Barrett and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs

[2010] AATA 1053

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2010] AATA 1053

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2010/3049

GENERAL ADMINISTRATIVE  DIVISION		)
Re		ROGER BARRETT

Applicant

And SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS

Respondent

DECISION

Tribunal Mr R G Kenny, Senior Member

Date23 December 2010

PlaceBrisbane

Decision The Tribunal affirms the decision under review.

................[Sgd]..............................

Senior Member

CATCHWORDS

SOCIAL SECURITY – Benefits and entitlements – Age pension –– Valuation of investment properties – Market value reduced by value of charge or encumbrance – Personal loan by applicant not a charge or encumbrance over the property – Amount of outstanding charge or encumbrance taken as at date of assessment for age pension – Use of the Guide to Social Security Law - Assets value limit exceeded – Age pension not payable - decision affirmed

Social Security Act 1991 (Cth) ss 11, 23, 43, 44, 55, 1064,1118, 1121
Social Security Act (Administration) 1999 (Cth) sched 2, sub-cl 4

Glover and Secretary Department of Families, Housing, Community Services and Indigenous Affairs [2010] AATA 565
Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634
Samek and Secretary, Department of Social Security [1988] AATA 684

Smith and Department of Family and Community Services [1999] AATA 267

REASONS FOR DECISION

23 December 2010 Mr R G Kenny, Senior Member    

BACKGROUND

1.      On 27 January 2010, Roger Barrett claimed the age pension which is payable in accordance with the terms of the Social Security Act 1991 (“the Act”).  On 10 March 2010, a Centrelink officer determined that the age pension was not payable to him because of the value of his assets.  The decision was affirmed by an authorised review officer with Centrelink on 7 May 2010 and, in turn, by the Social Security Appeals Tribunal (“the SSAT”) on 24 June 2010.  

ISSUES AND LEGISLATION 

2. The qualifications for and the rate of age pension are determined in accordance with ss 43, 44, 55 and 1064 of the Act. It is common ground that, from 20 February 2010 when he turned 65[1], Mr Barrett was qualified for the age pension and that, at all material times from his 65^th birthday[2], the rate of those payments to him was dependent on the value of his assets, which include property or money[3]. It is not disputed that, as at 20 February 2010, the asset value limit for a part pension was $928,000. A method statement for working out the effect of a person’s maximum payment rate is set out in s 1064 Module G. Under ss 1064–G1 to G7 of the Act, a person’s age pension is reduced by $1.50 for every $1,000 over the assets value limit. Under s 1118 of the Act, certain assets, including the principal place of residence, are disregarded in assessing the value of assets. Provision is also made in s 1121 of the Act for the value of a charge or encumbrance over a particular asset to be deducted from the value of the asset so as to reduce its value.

[1] See s 23(5A) of the Act.

[2] The claim is taken to have been made from the date of Mr Barrett’s 65^th birthday: see schedule 2, subclause 4(1) of the Social Security (Administration) Act 1999 (the Administration Act).

[3] See s 11(1) of the Act.

3.      Mr Barrett has various business and other assets, the value of which is not disputed.  He also owns several properties which were valued, as at 20 February 2010, by the Australian Valuation Office (“AVO”).  These valuations are not disputed by Mr Barrett.  Mr Barrett’s properties comprise his principal place of residence in Fitzwilliam Street and investment properties at Watson Esplanade, Sunset Boulevard and Sunrise Boulevard.  He also has a 74% interest in a property at Virgil Court.  Mr Barrett does not dispute the values attributed by the respondent for the purposes of applying the assets test to Fitzwilliam Street, Watson Esplanade or Sunset Boulevard.  However, he disputes the values attributed to the properties at Virgil Court and Sunrise Boulevard.  Ms Forsyth, for the respondent, submitted that Mr Barrett’s assets had been correctly valued and that, when all of his assets, excluding Fitzwilliam Street, are taken into account, the value exceeded the asset value limit as at 20 February 2010.

4. The issue for the Tribunal’s determination is whether the value of Mr Barrett’s assets, assessed under the Act as at 20 February 2010, exceeded the asset value level of $928,000.

EVIDENCE

5.      The respondent valued Mr Barrett’s financial, business and other assets, apart from property, at $74,085.  This was conceded by Mr Barrett. 

6. Fitzwilliam Street was valued by the AVO at $809,000. For the purposes of the Act, the respondent assessed the value of the investment properties in the following terms:

property	AVO $	Mr Barrett’s %	mortgage	contents	$ value
Watson Espl	260,000	100	54,884	0	205,116
Sunset Blvd	305,000	100	79,508	0	225,492
Virgil Court.	385,000	74 (284,900)	0	400	285,300
Sunrise Blvd	250,000	100	86,166	200	164,034
total					879,942

7.      The valuation of the properties and the other assets combined to a total of $954,027.

Virgil Court

8.      Before Mr Barrett purchased Virgil Court in 2007, he obtained a bank loan of $590,000 utilising both Fitzwilliam Street and Sunrise Boulevard as security.  He used $250,000 of these monies for the purchase of Virgil Court which was not subject to a mortgage.  Subsequently, in 2008, he borrowed $225,000 from his brother-in-law, William Summers, and used this to discharge part of his obligation to the bank in relation to the mortgage over Fitzwilliam Street and Sunrise Boulevard.  He said that he borrowed the money from Mr Summers for the express purpose of paying off the component which represented the price of Virgil Street.

9.      In evidence was a letter from Mr Summers to Mr Barrett which included the following:

Set out below are the details of the loan agreed to between you and myself to ease your loan repayments on your investment property at [Virgil Street].

Date of loan: 18 November 2008

Loan amount: $225,000

Interest payable: nil

Loan Purpose: To refinance the existing loan on [Virgil Street]

Term of loan: This loan was made strictly on the understanding that it is repayable in full on the sale and settlement of the property at [Virgil Street].

10. This was relied on by Mr Barrett to demonstrate that the loan from Mr Summers represented an encumbrance on the Virgil Court property such that the amount of the loan should be deducted from the AVO valuation in assessing Virgil Court for the purposes of the Act. As noted in the table above, no deduction was made in the respondent’s assessment of the value of Virgil Court in reliance on s 1121(1) of the Act which, in so far as relevant, reads:

1121    Effect of charge or encumbrance on value of assets

(1)If there is a charge or encumbrance over a particular asset of the person, the value of the asset, for the purposes of calculating the value of the person’s assets for the purposes of this Act (other than Division 1B of Part 3.10), is to be reduced by the value of that charge or encumbrance.

11.     Ms Forsyth contended that, for a deduction to apply in relation to Mr Summers’ loan under that provision, it would need to be a charge or encumbrance over Virgil Court.  She noted that the loan was obtained in the year after the purchase and was not formally linked to the purchase of Virgil Court.  She contended that the document completed by Mr Summers did not change that situation and that the monies received from him were used by Mr Barrett to reduce the loan which was secured over Fitzwilliam Street and Sunrise Boulevard and were not a charge or encumbrance over Virgil Court. 

12. Ms Forsyth also relied upon instruction 4.6.6.30 in the Guide to Social Security Law (“the Guide”), which is published by the respondent to provide assistance to those who administer the Act. The Tribunal is not bound to apply policy instructions of the kind referred to in the Guide but may do so and, indeed, will usually apply the guidelines unless there are cogent reasons in a particular case for not doing so[4].  No such reasons arise in this case.  

[4] See Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634 at 639-645.

13.     At 4.6.6.30, the Guide deals with Encumbrances and Loans Against Assets and includes the following:

Effect of a charge or encumberance on asset value

The value of an asset is reduced by the amount of any outstanding charge or encumbrance over the asset.

Unsecured loans

If a customer has an unsecured loan AND provides evidence that the loan was specifically obtained to purchase the asset, the outstanding amount of the loan IS deducted from the value of the asset.

14. Ms Forsyth contended that this instruction reinforced the terms of s 1121 of the Act to preclude the loan from Mr Summers from being used to reduce the value of Virgil Court. She also submitted that the same outcome was revealed in an examination of relevant case law.

15. Mr Barrett submitted that there was nothing in the Act or the Guide which dealt specifically with the type of loan that he had taken from Mr Summers and that, because it was not excluded, it should be used to reduce the value of Virgil Court.

16.     The terms charge and encumbrance are not defined in the Act but I am satisfied that they each comprise a form of security which attaches specifically and formally to an asset[5].  The letter from Mr Summers is not evidence of a charge or an encumbrance but, rather, of an agreement as between Mr Summers and Mr Barrett.  Contrary to what Mr Barrett contended, I am satisfied that the loan from Mr Summers was not an outstanding charge or encumbrance over that asset.  It comprised an unsecured loan which was not specifically obtained to purchase Virgil Court.  This process had been completed in the previous year with monies borrowed against Fitzwilliam Street and Sunrise Boulevard.  The monies were used to reduce that debt, from $590,000 to $365,000, which was independent of the purchase of Virgil Court[6]. 

[5] See Smith and Department of Family and Community Services [1999] AATA 267 at [30].

[6] See Samek and Secretary, Department of Social Security [1988] AATA 684 and Glover and Secretary Department of Families, Housing, Community Services and Indigenous Affairs [2010] AATA 565 at [19-20].

17. I am satisfied that the value of Virgil Court for the purposes of the Act is $285,300.

Sunrise Boulevard

18. To purchase Sunrise Boulevard, Mr Barrett obtained a bank loan of $590,000 which was secured by a mortgage over both that property and Fitzwilliam Street. Where a charge or encumbrance has been taken over properties which include, as in this case, a property the value of which is disregarded under s 1118 of the Act, a formula is set out in s 1121(4) of the Act for determining the amount of the deduction when assessing the value of the other property. As noted above, Fitzwilliam Street is disregarded under s 1118 of the Act. The formula in s 1121(4) of the Act which is used, in this case, to calculate the value of Sunrise Boulevard reads:

(4)       If:

(a)       there is a charge or encumbrance over assets; and

(b)       ........

(c)the assets consist of assets whose value is to be disregarded under section 1118 and other assets;

the amount to be deducted under subsection (1) is:

19.     As noted above, when Mr Barrett received the loan monies from Mr Summers, he used it to reduce his mortgage from $590,000 to $365,000.  The value of the mortgage as at 20 February 2010 was $365,000 and the respondent utilized that amount in the formula as the value of the charge or encumbrance; the AVO assessment of $250,000 as the value of the “other asset” (Sunrise Boulevard); and the AVO assessment of Fitzwilliam Street of $809,000 added to the AVO assessment of Sunrise Boulevard $250,000 ($1,059,000) as the value of all the assets.  Accordingly, the respondent applied the formula:

365,000  x  250,000

1,059,000

to calculate the value of the mortgage to reduce the value of Sunrise Boulevard by $86,166 to $164,034[7].

[7] As per the table in para 6 above.

20.     Mr Barrett submitted that the value of the charge or encumbrance in the formula should be the initial value of the full mortgage over the two properties ie $590,000; the AVO assessment of $250,000 should be the value of the “other asset” (Sunrise Boulevard); and the AVO assessment of Fitzwilliam Street of $809,000 alone should be value of all the assets.  Accordingly, he contended that the formula should be:

590,000  x  250,000

809,000

to calculate the value of the mortgage to reduce the value of Sunrise Boulevard by $182,324 to $67,876.

21. I do not accept the submissions of Mr Barrett. For assets which are not encompassed by s 1118 of the Act, the value is the market value, such as that provided by the AVO, less the value of the charge or encumbrance at a particular date. In this matter, the relevant date for assessing values is 20 February 2010. I am satisfied that, in the formula in s 1121(4) of the Act, the value of the charge or encumbrance is the balance of the mortgage as at 20 February 2010 which must be used[8].  This was $365,000 as used by the respondent.  Further, the words of the divisor in the formula are clear: it is the value of all of the assets which must be used.  All of the assets involved with the mortgage in this matter were Fitzwilliam Street and Sunrise Boulevard and their combined value is that adopted by the respondent. 

[8] See also Smith and Department of Family and Community Services [1999] AATA 267 at [30].

22. I am satisfied that the value of Sunrise Boulevard for the purposes of the Act is $164,034.

All properties and other assets

23. I am satisfied that the value of Mr Barrett’s properties as at 20 December 2010 was $879,942; that the value of his other assets was $74,085; and that the overall value of his assets for the purposes of the Act was $954,027. This exceeded the asset value limit of $928,000 as at 20 February 2010.

DECISION

24.The decision under review is affirmed

I certify that the 24 preceding paragraphs are a true copy of the reasons for the decision herein of Mr R G Kenny, Senior Member

Signed: ..........................[Sgd]...................................................
             Alex Seagar, Research Associate

Date/s of Hearing  15 December 2010
Date of Decision  23 December 2010
Applicant was self represented
Solicitor for the Respondent     Jasmine Forsyth, Departmental Advocate