCHASED FOR ONE DOLLAR PER SHARE..

16. The sale agreement also said:

IT IS FURTHER AGREED THAT LOANS IN THE NAME OF THE S AND M BELL SUPERANNUATION FUND AND MEEGAN BELL BE ALSO DISPOSED OF EQUALLY BETWEEN JM AND GM FORRESTER IE 50% AND 50% TO BLUE DOLPHIN RACING PTY LTD IN CONSIDERATION OF THIS SUM.

(errors in original, underlining added)

17. Mrs Bell disputes that there were any loans in existence at that time, claiming that the money advanced by her and her husband to the company was an “investment”. She indicated that after Mr Bell died the company was asking for more money and she could not cope with it. She told the directors “I don’t want anything to do with it, how do I get out of it?” and was told the company was not worth anything so she could not do anything. She told her accountant “I can’t afford to be in this, I don’t want anything to do with it, what do I do?” and she was told she could sell her shares because all she had in the company were shares.
18. Later in Mrs Bell’s evidence she said that she was told by Centrelink that she had to have a “bit of paper or something” to show that she had sold her shares, so she told her accountant what she needed, and he gave her the sale agreement to sign, telling her the other two directors would sign it and receive her shares for a nominal fee. She had asked him why it mentioned loans, telling him “I don’t understand this, I don’t have any loans available...I only have shares, I have documentation to show I have shares”. He never really explained the reference to loans except to say that if there were any loans outstanding they would come within the sale agreement. She went along with it, trusting his advice. This account of how the sale agreement came about seems inconsistent with the earlier account Mrs Bell gave which I think is borne of confusion about financial matters rather than dishonesty.
19. Mrs Bell’s accountant during the relevant period was Mr Barry Sergeant who was also the company’s accountant during the relevant period. His business produced the company’s financial statements that are in evidence.
20. On 4 September 2020, Mr Serjeant, sent a letter to Centrelink that said:

“I have been asked to advise you that Meegan Bell and her Self Managed Superannuation Fund have disposed of her shares and loan in Northern Rivers Pty Ltd on 1 September 2020 for $200.

The company has $142 306 of tax losses and $598 215 of capital losses and has no assets.

Her interests were transferred to the other members of the Company who are unrelated parties.

Please advise if you need further advice.”

(underlining added)

21. Mrs Bell was not aware of the contents of that letter at the time: she said Mr Serjeant sent it straight to Centrelink.
22. Upon reviewing some financial documents that had been requested from Mrs Bell, Centrelink concluded that Mrs Bell and her SMSF had been owed $180,307 and $10,340 respectively by NRP, and that those loans and her 200 shares had been transferred to the remaining shareholders on 1 September 2020 for $200. Accordingly, Mrs Bell was considered to have engaged in a course of action that diminished the value of her assets. The disposal of $190,447 was recorded as a gift. I do not think it is quite right to conclude that the $200 was consideration for the shares and the loans. The sale agreement is quite clear that the 200 shares were sold for one dollar per share, and that separately the loans were to “also be disposed of”. However, if the Secretary wishes to proceed on the basis that it did, which can only favour Mrs Bell, the Tribunal will go along with that.
23. The Secretary did not contend that the shares had any value above $200. I accept that concession.
24. On 3 February 2021, Mrs Bell wrote a letter to Centrelink that included:

“I invested in Northern Rivers property along with 2 other investors. Northern Rivers property suffered a major loss in regards to land owned in Lismore. This has been ongoing for 10 years. Northern Rivers property expected me to keep contributing to the loan which I could not afford. Therefore I disposed of shares. They owed me money. Other 2 investors agreed to me exiting and paying $200 total. Northern Rivers property was running at a massive loss therefore I would not have made any money.”

(Errors in original, underlining added)

25. On 20 May 2022, Mr Serjeant provided a second letter which said:

“I act in my capacity as Meegan Bell’s accountant and during the relevant period as Northern Rivers Property Accountant.

Northern Rivers Property undertook property development and required the shareholders to invest funds to fund its operation so funds were contributed to the Company and the hope was that with these invested funds that the company would make profits and so Return dividends to the shareholders. In the end though the Company in fact became worthless in its trading activities and had no funds to distribute to shareholders.

I confirm the following:

• The investment in Northern Rivers Property Pty Ltd was always an investment and never a loan.

• The assets disposed of by Meegan Bell on 1 September 2020 had nil value.

• Utilising the net asset backing method at 1 September 2020 the value is zero.

I am happy to answer any questions in relation to this investment.”

(Underlining added)

26. Mrs Bell said that her financial adviser, Mr Tarasenko, had asked Mr Serjeant to prepare that letter and she had not been aware of its contents. Mr Tarasenko assisted Mrs Bell in the hearing and made some submissions at the end. He did not give evidence. It appears he was not privy to any of the dealings in question.
27. According to Mrs Bell, NPR was very much Mr Bell’s project, along with its two other directors. Mrs Bell did not want to be involved. It became apparent throughout the hearing that Mrs Bell knew very little about the company or her and Mr Bell’s investment in the company, and that she relied on information provided by her husband and Mr Serjeant. She seemed to hold some confused or mistaken, but I believe honest, beliefs about her and her husband’s financial involvement in the company. For example, she said:

“I don’t have any information whatsoever about Northern Rivers, I don’t get any information because I’m a shareholder not an owner or anything.”

28. A company is owned by its shareholders, and as a shareholder Mrs Bell was entitled to information about the company.
29. Mrs Bell was asked if she had an idea of how the company would work out how to split a profit if a profit was made. She said:

“The only thing that I know was that...there were three parties involved and each party got equal shares. Well, I think they did, I really don’t know because they would’ve worked out the amount, the accountant would’ve worked out whatever. As far as I know it was a very friendly group of three people all with the same plan and I’m assuming whatever the capital gain was going to be, or whatever the growth was going to be, they would’ve worked it out.”

30. Mrs Bell said she was not party to any conversations with the directors of the company about how the company was classifying the funds that she and her husband had advanced.
31. Mrs Bell gave evidence that the plan was to give her husband a job to do after he was unable to work in his trade and to make money. However, Mr Bell got sick and he knew they were in trouble. He told her “I don’t want you to suffer with this” and they got advice from Mr Serjeant to purchase shares. There was an assessment of how much the company was worth and they were allocated shares along with two other parties and Mr Bell relinquished his directorship. The accountant set that up and told her “Right, you are now shareholders in the company, so whatever the company is worth you have 200 shares in the company”. This happened in September 2011.
32. Mrs Bell explained “the shares were any moneys that we had invested were then shares (sic)”, “any money that was owing, any money that we put in as an investment was then transferred to shares and that was all shown in the paperwork which we sent [to Centrelink]” and “The shares are the amount of the investment”. She said they paid around $5,000 to have it done correctly and they “went to ASIC”. She said it was those shares that were subsequently transferred to Messrs Mitchell and Forrester.
33. None of this is reflected in the company’s financial statements: the amount of issued shares remained consistent at 600 throughout the period 2009 to 2019, and the loans did not disappear from the statements in 2012. Mrs Bell did not produce any documents evidencing a conversion of any advanced money to shares.
34. Mrs Bell consistently denied that the money she and her husband advanced to the company were loans, insisting that they were an “investment” and:

“whether changing from director to shareholder, whether - as far as I am aware of it was single shares that were purchased from 2011. There was no loan whatsoever involved in it, it was total investment.”

35. When asked if there was a dollar value attached to the shares, she said not that she was aware of and that it all went through the accountant “who set it all up”.
36. I have before me a document entitled “Financial statements and reports for the year ended 30 June 2019” for the Bells’ SMSF prepared by Mr Serjeant. It does not record any loan from the SMSF to the company under “assets” or anywhere else. This supports Mrs Bell’s position that there were not any loans. The statement does record “Shares in Unlisted Private Companies (Australian) Nrp Pty Ltd $80,000”, however the value of the shares when disposed of is not in issue here so there is no need to delve into that evidence.
37. Mr Tarasenko submitted that this financial report should be regarded as reliable because SMSFs are independently audited by professionals, and in this case at least two separate auditors have reviewed the documentation over a period of time. However, it is not apparent on the face of the financial report that it had been audited and there was no other evidence of if, when or by whom the SMSF had been audited.

CONSIDERATION

38. The NRP financial statements record unsecured loans owing to the Bells and their SMSF. Mrs Bell has not provided any documentary evidence to show that the amounts of the loans were in fact payments for shares or anything other than loans. The financial statements also record unsecured loans owing to the other Directors. While the number of issued shares remained constant, the amount of the loans fluctuated wildly between 2008 and 2011. It is difficult to conceive that the fluctuating amounts showing as loans could, in fact, represent the value of shares.
39. The loans continued to appear in company financial statements until 2019. The loans from the other company directors continued to be recorded in the company financial statements after 2019. In fact, the total liabilities of the company in the 2020 financial statement are largely money owed to the directors. That is, of total liabilities of $626,779, money owed to directors accounts for $602,857. This indicates that the company continued to treat money advanced by the other directors as loans.
40. Mrs Bell was not privy to any discussion with the company directors about how the money she and her husband advanced would be treated, and she had a rather confused understanding of financial matters. While she was adamant that there was no loan, on 3 February 2021 she referred to the company expecting her to keep contributing to the loan and said they owed her money. Without intending any disrespect, I give little weight to Mrs Bell’s recollection or opinion about the characterisation of the money that was advanced.
41. Mr Serjeant’s business prepared the company’s financial statements and tax returns. He provided Mrs Bell with the sale agreement that provided for the disposal of loans. He subsequently wrote a letter to Centrelink in which he said Mrs Bell and her SMSF had disposed of her shares and loan in NRP for $200. His statement in May 2022 that the “investment” in NRP was always an investment and never a loan is in direct contradiction to all of that evidence. Mr Serjeant did not give evidence in the hearing. I am not sure that any oral evidence he could have given would have assisted the Tribunal given the inconsistencies in his written evidence.
42. In Bennett; Secretary, Department of Social Services and (Social services second review) [2019] AATA 5828 (“Bennet”) at [26], the Tribunal made the following comments in relation to company records:

“A company is obliged by s 286 of the Corporations Act 2001 (Corporations Act) to keep written financial records that meet two criteria. The first is that they correctly record and explain the company’s financial transactions and financial position and performance. The second is that they would enable true and fair financial statements to be prepared and audited. Financial records of the sort a company is obliged to

keep under s 286 may be kept in a variety of ways described in s 1306(1). They are admissible in evidence in any proceeding and are prima facie evidence of any matter stated or recorded in them. That is to say, what is stated in them is presumed to be true unless disproved by some evidence to the contrary.”

43. In Boyd and Secretary, Department of Social Security [1994] AATA 580 at [28], the Tribunal said:

“On the available evidence, the Tribunal is not satisfied that the amount of $126,170 can be considered an investment. The Tribunal accepts that the applicant regularly applied capital to sustain the business. However, the financial records of DG and DP Boyd Enterprises Pty Ltd consistently describe the sum as a “loan”, and although such descriptions cannot be regarded as conclusive evidence of the nature of the sum, it nevertheless represents to the Tribunal a strong indication that it was a loan. Its description as such suggests that there were expectations of eventual repayment. Indeed, the act of forgiving was recognition that repayment was not possible”.

44. There is no objective evidence that the money advanced by Mr and Mrs Bell to the company was not a loan. The only objective evidence that the money advanced by their SMSF was not a loan is the SMSF’s 2019 financial statement. I do not consider that one document to be enough to refute all the documentary evidence that supports the payments being loans.
45. Based on the evidence before me, which is incomplete, I think the most likely scenario is that Mr and Mrs Bell bought 200 shares in the company upon its inception, as did the two other shareholders. Each director then contributed different amounts of money to the company. The money was recorded as having been lent. It appears that some money was paid back to Mr and Mrs Bell in one year as the amount of the loan went down in 2010 (before rising in the following years). With the amounts recorded as loans, the exact contribution of each director could be tracked and if the project was successful, an amount equal to the amount contributed could be returned tax-free as a loan repayment. Unfortunately, the project was not successful and Mrs Bell was not repaid.
46. There was no evidence about who Mr Bell’s interest in the loan and company shares passed to upon his death. Both parties proceeded on the basis that whatever interest arose from the money that had been advanced passed solely to Mrs Bell upon Mr Bell’s death. My ultimate decision is based on that premise but I make no finding that it is correct because there is no evidence before me about it.

THE LAW

47. Subsection 11(1) of the Act states that “asset” means ‘property or money (including property or money outside Australia).
48. Subsection 9(1) of the Act defines the term “financial asset” as a ‘financial investment or a derived asset’. “Financial investment” is defined in subsection 9(1) of the Act to include, relevantly, a loan that has not been repaid in full.
49. The fact that the amounts advanced were consistently recorded as loans is evidence that they were not gifts and that they were intended to be repaid. So is the fact that in 2010 some money was in fact repaid.
50. Section 1122 of the Act provides that:

“If a person lends an amount after 27 October 1986, the value of the assets of the person for the purposes of this Act includes so much of that amount as remains unpaid but does not include any amount payable by way of interest under the loan.”

51. The terms of s 1122 of the Act are clear that where an amount of money is lent, the value of the asset, being the loan, is the amount that remains unpaid. In Bennet at [24]-[25],the Tribunal said the following with which I respectfully agree:

“Section 1122 is a product of Parliament’s consideration. It is quite unambiguous in its terms and it does not introduce any element of discretion to permit a decision-maker to adjust the way in which it operates. It must be applied in its terms. Those terms do not permit regard to be had to whether an amount that a person has lent another may not be recoverable. The amount that the person has lent is reduced only by the amount that has been repaid.

It is not permissible to look at the consequences of the application of s 1122 and say that it produces an unfair outcome that is not consistent with the broad beneficial purpose of the SS Act. When legislation, such as the SS Act, can be said to be beneficial legislation, it must be given a liberal construction rather than a literal or technical interpretation. Having said that, it cannot be given a construction that is, having regard to the words chosen by Parliament, to be unreasonable or unnatural. It would be unnatural to read into the unambiguous words of s 1122 a qualification that the value of the assets includes so much of the money that a person has lent to another, that remains unpaid and that remains recoverable at the time the decision is made. Section 1122 specifically deals with the first two criteria and omits the third. Its omission must be taken as a deliberate choice by Parliament.”

52. It is therefore irrelevant that the company was in debt and not making any money in September 2020. At the time Mrs Bell signed the share agreement, she had assets for the purposes of the assets test, being two unpaid loans, and the total value of those assets was $190,647.
53. Subsection 1123(1) of the Act provides that a person disposes of their assets if, relevantly:
    • the person engages in a course of conduct that directly or indirectly disposes of all or some of the person’s assets; and
    • the person receives inadequate consideration in money or money’s worth for the disposal.
54. Mrs Bell did receive inadequate consideration as she received only $200 for disposing of the loans (and shares) in circumstances where the company was not in administration and the loans had not been written-off or written-down.
55. Subsection 1124(b) of the Act provides that where a person disposes of assets for consideration, the amount of the disposal is the value of the assets minus the amount of consideration received.
56. Section 1126AA of the Act applies where the disposal occurred after 1 July 2002 and the person was not a member of a couple at the time of the disposal. It provides that:

(2) If the amount of the relevant disposal, or the sum of that amount and the amounts (if any) of other disposals of assets previously made by the person during the income year in which the relevant disposal took place, exceeds $10,000, then, for the purposes of this Act, the lesser of the following amounts is to be included in the value of the person’s assets for the period of 5 years starting on the day on which the relevant disposal took place:

(a) the amount of the relevant disposal;

(b) the amount by which the sum of the amount of the relevant disposal and the amounts (if any) of other disposals of assets previously made by the person during the income year in which the relevant disposal took place, exceeds $10,000.

57. Accordingly, the amount of $180,447 is to be included in the total value of Mrs Bell’s assets for a period of 5 years from the date of disposal of 1 September 2020.

I certify that the preceding 57 (fifty-seven) paragraphs are a true copy of the reasons for the decision herein of Senior Member R Bellamy

........................[SGD]..............................
Associate

Dated: 20 February 2023

Date of hearing:	10 November 2022
Applicant:	By videoconference
Solicitor for the Respondent:	Gillian Gehrke Sparke Helmore EXHIBIT LIST

EXHIBIT	DESCRIPTION OF EVIDENCE	PARTY	DATE OF DOCUMENT	DATE RECEIVED
1	Section 37 T documents (T1 to T22 paged 1 to 287)	A	-	1 March 2022
2	Supplementary Section 37 T documents (ST 23 to ST52 pages 1 to 313)	A	-	20 July 2022
3	Letter from Respondent’s Accountant dated 20 May 2022 (1 page)	R	20 May 2022	24 May 2022
4	Applicant's Statement of Facts, Issues and Contentions (paged 1 to 13)	A	20 July 2022	20 July 2022

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^[1] $190,447 minus the permissible gifting limit of $10,000 per year.