Editors --- "Newstart allowance: informal loan to family member; whether a 'financial investment'; relevant date for assessing whether an asset is unrecoverable" [2009] SocSecRpr 17; (2009) 11(2) Social Security Reporter, Article 6

• WINGS and SECRETARY TO THE DEEWR
• Background
• Consideration
• Formal decision

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Newstart allowance: informal loan to family member; whether a 'financial investment'; relevant date for assessing whether an asset is unrecoverable

WINGS and SECRETARY TO THE DEEWR

(2009/322)

Decided: 7th May 2009 by D.L. McDonald

Background

Mr and Mrs Wings set out to be selffunded retirees in April 2005. By August 2007, their fund had depleted to the point

they were required to apply for newstart allowance from Centrelink. Their combined asset pool included the sum of $250,000 in a superannuation fund, and modest cash balances, cars and personal effects. Their interests in four real estate properties and the family home were all mortgaged. It was accepted by the Department that, apart from the sum in

dispute in these proceedings, they would qualify for newstart allowance.

Mr and Mrs Wings were persuaded by their son to assist financially in setting up a restaurant by way of loans to his company. At the time of their application for newstart, the applicants had put in $153,500 and added their labour in support of the venture. However, the business ran at a loss of some $5000 a week and closed six months later, by which time the applicants had invested approximately $295,000 of their own monies. All financial arrangements with the son were oral, with monies paid into a company account. At the closure of the business there existed other creditors with priority interests. At the time of the hearing it was suggested liquidation was a likely outcome. While the applicants expected their capital would eventually be returned to them, with hopes of a ‘bonus payment’ if there was a successful sale of the business, interest payments were not expected.

Consideration

The issues for the Tribunal were whether the money loaned to the son was a ‘financial asset’, or, if that were not the case, whether there had been a disposal of assets within s.1123 of the Social Security Act 1991 (the Act).

With regard to the first point, the Tribunal noted that a financial investment is included in the definition of a financial asset, per s.9 of the Act. Further that s.1122 includes a loan, but not any unpaid interest, as an asset.

Mr and Mrs Wings argued the monies were a ‘noncommercial domestic, interfamilial’ transaction which would not be upheld in any court of law and would be opposed by creditors should their son be declared bankrupt. The Department agreed, but said the purpose of the Act was clear and that such transactions were caught, regardless of common law or the law of contract.

The Tribunal determined the transaction was a loan, as the term is defined in s.9, within the meaning of ‘financial investment’.

The Tribunal went on to find that it was relevant that further sums had been advanced by Mr and Mrs Wings to their son after the date for determination of their eligibility for newstart allowance, namely the date of their application to Centrelink, and as there was no suggestion, at that time, that the loans were unrecoverable, the monies could not be said to have transformed from a loan to an unrecoverable debt. Further, the loan did not have to involve evidence a net advantage from the transaction. The Tribunal found the sum should be treated as an asset of Mr and Mrs Wings.

In the event that it was wrong in characterizing the $153,500 as a loan, the Tribunal considered that s.1123(1) would apply. Section 1123 of the Act deals with circumstances where there is a disposal of an asset. The AAT noted the term ‘disposal’ is to be given its ordinary meaning in context and is not to be interpreted pejoratively. The Tribunal applied the Concise Oxford Dictionary definition to find there had been a disposal of an asset, and that this had been for no consideration.

The Tribunal noted this was an unfortunate case where Mr and Mrs Wings had acted honestly. It went further, suggesting that:

It could be prognosticated that in it’s [the Act’s] attempt to stop people purposely disposing of assets in order to gain a benefit, those who genuinely lost money in a genuine attempt to help a family member have been unduly disadvantaged.

(Reasons, para 15)

Formal decision

The decision under review was affirmed.

[J.S.]