FEDERAL COURT OF AUSTRALIA Secretary, Department of Family and Community Services v Green [2002] FCA 21 SOCIAL WELFARE AND SERVICES - benefits - Austudy - application of actual means test - family actual means test - whether monies each parent received from partnerships to be included in the calculation of the family's actual means STATUTORY INTERPRETATION - whether plain meaning should be given to statutory exception WORDS AND PHRASES - "actual means"; "assets" Statutes Social Security Act 1991 (Cth) ss 14A; 1067G-GI; 1067G-G3 Social Security (Family Actual Means Test) Regulations 1998 (Cth) Regs 7, 13, 14, 15, 19 Cases Leah v Secretary, Department of Employment, Education, Training and Youth Affairs (1998) 52 ALD 274 Considered Reed (Inspector of Taxes) v Young [1984] STC 38 Cited Other Authorities Higgins & Fletcher The Law of Partnership in Australia and New Zealand 8th ed. 2001 SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES v MICHAEL GREEN Q 124 OF 2001 KIEFEL J BRISBANE 25 JANUARY 2002 IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY Q 124 OF 2001 ON APPEAL FROM A DECISION OF THE ADMINISTRATIVE APPEALS TRIBUNAL BETWEEN: SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES APPLICANT AND: MICHAEL GREEN RESPONDENT JUDGE: KIEFEL J DATE OF ORDER: 25 JANUARY 2002 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The appeal is dismissed. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY Q 124 OF 2001 ON APPEAL FROM A DECISION OF THE ADMINISTRATIVE APPEALS TRIBUNAL BETWEEN: SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES APPLICANT AND: MICHAEL GREEN RESPONDENT JUDGE: KIEFEL J DATE: 25 JANUARY 2002 PLACE: BRISBANE REASONS FOR JUDGMENT 1 On 28 April 1999 the respondent submitted a claim for Youth Allowance and included with it a document entitled "Family Actual Means Test" which was completed by his parents and detailed the family's expenditure, savings and deductions. The extent of a family's means affects the amount of the allowance. The parents subsequently provided copies of their income tax assessments and a "Cash Flow Statement" which identified the family's "Source of Funds" and "Application of Funds". Another document listed the "Market Value of Family Assets". In that latter document two partnerships were identified: Townsville Auto Parts and Banks Bros Properties. Mr and Mrs Green are the partners in the firstmentioned and Mrs Green is a partner with others in Banks Bros Properties. Relevantly, in the section "Source of Funds", in the Cash Flow Statement, the following appeared: "Cash from Partnership interest in Banks Bros Properties $8,000 Cash from Partnership interest in Townsville Auto Parts $12,106" (the reference to $8,000 was later changed to $743). 2 Centrelink included those amounts in the family's actual means test in calculating the rate of payment of Youth Allowance and the Social Security Appeals Tribunal affirmed that decision. On 2 May 2000 the Administrative Appeals Tribunal ("the Tribunal") set aside the decision, determining that the actual means of the family should have been reduced by the sum of $12,849. 3 The applicant appeals from that decision. The respondent did not seek to make submissions. STATUTORY PROVISIONS 4 Section 1067G-G1 ("Module G - Family actual means test") of the Social Security Act 1991 (Cth) provides a method to determine the effect of "the actual means of a person's family on the person's maximum payment rate in respect of a particular youth allowance payment period". After identifying whether the test applies, and the appropriate tax year, it is necessary to determine the actual means of the person's family. Certain reductions can then be made. 5 Section 1067G-G3 requires that the "actual means of a person's family are to be worked out in the way specified in the regulations". It states that the regulations may specify: "(a) amounts that are to be included in a family's actual means; and (b) amounts that are not to be included in a family's actual means." 6 The relevant regulations (Social Security (Family Actual Means Test) Regulations 1998 (Cth) -"the regulations") provide, by reg 13, that to work out the actual means of a person's family, one is first to calculate, in accordance with the Division, the actual means of the person and the members of that person's family and then apply the formula in regulation 19 to the results of those calculations. The meaning of "actual means" is provided by regulation 14: "14. Meaning of actual means (1) Subject to regulation 15, the actual means of a person for an appropriate tax year is an amount equal to the total spending and savings of the person in that tax year. (2) An amount of spending or savings is taken to have been spent or saved in the appropriate tax year if the Secretary considers that the amount should be so taken." 7 Regulation 15, which is the focus of the applicant's submissions, provides that some spending or savings are not to be included in the actual means of a person. They include spending of a particular nature, such as that for the maintenance of a child or former partner of the person (reg 15(2)(b)) or for boarding a family member or to assist a person to cope with a disability (reg 15(2)(c),(d) and (e)). The sub-regulation also identifies the source of some expenditure as exempt from inclusion in the actual means of a person. They include: "(h) spending or savings from the proceeds of any liquidation of assets of the person held at the beginning of that year;" and also spendings and savings from a windfall gain or lump sum compensation payment (reg 15(2)(i) and (k)). Spending by way of what is necessary to carry on a business is not included in the assessment (reg 15(3)(a)) nor is: "an amount of assumed spending equal to the amount of any reduction in liquid assets of the person held at the beginning of that year and not accounted for by spending of a kind mentioned in subregulation (2)." (reg 15(3)(b)) 8 "Liquid assets" are defined in s 14A(1) to mean a person's cash and readily realisable assets, including shares in companies and amounts deposited with banks and financial institutions. The exclusions listed are not relevant in these proceedings. 9 For the purposes of the regulations, the savings of a person include (reg 7(b)): "The person's share in any profit retained by a partnership of which the person is a member who has a substantial influence over whether partnership profit is distributed to: (i) the person or a member of the person's family; or (ii) another partnership, or a company or trust, in which the person or any other member has an interest;" the Tribunal decision 10 The Tribunal found that "the liquid assets of Townsville Auto Parts was reduced by $12,106. This was used by the family for living expenses." With respect to Mrs Green, "her portion of the reduction in liquid assets of that partnership amounted to $743" and was also used for living expenses in that year. 11 Before the Tribunal Mr Green, the father of the respondent in these proceedings, relied upon subregulations 15(2)(h) and 15(3)(b) and the Tribunal appears to have accepted that the amounts coming from the two partnerships were assets of the parents which were realised and thereby reduced the assets of the partnership. The Tribunal accepted the argument that such an approach was consistent with the operation of reg 7(b)(i), which had the effect that (undistributed) partnership profits were to be treated as their personal savings. The point at issue was whether what was realised was the asset of each of the parents or that of a business separate and distinct from them. the appeal 12 The applicant submits that the amounts in question ought properly to be viewed as business-related. The regulations are concerned with personal or household expenditure or savings and reg 15(2)(h), in its reference to assets which are liquidated or realised, ought to be read in this light, it is submitted. Reliance is placed upon the decision in Leah v Secretary, Department of Employment, Education, Training and Youth Affairs (1998) 52 ALD 274, which concerned a means test based on expenditure for the purpose of assessing Austudy payments (the Austudy Regulations 1996 (Cth)). In that case Madgwick J considered that the "total expenditure and savings" of a family, which were taken to be its "actual means" was intended to refer to non-business expenditure. The regulations there in question did not contain any relevant definitions and there were no statutory exceptions listed, as there are here. In this case the question which is raised is whether a specified exception to what is to be taken into account as expenditure is to be given its literal meaning. 13 The applicant also raised a threshhold question. It was submitted that the Tribunal was in error in finding that the assets of the parents were realised. There was no evidence upon which such a finding could be based and legal error is therefore involved, it is contended. 14 To determine whether the monies received from the partnership by the parents could be regarded as their assets which were realised, it was necessary for the Tribunal to consider the evidence concerning the status of the monies in the partnerships' accounts and any antecedent transactions giving rise to it, in order to assess the parents' connexion with an entitlement to them. 15 The cash flow statement itself provides little by way of information. The statements that the monies were "cash from partnership interest" were ambiguous, although they hint at the explanation later provided by Mr Green. In his letter of 13 May 1999 the respondent's father listed the amounts as deductible from the family asset means and described them as: "Reduction in partnership capital and current accounts". 16 The capital of a partnership "is the aggregate of the contributions made by the partners, either in cash or in kind, for the purpose of commencing or carrying on the partnership business and intended to be risked by them therein": Higgins & Fletcher The Law of Partnership in Australia and New Zealand 8th ed. 2001 at p. 93-94, referring to Reed (Inspector of Taxes) v Young [1984] STC 38, 57. Partners are entitled to a return of their capital contributions upon dissolution of the partnership. Regardless as to whether the capital account is regarded as that person's asset of a partnership, the partner's equity in the partnership can be viewed as an asset capable of realisation at some time in the future. How the partners became entitled to receive their contributions at an earlier date was not gone into. No challenge however appears to have been made to Mr Green's statement that they came from "capital accounts" and represented "cash from partnership interest". 17 Mr Green's additional reference to the monies coming from "current accounts" is somewhat less clear. This might refer to some form of running account showing movements between related entities or, more likely, one showing salary withdrawals and other transactions involving the partners. What is drawn from this account might not be described as an "asset" of the partner and may be more akin to income. Whatever entitlement the partner might have to such monies, it would not usually be equated with an interest in the partnership itself, which is what Mr Green otherwise referred to. 18 The unchallenged evidence of Mr Green was that the monies in question were realised from the partnership capital. Whilst the Tribunal may have been distracted, to an extent, by the relationship between assets in a partnership and the nature of a partnership its finding was clearly that the person's interest in the partnership had been realised. There was evidence to support that finding. The partners realised some of their contributions, even if the basis for their present entitlement to them was not spelled out. There may be some doubt about whether all of the monies represented the proceeds of the partner's equity in the partnership. It was certainly open to the Tribunal to determine what was meant by the reference to monies coming from a current account and whether it signified something different from what was otherwise conveyed. Any failure to do so however involves the process of fact finding and does not amount to legal error. 19 Counsel for the applicant also submitted that to allow the regulations, in particular reg 15(2)(h), their literal operation might produce anomalous results. It was submitted that one ought to read the reference to "assets" which are realisable as limited to household or non-business assets. If one did not do so it would be possible for a person to disguise income, which is not to be excluded as a source for spendings or savings, as an asset of the business, which is exempt. 20 Regulation 15(2)(h) requires that the assets of "the person" be identified as the source of the proceeds which have been spent or saved. It would not seem to me to be to the point to identify an asset which is regarded as that of a partnership or other entity unless, as here, it represents something in which the partners themselves have an interest capable of realisation. The fact that the monies were held in an account as part of partnership funds prior to being realised does not detract from their character as assets of the partners. 21 The applicant's reliance upon the reasoning in Leah would not seem to me to assist its argument. If one is to disregard an investment in a business as not related to household expenditure, consistently one would disregard the proceeds from its sale as similarly unrelated. In any event, as I have earlier observed, the regulations there in question did not contain the exemptions here to be considered. 22 It is not apparent from a reading of the regulations why it would be necessary to read down the exemption of monies from realised assets as expenditure to non-business assets, whatever that is to be taken to mean. Whilst the regulations seek to avoid problems associated with definitions of income, and concentrate upon a family's expenditure, the exclusion of assets realised is clear and understandable in that context. It is not to be readily inferred that the realisation of assets held by a person in a business was to form part of usual expenditure. There are references to partnerships and other businesses within the Act and regulations and reference to such a limitation on the meaning of a person's assets could have been included if that was the intention. In my view the words of the exemptions should be given their plain meaning. 23 The appeal will be dismissed. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kiefel . Associate: Dated: 25 January 2002 Counsel for the Applicant: Mr D Rangiah Solicitor for the Applicant: Australian Government Solicitor Respondent: No Appearance Date of Hearing: 5 October 2001 Date of Judgment: 25 January 2002