Case 1:
In this case, the Tribunal ‘called out’ that both the trustee’s staff and the member’s representative appeared to take comparatively rigid, legalistic approaches to a complex and aged matter. This resulted in faulty assumptions, miscommunications and misunderstandings. Most importantly, it also resulted in ‘unfair and unreasonable’ trustee decisions.
The fund provided the member with a disability pension and the governing rules, quite reasonably, required him to provide the trustee with information about his income from personal exertion as that could affect his benefit. The member understood this requirement and, on a number of occasions, he sought and received details about whether various types of income would affect his pension. In 2011 and again in 2015, an anonymous phone caller told the trustee the member was earning unreported income while receiving the pension.
In 2013, the trustee erroneously reported to the Australian Tax Office (ATO) that employer contributions of $18,783.33 had been made in respect of the member for the 2007/08 financial year. This mistake triggered an Excess Contributions Tax Assessment (ETA) in October 2014 which, in turn, resulted in the member engaging his accountant and financial planner to investigate and advise.
In February 2015, the trustee realised its mistake and, consequently, it re-submitted to the ATO in March 2015. As the member had incurred costs in investigating the ETA, he lodged a complaint with the trustee seeking compensation. However, in the process of investigating its error, the trustee became aware that, in another fund, the member had received a $100,000 contribution in the 2007/08 tax year.
The trustee wrote to the member on 30 March 2015 saying it had decided to not give him any compensation for his costs incurred. The same letter asked him for additional information and stated “you failed to declare your income which led to your salary sacrifice contribution of $100,000 for the 2007/2008 financial year”. The letter went on to say he had until 10 April 2015 to provide additional information or “all of your rights with respect to your disablement benefit will automatically cease, in accordance with Clause 41.3” of the trust deed. The trustee ceased paying the pension effective 1 April 2015.
From this point on there were a series of requests for, and exchanges of, information between the trustee’s staff and the member. This included copies of many years tax returns and those tax returns showed no personal exertion income. The member asserted that the trustee’s interpretation of the $100,000 contribution by a company (where the member was a director) was legally incorrect. In other words, he alleged it was not his personal income that had been salary sacrificed as an employer superannuation contribution.
The trustee advised the tribunal that the member had been uncooperative and that the information supplied was contradictory, misleading and implausible. The trustee did acknowledge the member was seriously ill but that was not at the heart of the dispute.
The Tribunal noted the member had reported income which had resulted in legitimate adjustments to his benefit in 2008. It was, therefore, somewhat odd that despite the member having demonstrated a willingness to do the right thing in past years, that from 2015 the trustee’s requests for additional information had become “progressively more detailed” and appeared to be “based on a refusal by the trustee to accept the information and explanations” the member made. Other than the $100,000 superannuation contribution (discussed below) there was a “lack of evidence of any substantial, undisclosed work activity or income earned”. Further, the anonymous caller failed to provide evidence of his claims. Accordingly, the Tribunal decided that the member had complied, within reason, and that the continued suspension of his pension and ongoing requests for further information by the trustee “went beyond what was fair and reasonable in the circumstances”.
With respect to the $100,000 superannuation contribution, the Tribunal noted that company directors are considered employees even if they do not earn a fee or do any work. It was possible for a non-superannuation guarantee contribution to be made to a “superannuation fund of a director, that is not calculated by reference to any salary or wages and is therefore not a result of personal exertion”. The Tribunal also noted that prior to 2010, this type of contribution was not considered income with the result it was not reportable on a director’s personal income tax return. This meant the member was under no obligation to report the contribution to the trustee and was not in breach of the trust deed. The Tribunal also noted the member was not well enough in 2007/08 to have generated $100,000 of income.
For these reasons, the Tribunal held the trustee’s decision to cease the pension and to not compensate the member for his costs incurred in relation to the erroneous ETA (a mistake of the trustee) were unfair and unreasonable. The trustee was ordered to not only reinstate the pension (backdated to 1 April 2015) but to also pay the compensation amount and apply interest on these amounts at the fund’s cash rate.
D17-18 97
Case 2:
This case involved the trustee exercising its discretion as to whom a death benefit should be paid, but here the Tribunal concluded the trustee’s discretion was exercised in an ‘unfair and unreasonable’ manner. The case is essentially about a failure to follow the correct analytical process to determine whether a person was in an interdependency relationship with the deceased.
The member died when he was only 51 and he left a wife with whom he resided, and a son and daughter, who were both adults. He was also having an extramarital affair and this person joined the case as the Third Joined Party.
The member did not leave a binding death benefit nomination, but in a non-binding nomination, he had indicated for the benefit to be paid to his wife (the Complainant in the case). His will had left the estate to his son but it was an insolvent estate. His daughter had been specifically left out of the will with an explanation having been given. His extramarital affair had been in existence for some time, but he did not live with her full time and there was little evidence of financial dependency. The deceased member’s adult children and the Third Joined Party all lived in properties owned by the deceased and they all paid below market rent. There was also evidence that he financially supported his daughter and that their relationship had improved since the time he wrote the will.
Initially, the trustee decided to pay the entire death benefit to the wife, but after complaints raised by the daughter and the Third Joined Party, it decided to divide the benefit equally between these three people. It was this decision that was the subject of the Tribunal’s focus.
As is generally the case with the governing rules of most funds, the deed required the death benefit to be paid to ‘dependants’ or the ‘legal personal representative’ of the deceased. Here the wife and the two children all clearly satisfied the definition of dependant. For the Third Joined Party to be a dependant her circumstances had to satisfy the legal requirements of an ‘interdependency relationship’ with the deceased.
At law, a person is in an ‘interdependency relationship’ with another if all of the following are satisfied; namely:-
- they have a close personal relationship; and
- they live together; and
- one or each of them provides the other with financial support; and
- one or each of them provides the other with domestic support and personal care.
On the facts, the Third Joined Party was not living with the deceased with the consequence she could not satisfy all of the legal requirements for being in an interdependency relationship. The trustee had therefore erred at law in concluding she satisfied those requirements. That has to be a failure in clear analytical thinking.
The Tribunal decided to set aside the trustee’s decision regarding the distribution of the death benefit and substitute its own. The Tribunal decided for the benefit to be divided equally between the wife and the daughter.
D17-18 90
