Editors --- "Income test: attributed income and double counting" [2006] SocSecRpr 3; (2006) 8(1) Social Security Reporter, Article 3

• SECRETARY TO THE DEWR and CHAPMAN
• Background
• The issues
• Findings
• Formal decision

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Income test: attributed income and double counting

SECRETARY TO THE DEWR and CHAPMAN

(2005/1161)

Decided: 23rd November 2005 by M.A. Griffith

Background

Chapman was receiving newstart allowance when Centrelink reduced the rate of this payment on the basis of income paid by a private company (Gregalan Contracting Pty Ltd) as well as income deemed on a loan to this company.

In the year ending 30 June 2004, the company had a net profit of $10,184. At this date there was also an unsecured loan from Chapman to the company of $144,833.43.

Chapman gave evidence that the profit was a ‘one-off’ and that the company had incurred losses for the previous three years.

He argued that the attributed income and the deemed income constituted ‘double dipping’ and that this was unfair.

The SSAT found that ‘so much of the net income of the company as is equivalent to the deemed income derived from Chapman’s loan account to the company, namely $7,241.67, must be treated as excluded income’.

The issues

The central issue for the AAT was whether the attributed income could be reduced by the amount of deemed income from Chapman’s loan to the private company.

Findings

The Tribunal found that under section 1122 of the Social Security Act 1991 (the Act) the loan to the company was an asset of Chapman. The Tribunal also found that under section 9 (1) of the Act, the loan was a financial investment and therefore subject to the deeming rules.

The Tribunal found that the private company was controlled by Chapman, who was the sole director, and consequently the assets and income of the company were attributed to Chapman.

As Chapman was 100% controller of the company, all of the ordinary income of the company was taken to be his ordinary income for the attribution period.

Section 1207Y (I)(3) states that certain amounts may be excluded. Decision-making principles have been developed for exercising this power. The Social Security (Attribution of Income) Principles 2002 state at paragraph 4:

‘These Principles set out decision-making principles with which the Secretary must comply in making the following determinations:

(a) a determination under subsection 1207Y (2) of the Act that, for the purposes of the application of subsection 1207Y (1) of the Act to a specified individual and a specified company or trust, a specified amount is excluded income’.

The Tribunal concluded that ‘...the circumstances where it is envisaged that income should be excluded under the Principles are limited to those where, by virtue of distributions being made, there may be double-counting if the income distributed is also attributed under Part 3.18.’

The Tribunal found that there was no distribution of company profits and that these circumstances did not fall within the principles. Consequently, none of the income derived by the company could be regarded as excluded income.

The Tribunal referred to the case of Re Backer and Secretary, Department of Family and Community Services [2002] AATA 1335 and agreed with the conclusion ‘that the Act requires that the attributed income be considered in addition to any other ordinary income of the individual’.

While Chapman’s concerns about double counting were noted, the Tribunal was satisfied that there was no discretion in the legislation and that the ordinary income of Chapman included both the attributed income and the deemed income.

Formal decision

The AAT set aside the decision of the SSAT and decided that no amount of the net profit of Gregalan Contracting Pty Ltd for the year ending 30 June 2004 was excluded income for the purposes of Part 3.18 of the Act 1991.

[R.P.]