Demovich and Secretary, Department of Family and Community Services
[2004] AATA 647
•24 June 2004
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2004] AATA 647
ADMINISTRATIVE APPEALS TRIBUNAL )
) No N2003/1629
GENERAL ADMINISTRATIVE DIVISION ) Re Vlaho Demovich Applicant
And
Secretary, Department of Family and Community Services
Respondent
DECISION
Tribunal The Hon R.N.J. Purvis Q.C. Deputy President Date24 June 2004
PlaceSydney
Decision The decision under review is affirmed ..............................................
The Hon. R N J Purvis, Deputy President
CATCHWORDS
SOCIAL SECURITY – Age Pension – assets test – whether Tribunal should prefer land valuation of AVO or NSW Valuer General – whether a portion of the Applicant’s flat let to a tenant forms part of “principal home” - principles in Ovari and subsequent cases discussed – decision affirmed
LEGISLATION
Social Security Act 1991 sections 1064, 1118(1), 11
CASELAW
Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305
Secretary, Department of Employment, Education, Training & Youth Affairs v Ovari [2002] FCA 323
Re Stewart and Secretary, Department of Social Security 11 ALD 470
Re Bowden and Repatriation Commission (1992) 15 AAR 325
Di Primio v Secretary, Department of Social Security (1993) 31 ALD 233
Secretary, Department of Family and Community Services v Kulshrestha [2003] AATA 227
Hewitt v Department of Family and Community Services [2002] AATA 348
Secretary, Department of Family and Community Services v Leung (2003) AATA 796REASONS FOR DECISION
24 June 2004 The Hon. R.N.J. Purvis Q.C. Deputy President 1. By an Application lodged with the Tribunal on 15 October 2003 Mr Vlaho Demovich, (“the Applicant”), seeks review of a decision by the Secretary, Department of Family and Community Services, (“the Respondent”), made on 22 October 2002 and affirmed by the Social security Appeals Tribunal (“the SSAT”) on 9 September 2003, to cancel his age pension because the value of his assets was above the limit prescribed by the Social Security Act 1991 (“the Act”).
2. The Applicant was born on 10 April 1932 and is 72 years old. He arrived in Australia on 29 January 1959, is a permanent resident and an Australian citizen. He was granted an age pension the subject of these proceedings. He is the owner of two properties, one at 20 Macarthur Street, Guildford, the other being his place of residence, 44 Wellesley Street, Summer Hill.
3. The Applicant purchased the Wellesley St property in or about 1963. Since living there he has periodically rented out the rear portion of the property to various boarders and lodgers, and currently has a written Residential Tenancy Agreement in place with a tenant. Such Agreement describes the portion to be occupied by the tenant as “Flat 2 44 Wellesley St Summer Hill.”
4. On 17 October 2002 the Australian Valuation Office (“the AVO”) provided Centrelink with a valuation of $310,000 for the property owned by the Applicant at 20 McArthur Street, and a valuation of $95,000 for the rear portion of the property at 44 Wellesley Street. A new valuation of $100,000 for the rear portion of the 44 Wellesley St property as at 22 October 2002 was provided by the AVO in its report of 23 March 2004.
5. On 22 October 2002 Centrelink determined the value of the Applicant’s combined assets to be too high to receive the age pension. His pension was cancelled from that date. His total assets were assessed to be $349,631, comprising $9,110 of financial assets, $95,000 for the rear portion of his residence at Wellesley Street and $245,521 for the McArthur Street property ($310,000 minus $64,479 remaining on mortgage repayments). Under s1064 (module G of part 3.2) of the Act, and as at October 2002 the limit above which age pension was no longer payable to the Applicant was $290,500.
6. On 17 February 2003 the Applicant applied to Centrelink for a review of the decision to cancel his age pension.
7. On 9 May 2003, at Centrelink’s request, the AVO conducted a second valuation on the Applicant’s McArthur Street property. The report substantially adopted the findings of a report conducted on 3 March 2003. This valuation again returned the figure of $310,000.
8. On 2 July 2003 an Authorised Review Officer (“ARO”) affirmed the decision to cancel the Applicant’s age pension. On 9 September 2003 the SSAT affirmed Centrelink’s decision. They calculated the value of the mortgage on the Applicant’s McArthur St property to be $63,000, giving the property a net value of $247,000. On 15 October 2003 the Applicant appealed to this Tribunal.
9. The issues relevant to the determination of this application are:
· What is the value of 20 McArthur Street, Guildford
· Is the “Flat 2 44 Wellesley Street Summer Hill” an exempt asset pursuant to section 1118(1)(a)(i) of the Act; and
· What is the value of the Applicant’s combined assets as at 22 October 2002.
10. At the hearing the Applicant was represented by Mr Ivan Simic, solicitor, and the Respondent by Ms Jane Green. The documents lodged with the Tribunal pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 were received into evidence at the hearing and marked T1-87 (pp1-153). The Applicant through an interpreter, and a valuer, Mr Kevin Joseph Camilleri, gave oral evidence at the hearing. Other written material was tendered during the hearing and marked as exhibits as follows:
Exhibit
Document
Date
“A”
Certificate of Compliance, Ashfield Council
19 April 1962
“B”
Floor plan marked in Red (Applicant) and Green (Tenant)
Undated
“C”
Ashfield council rate notices 1997, 2003, 2004
June 1997, June 2003, June 2004
“D”
NRMA Certificate of Insurance, addressed to Applicant
11 August 2003
“E”
Sydney Water bill, address to Applicant
19 May 2003
“F”
Rates notice and receipt from Parramatta Council
January 2002
“1”
Letter from Applicant to Centrelink
22 March 2004
“2”
Deposited Plan referable to Wellesley St
Undated
“3”
Deposited Plan referable to McArthur St and Covering letter
Undated
“4”
AVO valuation Report as to McArthur St
23 March 2004
“5”
AVO Valuation Report as to Wellesley St
22 October 2002
THE MCARTHUR STREET PROPERTY
11. In relation to the McArthur St property, the Respondent contended that the Tribunal should accept the findings of the SSAT as to its value. The total of the Applicant’s equity in the property however, they say, should be $245,521, as his mortgage at the relevant time amounted to $64,479. The mortgage amount is not contested.
12. The AVO valuer responsible for the valuation of the McArthur Street property, Mr Jim Chappell, was overseas at the time of the hearing on long service leave and unable to be called as a witness. His valuation reports of 17 October 2002, 3 March 2003 and 9 May 2003 each conclude that the value of that property be $310,000, comprised of a land valuation of $275,000 and improvements of $35,000. The value of the improvements is also not contested.
13. The Applicant takes issue with the AVO’s land value calculation of $275,000, preferring a figure given by the NSW Valuer-General at T82A/143A of $184,000. Essentially, the resolution of this issue depends on whether the Tribunal should prefer the land valuation given by the AVO or that given by the NSW Valuer-General.
14. Mr Camilleri was the author of the Wellesley Street valuation report. Although he was not the author of the McArthur Street report, he gave the following evidence to the Tribunal of the process by which the AVO conducts the valuation of a property:
“The valuations conducted by the Australian Valuation Office are normally in line with the principles of the Australian Property Institute and the property is inspected. We normally measure the property if we have access to the property. We take photographs, we look through the property and note the condition of the property and take note of what the owners tell us that might affect the property. We normally request the title of the property and normally obtain a deposit of plan [sic] and check the area of the land. We may then proceed to look at sales as close as possible to the subject property or if not close then as close as can be to try and make comparisons to the subject property. We then visit council, we check the zoning. Then we check the zoning of the properties that are being used as comparable sales and then a report is written.” (Transcript p.43)
Mr Camilleri said that by this procedure the AVO is undertaking to ascertain the market value of the property, that is, the price the property would fetch in an arm’s length transaction.
15. When asked how he calculated land value, he said:
“Depending on the area usually what we try and do is work back from an improved site, which can be very hard but or we look at land sales, direct land sales because that is the most comparable if you are trying to work out a land value. That would probably be your base and then you make adjustments depending on the location of the sites of your comparables in the main.” (Transcript p.43)
16. As to the valuation process undertaken by the NSW Valuer-General, Mr Camilleri gave evidence that the figures they produce are generated “via a computer”. This evidence, he said, was based on his industry knowledge and the experience of co-workers who formerly worked at that office.
17. On the other hand, the Applicant drew the Tribunal’s attention to a brochure from the Land and Property Information (NSW) that lists the factors the NSW Valuer-General takes into account when valuing land (T11/29). According to this brochure, an independently contracted qualified valuer visits each property and takes into account factors such as recent local sales of similar land, nearby development, views and outlook, public amenities, location and planning constraints. In the Applicant’s submission, NSW Valuer-General valuation amounts to a similar and equivalently reliable method of valuation to that of the AVO. However it was stated on the same brochure from NSW Valuer-General that their values are “not necessarily the price you could get if you sold your property”, and are “used by local councils and the State Government as one of the factors to set rates and taxes.” The AVO on the evidence tendered before the Tribunal is contracted almost exclusively by Centrelink (Transcript p.52/53) for the express purpose of calculating the market value of property for assets tests under social security legislation.
18. In submitting that the Tribunal should reject the AVO report of Mr Chappell, it was stated on behalf of the Applicant that it is not the purpose for which the valuation is undertaken that is important, but the methodology used to arrive at a figure, and that a property is not necessarily going to be sold at the value given by the AVO. The Applicant further submitted that when compared to Mr Camilleri’s report on the Wellesley Street property, important zoning information is omitted in Mr Chappell’s report, and no method of calculation is given for the land value figure arrived at on page 4 of the report. The Applicant cited Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305 as support for his contention that the Chappell report should be disregarded by reason of these deficiencies. The Applicant did not go into detail as to how Mr Chappell’s report was deficient according to the principles set out in that case.
19. I do not however in this regard accept the Applicant’s submissions. The NSW Valuer-General’s report is dated 9 October 2002, and the AVO valuations are dated 17 October 2002, 3 March 2003 and 9 May 2003. The figure of $275,000 for the value of the land was first arrived at on 17 October 2002. The difference between the two land values is approximately $91,000.
20. If, as Mr Simic submits, the methodology used by the NSW Valuer-General is as sophisticated and complex as the method used by the AVO, then the difference between the two values would to my mind appear to be better explained by the difference in purpose in obtaining the valuation, than general unreliability in Mr Chappell’s figures.
21. It is to be noted that the Applicant was content for Mr Chappell’s report to be tendered without requiring the author to attend in person or by telephone connection. No objection was raised by Mr Simic to it being tendered at the hearing. Any submission in relation to Makita v Sprowles must only go to the weight the Tribunal gives to this report.
22. As earlier noted I find that the best identifiable reason for the difference in the values to be the purpose for which they were undertaken. In these circumstances, the Tribunal prefers the value of the AVO as it is a market-value estimate, and done specifically for the purpose of asset valuation under the Act.
23. I find the value of the Applicant’s property at 20 McArthur Street, Guildford, to be $310,000, in accordance with the AVO valuations of 17 October 2002, 3 March 2003 and 9 May 2003. Thus it is to be counted as an asset of the Applicant worth $245,521 as at 22 October 2002, this after taking into account the mortgage repayments.
FLAT 2 44 WELLESLEY STREET
24. The second issue is whether or not the rear portion of the Applicant’s principal home at 44 Wellesley Street is an assessable asset in calculating the combined asset value for the purposes of the Act.
25. Exhibit “B” shows clearly the division of the premises and the living arrangements between the Applicant and the tenant. The Applicant has access to two bedrooms, a storage room, kitchen, bathroom, dining room and a terrace. At the end of the central hallway in the house is a door to which the Applicant has the key, but which is capable of being bolted from the other side. On the other side of this hallway door is the tenant’s section of the house, containing a bedroom, kitchen, bathroom, sunroom and living room. The tenant has access to this section of the house through a separate external door.
26. The Applicant gave evidence that his tenant hardly ever locks the hallway door, but that he also does not disturb his privacy. The two men occasionally get together for a drink or to enjoy each others company. The properties are not numbered separately and there is one mailbox. The Applicant has exclusive use of the garage, and the laundry is shared. A second electricity meter has been installed for the tenant’s section of the house, and the men receive two separate bills. The Applicant pays for the hot water service, and receives no other contribution from the tenant save for his $150 a week in rent.
27. Part 3.12 of the Act deals with certain provisions relating to the assets test. According to that test, in certain circumstances a person’s principal home is not to be counted as an asset for the purposes of calculating their pension. Section 1118(1) is set out relevantly as follows:
“s1118(1) In calculating the value of a person’s assets for the purposes of this Act…disregard the following:
(a) if the person is not a member of a couple – the value of any right or interest of the person in the person’s principal home that:
(i) is a right or interest that gives the person reasonable security of tenure in the home…”
28. The term ‘principal home’ is defined in ss11(5) and (6) of the Act as follows:
“11(5) A reference in this Act to the principal home of a person includes a reference to:
(a) if the principal home is a dwelling-house – the private land adjacent to the dwelling–house to the extent that the private land, together with the area of the ground floor of the dwelling-house, does not exceed 2 hectares; or
(b) if the principal home is a flat or a home unit – a garage or storeroom that is used primarily for private or domestic purposes in association with the flat or home unit.
Note: for “private land” see subsection (6).
11(6) A reference in subsection (6) to private land adjacent to a dwelling-house is a reference to land that is used primarily for private or domestic purposes in association with that dwelling-house.”
29. The Secretary, Department of Family and Community Services has developed a set of guidelines to assist in defining certain terms used in Social Security Law. The guideline entitled “Defining the Principal Home” states as here relevant:
“General Definition
The principal home is generally the home in which a customer or couple…lives for the greatest amount of time each year. The principal home includes an area of curtilage.
Self contained living areas
If a home includes a self contained living area this area MAY NOT be defined as part of a customer’s principal home, as shown in the following table.
Explanation: A self contained living area is an area with private or separate sleeping, cooking and bathroom facilities.
IF the self contained living area is
THEN the area is…
vacant
part of the customer’s principal home.
let to a near relative
part of the customer’s principal home.”
let to a person other than a near relative
NOT part of the customer’s principal home.
30. In the Secretary, Department of Employment, Education, Training & Youth Affairs v Ovari [2002] FCA 323, the Secretary had refused to continue AUSTUDY allowance to two brothers on the grounds that the value of the family’s combined assets exceeded the relevant amount enabling the students to be eligible for the student benefit. A portion of the family principal home, usually disregarded in the assets test, was assessed as being a “business asset”.
31. The Ovari family home was being used as the base for the family business. On a tax return the Ovaris had claimed 53% of such expenses as repairs, electricity, rates and insurance as business expenses, and it was on that basis that 53% of their family home was classified as a business asset. At first instance, Gyles J, with the full court agreeing on appeal, stated:
“In my opinion, once a property is found to be the principal home of the relevant person, then no right or interest which that person has in that home is to be included in that person's assets for the purposes of the assets test. It is not to the point that business activities may be conducted from the home.” Ovari v Secretary, Department of Employment, Education, Training and Youth Affairs [1999] FCA 1416.
32. In aid of defining the concept “principal home” the Respondent relied on Re Stewart and Secretary, Department of Social Security 11 ALD 470 and Re Bowden and Repatriation Commission (1992) 15 AAR 325, and Di Primio v Secretary, Department of Social Security (1993) 31 ALD 233, Secretary, Department of Family and Community Services v Kulshrestha [2003] AATA 227, Hewitt and Department of Family and Community Services [2002] AATA 348 and Secretary, Department of Family and Community Services v Leung (2003) AATA 796 as demonstrating the issues that are to be taken into account when deciding what is an exempt asset under the relevant Social Security assets tests. The Applicant essentially sought to distinguish these cases other than Hewitt as turning on their own facts.
33. The Applicant submitted that as the title to 44 Wellesley St is undivided, the proper conclusion to be drawn in the light of Ovari is that the entire property is his principal home. Thus it was said once the title to a particular parcel of land has been identified as having a property upon it which is the principal home of the social security beneficiary, then that home, however it is used, is an exempt asset for the purposes of the test.
34. I do not accept this submission. Ovari was a case where within the home in question there was no clear boundary or section used exclusively for business purposes, which is not the present case. The two sections of the Applicant’s home are clearly delineated, each man respecting the privacy of the other. Once the hallway door is shut and locked, the house is in effect divided into two discrete principal homes. Although the evidence is that this rarely occurs, the door is capable of being shut so that the Applicant could not enter even if he wished.
35. Also, cases decided since Ovari, that is Kulshrestha, Hewitt and Leung, have given more attention to the classification of “principal home”, in factual contexts than in Ovari. As it was noted in Ovari, ”The term ‘principal home’ as such is not defined in the regulations”. Apart from the departmental guidelines issued by the Secretary, that is still the case. The authorities cited above, both before and after Ovari, are more helpful in aid of a finding as to what is or is not a person’s principal home.
36. Secretary, Department of Family and Community Services v Kulshrestha [2003] AATA 227 concerned a doctor who had built extensions to his home such that a part of the property became a separate living area, divided by a door which could be locked to ensure complete privacy. The separate house had its own driveway, letterbox, kitchenette, laundry, lounge and bedroom with en suite bathroom, and the two sections were numbered 47 and 47A. Dr Kulshrestha had leased the separable portion of his house to a tenant under a residential tenancy agreement and was receiving rental income, and “all utilities apart from water [were] metered separately and charged separately.”
37. The Tribunal in giving consideration to the Ovari decision said:
“…the Full Court made it clear that it is not appropriate to ask first whether a place is used for business purposes. Rather the first question to ask is whether or not the place is the person’s principal home. Once it is decided that a place is a person’s principal home, there is no room to apportion any part that may be used for business purposes.”
38. And further in considering the meaning to be ascribed to a person’s “principal home,” said at paragraphs 25 and 26:
“25. The expression has been the subject of consideration in other cases. Two of those cases were referred to in Di Primio in considering a definition of "principal home" in ss. 4(7) to (9) of the Social Security Act 1947 ("the 1947 Act"). That definition was drafted in similar terms to that appearing in ss. 11(5) to (7) of the Act and the Tribunal said:
"64. While the 1947 Act sets out what is included in the principal home if it is a dwelling place or a flat or home unit, it does not specify how a place is determined to be a person's principal home. That has, however, been considered in a number of decisions and judgements, some of which were briefly summarised in my reasons for decision in a case of Re Kirkman and Secretary, Department of Social Security (1990) 20 ALD 400 in the passage at 402:
`Although not defined in the Act, the term has been considered by this Tribunal in Re Samek and Secretary, Department of Social Security (1988) 16 ALD 295 and Re Dickeson and Secretary, Department of Social Security (1989) 18 ALD 58. In Re Clark and Secretary, Department of Social Security (Mr McMahon (then Senior Member), 4 November, 1986, No.2968, unreported) it was said that: "A characteristic of a person's home is that he usually resides there. It is by no means necessary, however, that both go hand in hand."
In support, he referred to the judgment of Wilcox J in Hafza v Director-General of Social Security (1985) 60 ALR 674; 8 ALN N58 at 680-1 when, in considering what is meant by "a person's usual place of residence" said: "Physical presence and intention will coincide for most of the time. But few people are always at home ... The test is whether the person has ... a continuity of association with the place ... together with an intention to return to that place and an attitude that that place remains `home'": see Norman v Norman (1969) 16 FLR 231 at 236.
Without setting them out, I note that similar views have been expressed by Lord Denning MR in Herbert v Byrne [1964] 1 All ER 802, by the Court of Appeal in Beck v Scholz [1953] 1 All ER 814 and the High Court of Australia in Koitaki Para Rubber Estates Ltd v FCT (1941) 64 CLR 241 at 249.' (pages 248-249)
26. Having regard to the principles in the authorities and to the ordinary meaning of the expression, what is Dr Kulshrestha's principal home? The place in which Dr Kulshrestha resides is 47 Braeside Avenue. It is the place where he cooks, eats, sleeps, washes himself and his clothes and generally lives. It is the place where he usually resides and it is the place that he regards as home.”
39. In Re Bowden and Repatriation Commission (1992) 15 AAR 325, a case dealing with an entitlement to a service pension, similar assets test restrictions were applicable to those in the present application. The ex-serviceman had leased a flat that formed a part of his house to a tenant in an arm’s length transaction. There was no separate title to the flat and it was not an asset which he could sell or mortgage. It was said at paragraph 12 that:
“It seems clear Parliament intended not only that a “principal home” could constitute only a part of an unsubdivided property, but also that any separately let part of a property would not constitute part of a “dwelling-house”.”
Although this matter was decided under different legislation, the reasoning is analogous to the present application. It also accords with the departmental guidelines issued by the Secretary, and, in my view, the full bench decision in Ovari.
40. Other factors, drawn from the cases cited above that warrant consideration in deciding whether a home is as to the whole or a part a “principal home” include: whether the home is “a house “occupied, or intended to be occupied, as a residence” (Stewart), and whether or not a clearly identifiable portion of the property is used solely for business purposes (Di Primio). In Leung this Tribunal preferred Kulshrestha over the decision in Hewitt, and said:
“In my opinion the present case cannot be distinguished from the decision in re Kulshrestha Supra. If re Hewitt v Secretary, Department of Family and Community Services 68 ALD 552 is to the contrary then with respect as re Kulshrestha Supra is a later case and a decision of a Deputy President, I should, unless convinced it is wrong, follow that decision.”
41. The Applicant’s focus on indivisibility of title as opposed to the use to which a house is put, is in my view, misdirected. The separation of the two units, though not arranged in a formal way through subdivision or any such means, was and continues to be clear. The rear portion of the Applicant’s flat is not his principal home by virtue of the fact that he has a residential tenancy agreement on foot with a tenant, who has the right, and the means, to exclude him from that part of the house. The tenant is paying the Applicant money for these rights in the form of rent. In my view it is improper for the Applicant to on the one hand continue to accept rental monies under this agreement and on the other contend that the entire house is his “principal home” and thus entitled to exemption in any accounting of his assets in Part 3.2 of the Act.
42. In my view the proper construction of the principles of Ovari should involve identifying what part of the Applicant’s property which is indeed his or her principal home, and then a discounting of that part from an accounting of assets. The factors that the Tribunal must take into account in determining what is a person’s principal home involve more than simply identifying a parcel of land, on which is situated the Applicant’s principal home, to which the beneficiary has indivisible title.
43. I therefore find that the Applicant’s principal home is only the front portion of 44 Wellesley Street, and that the rear portion of that flat is not to be discounted in a calculation of his assets. As such the Applicant’s total assets as at 22 October 2002 consisted of $245,521 for the McArthur Street property, $100,000 for the rear portion of the Wellesley Street property and $9,110 in financial assets, totalling $354,631. Under s1064 (module G of part 3.2) of the Act, the limit above which age pension was no longer payable to the Applicant was $290,500 as at October 2002, and therefore the Applicant is no longer entitled to the age pension.
44. The decision under review is affirmed.
I certify that the 45 preceding paragraphs are a true copy of the reasons for the decision herein of DP Purvis
Signed: Guy Moloney .....................................................................................
Associate
Date/s of Hearing 15 April 2004
Date of Decision 24 June 2004
Solicitor for the Applicant Mr Simic
Advocate for the Respondent Ms Green
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