Editors --- "Youth allowance: parental income; interest in a trust" [2007] SocSecRpr 10; (2007) 9(1) Social Security Reporter, Article 10

• REID and SECRETARY TO THE DEST
• Background
• Issues
• The application of the Family Actual Means Test
• Waiver and administrative error
• Waiver and special circumstances
• Formal decision

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Youth allowance: parental income; interest in a trust

REID and SECRETARY TO THE DEST

Decided: 6th December 2006 by K. S. Levy

Background

In November 2003, Reid applied for youth allowance. Initially the claim was rejected. However, on 2 February 2004,the Secretary determined that Reid was exempt from the parental income test and Centrelink paid her youth allowance for the 2004 academic year, during which time Reid completed her Applied Science honours studies.

An earlier 2001 application for youth allowance had been rejected because of parental income, including her father’s interest in a trust which held the family farming business.

The farming business was contracted to be sold at the end of the 2002/03 tax year. The only monies flowing from the business after 30 July 2003 were a return of the capital of the trust. Centrelink was advised ‘no’ when it asked Reid’s father if he had an interest in a trust at the time of the 2003 claim. Reid and her father thought that only family income was required to be declared to Centrelink, and that this did not include other family ‘means’ such as a trust. The units in the trust were contracted to be sold by a written and binding contract in the 2002-03 tax year, with settlement due on 1 July of2003. However, the income stream had ceased and no trust income flowed to Reid’s father after 30 June 2003. Settlement was delayed some weeks by the purchaser and occurred on 11 July 2003.

Having completed her studies and not found employment, early in 2005 Reid applied to Centrelink for a jobseeker payment. Shortly thereafter, on the basis of the family means test, Centrelink raised a debt of $5028.87 for youth allowance payments made to Reid for the 2004 study year.

On 2 September 2005, the decision was affirmed by the original decision maker. It was then affirmed by the ARO on 7 December 2005 and also by the SSAT on 28 February 2006. Reid appealed to the AAT. Prior to the decision of the AAT, Reid’s father made arrangements for the whole of the debt to be repaid.

Issues

The AAT determined that there were three questions to be answered; whether Reid had received a payment to which she was not entitled, whether there was a debt as a result, and whether that debt could be waived.

The application of the Family Actual Means Test

The Tribunal had regard to section 1067G of the Social Security Act 1991 (the Act) and determined that the Family Actual Means Test did apply to Reid, because Reid’s father had an interest in the trust in the base tax year 2002/03.

Reid argued that an alternative base tax year 2003/04 could have been determined, as provided for in ss.1067G-G5 and 1067G-G6 of the Act, and that Reid’s father had no interesting the trust in that year.

The AAT said that it was a matter of statutory interpretation whether Reid’s father’s interest had been devolved by 1 July 2003.Oughtred V Inland Revenue Commissioners (1960)AC 206, per Lord Radcliffe, was cited as authority for the proposition that, once a binding contract has been entered into, the vendor holds the property as an implied or constructive trustee for the purchaser. Therefore it could be argued that Reid’s father held the shares in the trust company as a trustee for the purchaser from the date he contracted to sell. The AAT accepted that Reid’s father might properly be regarded as having sold his interest in the trust before 1 July 2003.

However, the AAT went on to note that an application to alter the tax year would have needed to have been made before the end of the payment period, that is, by 21 November 2004, and that there was no power to consider an application after that date. Therefore Reid could not now rely on an alternative base tax year.

The Tribunal found that Reid’s father’s position was such that he was to be a ‘designated parent’ for the purposes of the Act because he held an interest in a trust in 2002/03 tax year. The AAT also found that total actual means precluded Reid from qualification for youth allowance.

Waiver and administrative error

The Department argued that because Reid’s father indicated in the 2003 claim, that he did not have an interest in a trust in the base tax year, there was a contributing error sufficient to exclude the operation of s.1237(1A). The AAT commented that this interpretation was too strict, where Reid’s father had entered into a contract of sale of the shares in the trust prior to 30 June 2003. His interest on 1 July 2003 was:

...a technical legal interest only and with no specific involvement or income from the trust after that date, with the exception of a return of capital on settlement. (Reasons, para. 47)

Further the AAT considered that the Department had relevant financial information about Reid and her father, including knowledge of the trust as a result of the 2001 claim. There had also been a perception created by the Department in the minds of Reid and her father that only ‘income’ and not ‘means’ were relevant to the consideration of her claim. The AAT said:

There have been other occasions where it has been held that the Commonwealth must waive the whole of the debt where an allowance was received in good faith and as a result of incorrect advice from a departmental official (Chen and Secretary, Department of Family and Community Services (1999) AATA 151). (Reasons, para. 47)

The AAT determined that the debt was solely due to administrative error and that the requirements of s.1237A(1) of the Act were satisfied.

Waiver and special circumstances

The AAT also concluded in the alternative that the debt should be waived on the basis of special circumstances pursuant to s. 1237 AAD.

The factors contributing to this decision were that:

• Reid’s father had sold an equitable interest in his shares in the trust prior to 30June 2003 and effectively had no further dealings with the trust or any further income from the trust from 1 July 2003;

• Centrelink was provided with relevant financial information through the tax returns of Reid’s parents, together with other information about their assets and liabilities, and therefore, it was in a position to properly assess Reid’s eligibility for youth allowance. Given that the initial enquiry was made in December 2003, followed by a formal application on 5 January 2004 with formal approval for youth allowance being made on 2 February 2004, Centrelink had a reasonable opportunity to assess the application before granting the youth allowance as well as at any time during the 2004 year while the allowance was being paid;

• Centrelink historical records showed Reid’s father’s interest in a trust from the time of Reid’s original application in 2001;

• A Freedom of Information application revealed information whereby Centrelink documented that Reid should have been assessed under the (then) current financial year, and not under the base tax year;

• Despite Reid and her father asking for a delay in implementation of the decision of the SSAT, Reid’s father then made an offer to pay the debt. This was rejected and Reid’s wages were garnisheed. As this caused some embarrassment, Reid’s father submitted that he immediately found the money to pay the debt on the basis that, if successful at this Tribunal, then any amount so ordered would be refunded to Reid or her father.

Formal decision

The decision under review was set-aside. The Department was to refund any debt amount already repaid by Reid or her father.

[J.S.]