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Social Security Reporter |
Age pension: should the value of certain assets be disregarded?
(2008/772)
Decided: 29th August 2008 by R. Perton
Cockburn lodged a claim for age pension on 16 March 2007. At that time he had a partner who also lodged a claim for age pension. Centrelink rejected both claims on 12 April 2007 because their assets exceeded the maximum amount allowable for members of a couple to receive age pension. Cockburn and his partner then separated and she withdrew her application.
Cockburn maintained that the value of his assets was overestimated and he lodged a fresh claim for age pension after the separation, which resulted in the grant of age pension from early January 2008. However, Cockburn maintained that he was entitled to age pension as from 16 March 2007.
Cockburn was a company director and he and his former partner had been equal shareholders in a company called Winborra Holdings Pty Ltd (Winborra) since 1989 with Cockburn being the sole director. Winborra was primarily a vehicle for investments and share transactions.
He argued that outstanding loans, shown in the records of the company, were gifts to his children and the children of his former partner and it was never intended that they be repaid. He argued the loans should not be considered assets of the company. He also argued that the asset value of vineyard interests which the company held should be zero, given that they were not saleable in the current financial climate.
The issue for the Tribunal was to ascertain the value of the assets held by Cockburn and his former partner at the date of his claim for pension and to determine whether the value of those assets prevented Cockburn from being granted age pension at the time when he was still partnered.
Winborra Holdings Pty Ltd
When a person seeking age pension is the director and shareholder of a private company, the company’s assets are taken into account in determining the assets held by the person (Part3.18 of the Social Security Act 1991 (the Act)). Cockburn and his former partner were the sole shareholders of Winborra from its inception in 1989 and Cockburn was the sole director. The Tribunal was satisfied that Winborra was a private controlled company and that Cockburn had control.
When Cockburn first lodged his claim for age pension in March2007 the balance sheet dated February 2007 was provided to Centrelink and this included the then current assets of Winborra and included advances to family totalling $245,000.
Cockburn submitted that the advances to family members of the shareholders should not be considered as assets, even though they had appeared in Winborra’s records since1998. He said that he entered them in the journal about 10 months after they were gifted. He provided the Tribunal with statutory declarations which had been signed by three of the recipients of the advances, attesting that they had received the moneys as gifts.
Cockburn told the Tribunal that he had entered the gifts as unsecured loans so that the children knew what each had been given, as a way of dividing up their parent’s estates should he and his partner pass away. The Tribunal accepted that moneys were given to the children.
A balance sheet dated November 2007 no longer showed the amounts given to Cockburn’s former partner’s children or the $10,000 given to Cockburn’s children as unsecured loans due to Winborra.
The Tribunal was satisfied that Winborra’s financial records should be read as they appeared in the documents prepared for official purposes in the period preceding the claim for age pension. Cockburn, as the sole director of Winborra, chose to treat the moneys advanced to the children by the company as unsecured loans in the company’s financial records for some nine years after they were made. They had not been forgiven by the company at the time of lodgement of his claim for age pension. Therefore, the Tribunal was satisfied that $245,000 should be treated as an asset of Winborra at the time of the claim for age pension.
The other dispute in relation to Winborra was the value of vineyard investments held by the company. As at the date of claim for age pension, Winborra had the following vineyard investments:
16 leased areas of the Frankland River Vineyard Project No 2
19,200 ordinary shares in Frankland River Vineyards Holdings Ltd
12 grower interests in Guild Grape Project No1 (Kayinga)
12 units in the Guild Grape Property Trust.
Cockburn submitted that a high value could not be put on the vineyards as there was no market for them.
The Department argued that the Tribunal did not have jurisdiction to declare certain assets as excluded assets as there had been no assets hardship claim by Cockburn and hence no declaration by the Secretary on such a matter in relation to the decision to the claim for age pension lodged in March 2007 (s.1208E of the Act). The Tribunal agreed with the Department’s submission and considered that a valuation had to be undertaken of Winborra’s assets rather than having certain assets declared as unrealisable.
In relation to the Guild Grape Project No 1 and Guild Grape Property Trust, the General Manager of Guild Financial Services Ltd, which managed the investment, wrote to Winborra on 30 September 2006. He stated:
...The Project was recently revalued by an independent valuer which resulted in the overall value of the Vineyard declining slightly from last year. The independent valuation figures are reflected in this year’s audited accounts.
The net asset value per Project interest and Property Trust unit are summarised below. Included in these figures are accruals for income received from grape sales and interest earned over the last financial year.
Interest/Unit
30 June 2006 Vineyard Project $24,337 $24,973 Total: $28,736
30 June 2005 Property Trust $4,399 $4,607 Total: $29,580
In January 2008, Cockburn advised the Tribunal that the Administration Coordinator at Guild Financial Services had advised him that there were at that time 41 growers recorded in their register seeking to sell93 lots at the Kayinga vineyard. The last sale occurred in August 2006. Cockburn stated that the sale price had been approximately $19,000 per unit. Cockburn argued that would put the value of his units at $228,000, if they were saleable. Cockburn attached a copy of the email from the Administration Coordinator in which she stated:
The 42 Growers did include you and sale price in 2006 was around $19,000 (but please don’t quote me on that).
No further information about the exact sale price of the units, apparently sold in August 2006, was provided to the Tribunal. The Tribunal was not satisfied that $19,000 represented an appropriate figure to use for the valuation; given the lack of corroboration of the price and the comment in brackets above in the Administration Coordinator’s email. The Tribunal was of the view that the appropriate valuation, was that provided by the General Manager of Guild Financial Services on 30September 2006 which purported to be from an independent valuer. The Tribunal ascribed a value of $292,044 to the 12 units in Guild Grapee Project No 1 and a value of $52,788 to the Guild Grape Property Trust.
The Tribunal considered that a value of $0 was appropriate for the Frankland River Project No 2. The Tribunal accepted Cockburn’s argument that in a situation where growers can relinquish their interests by paying the landowner $1,760 per leased area, the asset value should be $0, as effectively he would have to pay the landlord a significant amount to exit the investment. However, that did not assist him in this case.
As the Tribunal had found that Cockburn and his former partner held far in excess of the maximum amount of assets a couple could hold if they were to be paid age pension, there was no need to examine in detail all the other assets held by them at that time. The Tribunal was satisfied that Cockburn did not qualify for age pension when his claim was lodged in March 2007 because he exceeded the asset limit.
The Tribunal affirmed the decision under review.
[S.P.]
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URL: http://www.austlii.edu.au/au/journals/SocSecRpr/2008/40.html