Bernard and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs
[2009] AATA 577
•23 June 2009
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2009] AATA 577
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2008/6062
GENERAL ADMINISTATIVE DIVISION ) Re Norman Bernard
Adelia BernardApplicant
And
Secretary, Department of Families, Housing, Community Services and Indigenous Affairs
Respondent
REASONS FOR DECISION
Tribunal Mr A Sweidan, Senior Member Date 23 June 2009
Date of Written Reasons 27 July 2009
PlacePerth
- At the conclusion of the hearing of these applications on 23 June 2009, the terms of the decision intended to be made and the reasons for that decision were stated orally by the Tribunal.
- On 29 June 2009, the applicants requested the Tribunal to furnish a statement in writing of the Tribunal’s reasons for its decision.
- The oral reasons for decision have been transcribed by Auscript Australasia Pty Ltd.
- An edited copy of the transcript of those reasons is attached and is forwarded to the applicant and respondent as the reasons for the Tribunal’s decision.
...(sgd) Mr A Sweidan..........
Senior Member
REASONS FOR DECISION
23 June 2009 Mr A Sweidan
Senior Member
Background and Applicants’ Contentions
1. Applicants (Mr & Mrs Bernard) seek a review of a decision of the Social Security Appeals Tribunal (”SSAT”) dated 3 December 2008.
2. That decision affirmed an earlier decision of a Centrelink‑Authorised Review Officer which was that the rate of age pension payable to the applicants was to be reduced based on the value of their assets and in particular two units which they own in Melville Parade, South Perth.
3. Essentially, the contention of the applicants is that in assessing the rate of age pension and their entitlement to the pension the respondent should take into account the amount of potential capital gains tax that they may have to pay if and when those units are disposed of.
4. The applicants were at pains to say that they do not dispute the valuations obtained by Centrelink from the Australian Valuation Office in relation to the two units in question.
5. In their submissions to the authorised review officer, to the SSAT, and to this Tribunal the applicants sought to argue that the future potential capital gains tax liability which may arise if the units are sold should be regarded as a charge or encumbrance on the property in question, and therefore, in accordance with the relevant legislation, should operate to reduce the value of the units when that needs to be determined for social security purposes.
6. However, the applicants seem to also contend that irrespective of whether the potential capital gains tax liability is a charge or encumbrance, it is nevertheless a liability which must be taken into account by Centrelink in assessing their overall financial position.
Tribunal’s Findings
7. In the Tribunal’s view, the position asserted by the applicants is totally misconceived, both as a matter of fact and as a matter of law. The valuation of the units in question, as I have said, is not challenged by the applicants. Indeed, to use the words used by Mr Bernard in the evidence that he gave to this Tribunal, “The value is the value.”
8. The Tribunal agrees with that statement, but where it seems to the Tribunal Mr and Mrs Bernard have misconceived the position is in relation to their contention that any capital gains tax liability which may ultimately arise, if and when – and I emphasise if and when – the units are disposed of, is an encumbrance or a liability which should be taken into account by Centrelink at this point in time.
9. Mr Bernard, as I understood his contentions in his evidence and in his submissions, was asserting that any potential future capital gains tax is to be treated as if it operates like a mortgage. He posed the rhetorical question in his evidence: “how is it different from a mortgage?”
10. The answer to that, in the Tribunal’s view, is quite simply that it is totally different from a mortgage. It is neither a mortgage nor a charge, nor an encumbrance on the units. Nor is it a liability at this time.
11. The relevant legislation is the Social Security Act 1991 (“the Act”).
12. Social Security legislation is interpreted by Centrelink officers with the aid of the Guide to Social Security Law (“the Guide”). The Federal Court has provided relevant direction for the Tribunal in respect to the Guide. The Tribunal, whilst not bound by the Guide, will generally follow the advice of the Guide unless there is a sound or cogent reason not to do so (see Drake vMinister for Immigration and Ethnic Affairs (1979) 46 FLR 409 and Re Drake v Minister for Immigration and Ethnic Affairs (No. 2) (1979) 2 ALD 634).
13. Section 43 of the Act sets out the qualification criteria for age pension.
14. Section 55 of the Act provides that a person’s age pension rate is calculated using Pension Rate Calculator A at the end of section 1064 of the Act. Pension Rate Calculator A provides that a person’s maximum payment rate can be reduced by the ordinary income of the person and their partner under the income test, or by the assets of the person and their partner under the assets test. The test which provides the lower rate of payment is the test that is applicable to the person. For this case the assets test applies.
15. Subsection 11(1) of the Act provides that asset means property or money (including property or money outside Australia). Subsection 11(2) of the Act provides that reference to the value of a particular asset of a person is, if the asset is owned by the person jointly or in common with another person, a reference to the value of the person’s interest in the asset.
16. Section 1121 of the Act provides for the effect of charges or encumbrances on the value of assets. Relevantly, subsection 1121(1) of the Act states:
“1121(1) if there is a change 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.”
17. Other liabilities are not to be taken into account in calculating the age pension rate.
18. The Australian Valuation Office (“AVO”) advised Centrelink on 27 November 2007 that Mr and Mrs Bernard’s properties at Lot 6 and Lot 7, 49 Melville Parade, South Perth, were valued at $450,000 and $300,000 respectively. Mr Bernard told the Tribunal he did not dispute the AVO nominated value of his properties. The Tribunal found Mr and Mrs Bernard have real estate assets valued at a combined $750,000.
19. Mr Bernard told the Tribunal his disagreement with Centrelink is that he and his wife will never realise $750,000 from the sale of their properties at 49 Melville Parade because of their potential capital gains tax liability, and therefore the value of their property assets should be reduced by their potential capital gains tax liability when calculating their rate of age pension.
20. Mr Bernard acknowledged in his evidence to the SSAT that the properties were mortgage free and had no current liabilities against them other than ongoing maintenance costs. Mr Bernard said the properties are rented and he and his wife receive a small income from them.
21. The Guide discusses valuing assets for the purposes of the Act and the Tribunal noted at 4.6.6.10 the Guide state, in part:
“Assets are generally assessed at their net market value. The net market value is the amount you would expect to receive if you sold the asset on the market, less any valid debts or encumbrances.”
22. The Guide at 4.6.6.30 further explains the effect of charges or encumbrances on an asset’s value and states, in part:
“The value of an asset is reduced by the amount of any outstanding charge or encumbrance over the asset.”
23. The Administrative Appeals Tribunal (“AAT”) decision in Archibald Edwin Fawthrop and Repatriation Commission [1993] AATA 359 discusses at length the meanings of charge, encumbrance and security, as it applies in section 52C of the Veteran’s Entitlement Act 1967. Section 52C of the Veteran’s Entitlement Act and section 1121(1) of the Act are almost identical in meaning and application and both relate to calculating the rate of payment of a government pension. In brief, the AAT decided both charge and encumbrance referred to existing, secured debts [emphasis added] – primarily against property. The decision notes that Brennan J in Sibles v Highfern Pty Ltd (1987) 62 ALJR 55 stated:
“A charge cannot exist unless the debt or liability to be secured is in existence: there may be an agreement that the property be charged with the payment of a future debt, but there is no charge until the debt exists. (pg 60-61)”
24. The Australian Tax Office provides an overview of capital gains tax on its website It states in part:
“Capital gains tax (CGT) is the tax you pay on any capital gain you make and include on your annual tax income return. There is no separate tax on capital gains [emphasis added], it is merely a component of your income tax. You are taxed on your net capital gain at your marginal tax rate…
You make capital gain or capital loss if a CGT even happens…”
25. Applying the principles from the Guide and Fawthrop cited above, the Tribunal does not accept Mr Bernard’s assertion that the potential capital gains tax liability is a charge or encumbrance over the properties and should therefore be deducted from market value. As capital gains tax is a component of income tax it cannot be said to be secured over the properties/assets, rather it is imposed in relation to the income derived from the sale of the properties/assets. In addition, the amount of capital gains tax to be paid does not exist until a capital gains tax event happens (i.e. an asset is sold). Capital gains tax can not be taken into account prior to the sale of properties or assets, as it may never eventuate and cannot be adequately or accurately predicted – e.g. the debt does not exist prior to the sale of an asset; capital gains tax may be revised or abolished in future years or the rate may change; the timeline for the sale of properties is infinite and unknown; losses may be accrued against the properties that may limit the capital gains tax assessed as due at the time of a sale; and, a person’s income may not be consistent over time and affect the rate of capital gains tax payable.
26. The Tribunal finds that Mr and Mrs Bernard’s property assets at lot 6 and Lot 7, 49 Melville Parade, South Perth, were valued at $450,000 and $300,00 respectively at the relevant time and it is this value, without any deductions, that must be taken into account when calculating their rates of pension.
27. The Tribunal affirms the decision under review.
I certify that the 27 preceding paragraphs are a true copy of the reasons for the decision herein of Mr A Sweidan
Signed: ....(sgd) T Freeman..............
AssociateDate/s of Hearing 23 June 2009
Date of Decision 23 June 2009
Date of Written Reasons 27 July 2009
Applicants: Self represented
Solicitor for the Respondent: Ms M. Conlon, Centrelink
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