Editors --- "Newstart and mature age allowance: retrospective amendment of company accounts" [2006] SocSecRpr 49; (2006) 8(4) Social Security Reporter, Article 6

• GLENN and SECRETARY TO THE DFaCS
• The facts
• The issue
• The law
• Discussion
• The decision

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Newstart and mature age allowance: retrospective amendment of company accounts

GLENN and SECRETARY TO THE DFaCS

Decided: 30th October 2006 by E. Fice

The facts

Glenn was a butcher operating a business owned by his company, Sixteenth Eastway Pty Ltd (the company). Since 1997 Glenn was the sole director, company secretary and shareholder of the company.

In November 1997 Glenn suffered a heart attack and underwent open-heart surgery. He was no longer able to work although the company continued trading until at least the end of the 2000-01 financial year.

In January 1998 Glenn applied for newstart allowance and then mature age allowance in April 1999.

Between 1997 and 2001 Glenn made several loans to the company to be used as its operating capital. These loans were recorded in the company accounts (which included the financial statements and tax returns) for the years 1997–2001.

In May 2001 Centrelink was advised that the company was unable to repay the shareholder loan and because the company was about to be deregistered, the loan was to be written off.

In August 2003 after Centrelink had investigated Glenn’s assets, it cancelled his mature age allowance and raised 2 debts against Glenn for the total amounts of newstart allowance and mature age allowance he had received.

In March 2004 Glenn gave Centrelink amended company accounts for the years 1997–2001. The original company accounts had been amended to remove the loans entirely. According to Glenn’s accountant this represented a true reflection of the company’s financial position for that period.

The issue

The issue before the AAT was whether Centrelink was required to reconsider Glenn’s asset position in light of the amended company accounts for the years 1997-2001.

The law

Section 611(1) of theSocial Security Act 1991 (the Act) provides that newstart allowance is not payable to a person where their assets exceed the allowable limit. Section 660YCJ of the Act applies a similar assets test to mature age allowance.

Sections 9(1) and 1122 provide that where a claimant for newstart allowance or mature age allowance is owed money by way of a loan, the principal sum must be accounted for when calculating the value of the claimant’s assets.

Also relevant were ss. 301(2) and (3) of the Corporations Law 1995 (the Corporations Law) which requires company directors to attach to the company’s accounts, a declaration that in the director’s opinion the balance sheet is a true and fair overview of the state of affairs of the company for the financial year in question.

This declaration also requires directors to state whether, in their opinion, there were reasonable grounds to believe that the company could repay all of its debts as and when they fall due.

Discussion

Although the original financial statements of the company were not in evidence, the AAT expected that Glenn had made declarations pursuant to ss. 301(2) and (3) of the Corporations Law for the years 1997–2001. The AAT noted that the amended company accounts also declared that the statements fairly represented the company’s financial position for that period.

The AAT considered that if, between 1997 and 2001, Glenn was of the view that the company could not repay his loan, he would have forgiven the company’s liability to repay him and that would have been reflected in the company’s accounts for that period.

Although the AAT accepted that errors may be corrected in past statements, it noted that the Corporations Law did not provide for retrospective amendment of company accounts. Instead the AAT considered that Glenn had simply decided in 2001 that the company would no longer trade and so the loans were to be written off.

Crucially, the AAT considered that prior to 2001, Glenn would have been of the view that his loans might have been repaid at some future date.

The AAT therefore considered that when Centrelink was advised in May 2001 that the company would be wound up and deregistered, it was correct in considering that the loan should be written off from that date.

The decision

The AAT affirmed the decision of the SSAT that the amended company accounts were not to be taken into account.

[J.C.]