Editors --- "Disability support pension: attribution of income from company; effect of power of attorney on attribution principles; whether applicant remained the controller of the company" [2009] SocSecRpr 26; (2009) 11(3) Social Security Reporter, Article 4

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Disability support pension: attribution of income from company; effect of power of attorney on attribution principles; whether applicant remained the controller of the company

MJDT and SECRETARY TO THE DFHCSIA

(2009/413)

Decided: 5th June 2009 by R. Hunt

Background

MJDT sought back payment of disability support pension during the period January 2003 and August 2007. During this period, he received a reduced rate of pension because Centrelink had determined that he should be attributed with 100% of the income of a controlled private company, Company F.

MJDT had established a financial planning company (Company F) in 1999. MJDT was the majority shareholder of the company (holding 12 of the 20 shares issued in the company) and was, at the time of applying for the pension, the sole director of the company.

In 2002, his health declined dramatically and he was not expected to recover. He made a will and gave his parents general power of attorney over his affairs in May 2003. The power of attorney bestowed on his parents general power to act on his behalf and represented a complete surrender of power by MJDT to his parents, including the surrender of control over Company F. Although the AAT accepted that during the relevant period

MJDT did not control Company F in any practical sense nor in a legal sense (in light of the power of attorney given to his parents), the AAT concluded that the company was a ‘controlled private company’ under section 1207Q. The AAT found that the direct voting interests held in the company by MJDT and his parents (who were ‘associates’ under the Act) was 100%. In the circumstances, the AAT considered that MJDT passed the ‘control test’ in s.1207Q(2)(a) in relation to the company.

The AAT further found that MJDT was an ‘attributable stakeholder’ in relation to Company F for the purposes of

s.1207X(1)(a). The AAT had regard to the Social Security Attributable Stakeholders and Attribution Percentage Principles 2000 (the Principles), and placed weight on the fact that during the relevant period MJDT had received director’s fees from the company.

In relation to the attribution percentage, the AAT had regard to the Principles and the relevant sections of the Guide to the Social Security Law. The effect of these policy guidelines is that, as a general rule, the actual income of an entity will be attributed to the attributable stakeholder and that income will not be deemed. The AAT concluded that there was no basis for departing from this general rule, and found that, despite the lack of actual control by MJDT, it was still appropriate to attribute the income of the company to him as an attributable stakeholder.

The AAT found that the attribution percentage of 100% (under s.1207Y) was appropriate, particularly given that MJDT had the majority shareholding during the relevant period and the remaining shareholdings were held by his father and mother.

The AAT rejected an argument by MJDT that loans made to the company by his parents should affect the operation of Part 3.18 of the Act. The AAT noted that this argument was not relevant in the present matter, as only the income of the company was being attributed to MJDT and not the assets of the company.

Formal decision

The Tribunal affirmed the decision under review.

[S.O.]