Farag and Farag and Secretary, Department of Social Services (Social services second review)
[2020] AATA 2961
•17 August 2020
Farag and Farag and Secretary, Department of Social Services (Social services second review) [2020] AATA 2961 (17 August 2020)
Division:GENERAL DIVISION
File Number: 2019/8578
Re:Fayez Farag
APPLICANT
AndSecretary, Department of Social Services
RESPONDENT
File Number: 2019/8579
Re:Afaf Farag
APPLICANT
AndSecretary, Department of Social Services
RESPONDENT
Decision
Tribunal:Member K. Parker
Date:17 August 2020
Place:Melbourne
The Tribunal affirms the decision under review.
.....[sgd]..................................................................
Member K. Parker
Catchwords
SOCIAL SECURITY – age pension – rate of pension – members of a “pensioner couple” – assessment of “ordinary income” – treatment of account-based superannuation income stream – legislative change took effect 2015 – Applicants rolled over superannuation to new fund not realising savings provisions in respect of those legislative changes would no longer apply – consequently deeming provisions under s 1077 of Social Security Act 1991 (Cth) apply to income stream after rolling over funds – Applicants’ assessed “ordinary income” increased – consequently rate of age pension of Applicants reduced – Tribunal has no discretion not to apply deeming provisions on account of adverse circumstances of Applicants – decision affirmed
Legislation
Administrative Appeals Tribunal Act 1975 (Cth)
Social Security Act 1991 (Cth)
Social Services and Other Legislation Amendment Act 2014 (No. 14., 2014) (Cth)
Superannuation Industry (Supervision) Act 1993 (Cth)Superannuation Industry (Supervision) Regulations 1994 (Cth)
Cases
Re Beard and Secretary, Department of Social Services [2016] AATA 859
Re Catterall; Secretary, Department of Social Services [2016] AATA 691
Re Cziesche and Secretary, Department of Family and Community Services [2003] AATA 1232
Re Goonewardena and Secretary, Department of Social Services [2017] AATA 128
Re Hale and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2013] AATA 165
Re Howie; and Secretary, Department of Social Services [2017] AATA 1149Secondary Materials
Social Security Guide - FOR DECISIONMember K. Parker
17 August 2020
introduction
These two applications were linked by the Tribunal to be heard and decided together as they require consideration of the same issues and evidence.
The Applicants, Mr Fayez Labib Farag and Mrs Afaf Hanna Farag, are husband and wife. As from 28 July 2008, both have received the age pension under the Social Security Act 1991 (Cth) (SSAct) and consequently, they are members of a “pensioner couple” as defined in s 9(1) the SS Act.
These applications arose because, in February 2018, Mr Farag transferred funds held in the names of Mr and Mrs Farag from one superannuation fund to another and from which, an asset-tested income stream was paid as an account-based pension. Centrelink was not aware made aware of this transfer of funds until 1 October 2018.
On 1 October 2018, Centrelink decided to reduce Mr and Mrs Farag’s rates of age pension (Original Decision). The rates were reduced because Mr and Mrs Farag’s assessed “ordinary income” increased as certain transitional savings provisions did not apply to the funds held in the new superannuation fund. Without the application of those savings provisions, the funds held in the new superannuation fund fell within the definition of “financial investment” which in turn, fell with the definition of “financial asset” and were consequently subject to the deeming provisions under s 1077 of the SS Act. The deemed income calculated under s 1077 was factored into the assessment of (and resulted in an increase to) Mr and Mrs Farag’s “ordinary income”. This is addressed in further detail below.
Mr and Mrs Farag sought review of the Original Decision by a Centrelink authorised review officer (ARO). On 20 September 2019 the ARO varied the Original Decision (ARO Decision) by backdating the effective date of reduction in their age pension to 26 February 2018, to coincide with the date the funds were rolled over from the old fund to the new fund.[1]
[1] Refer page 5 of the T-Documents. The T-Documents are a set of documents relevant to these applications lodged with the Tribunal pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 (Cth).
Mr and Mrs Farag sought review of the ARO Decisions by the Social Services and Child Support Division of the Administrative Appeals Tribunal (AAT1). On 28 November 2019 the AAT1 affirmed the ARO Decision (Decision Under Review).
Mr and Mrs Farag seek review of the Decision Under Review by the General Division of the Administrative Appeals Tribunal (this Tribunal).
For the reasons set out below, the Tribunal agrees with the Secretary that the savings provisions do not apply in this case, and that the deeming provisions under s 1077 of the SS Act apply to the funds held by Mr and Mrs Farag in their new superannuation fund, causing a resultant increase in Mr and Mrs Farag’s “ordinary income”. No exemptions apply in this case, nor does the Tribunal have any discretion under the SS Act to order that the deeming provisions not apply to the income stream from those funds on account of Mr and Mrs Farag’s adverse circumstances as mentioned below.
Accordingly, the Tribunal affirms the Decision Under Review.
background and legislation
On 26 February 2018, superannuation funds held in the names of Mr and Mrs Farag were rolled over from Host Plus Pension Plan to AustralianSuper (Choice Income).[2] After those funds were rolled over, they were used to pay an asset-tested income stream from an account-based pension. This is not in dispute between the parties and the Tribunal finds accordingly.
[2] Refer page 5 of the T-Documents.
The rate of age pension payable to a person is worked out using the Pension Rate Calculator A at the end of s 1064 of the SS Act. Module A of s 1064 provides that a person is paid the lower of the income reduced rate and the asset reduced rate. Members of a couple will be treated as pooling their resources (i.e. income and assets) and sharing them on a 50/50 basis.[3] Module E details the effect that the “ordinary income” of a person has on a person’s maximum basic rate of age pension.
[3] Refer s 1064-A2 of the SS Act.
Section 8(1) of the SS Act defines:
(a)“ordinary income” by exclusion, as not including “maintenance income” or an “exempt lump sum”; and
(b)"income", in relation to a person, means:
(a) an income amount earned, derived or received by the person for the person's own use or benefit…
Section 9 of the SS Act provides further definitions in respect of financial assets and income streams. Of relevance, it includes the following definitions:
Financial assets and income streams definitions
(1) In this Act, unless the contrary intention appears:
…
"asset-tested income stream (long term)" means an income stream that is an asset-tested income stream (long term) under section 9D or an income stream that:
(a) is not an asset-test exempt income stream; and
(b) has, on its commencement day:
(i) a specified term of more than 5 years; or
(ii)if the person who has acquired the income stream has a life expectancy of 5 years or less--a specified term equal to or greater than the person's life expectancy.
Note: Since the income stream must be for a specified term, an asset-tested income stream (long term) cannot be an asset-tested income stream (lifetime).
…
"commencement day" , in relation to an income stream, means the first day of the period to which the first payment under the income stream relates.
…
"financial asset" means:
(a) a financial investment; or
(b) a deprived asset.
Note: For deprived assetsee subsection (4).
…
"financial investment" means:
(a) available money; or
…
(c) a managed investment; or
…
(i)an asset-tested income stream (long term) that is an account-based pension within the meaning of the Superannuation Industry (Supervision) Regulations 1994; or
(j) an asset-tested income stream (long term) that is an annuity (within the meaning of the Superannuation Industry (Supervision) Act 1993) provided under a contract that meets the requirements determined in an instrument under subsection (1EA);
but does not include a designated NDIS amount.
…
"income stream" means:
(a) an income stream arising under arrangements that are regulated by the Superannuation Industry (Supervision) Act 1993 ; or
…
(c) an income stream arising under a retirement savings account; or
…
but does not include any of the following:
…
(i) a managed investment;
…
"investment":
(a)in relation to a superannuation fund or approved deposit fund--has the meaning given by subsection (9); or
(b) in relation to an ATO small superannuation account--has the meaning given by subsection (9A).
…
"managed investment" has the meaning given by subsections (1A), (1B) and (1C).
…
"pensioner couple" means a couple, one or both of the members of which are receiving a social security pension, a service pension, income support supplement or a veteran payment.
…
(1A) Subject to subsections (1B) and (1C), an investment is a managed investmentfor the purposes of this Act if:
(a) the money or property invested is paid by the investor directly or indirectly to a body corporate or into a trust fund; and
(b) the assets that represent the money or property invested (the invested assets) are not held in the names of investors; and
(c) the investor does not have effective control over the management of the invested assets; and
(d) the investor has a legally enforceable right to share in any distribution of income or profits derived from the invested assets.
(1B) Without limiting the generality of subsection (1A) but subject to subsection (1C), the following are managed investmentsfor the purposes of this Act:
…
(d) an investment in a superannuation fund;
…
(h) an asset-tested income stream (lifetime) that does not arise under arrangements that are regulated by the Superannuation Industry (Supervision) Act 1993 .
…
(1C) The following are not managed investments for the purposes of this Act:
…
(f) an asset-test exempt income stream;
(g) an asset-tested income stream (long term);
(h) an asset-tested income stream (short term);
(i) a person's asset-tested income stream (lifetime) that arises under arrangements that are regulated by the Superannuation Industry (Supervision) Act 1993;
(j) a person's asset-tested income stream (lifetime) that does not arise under arrangements that are regulated by the Superannuation Industry (Supervision) Act 1993 if the person's assessment day (within the meaning of section 1120AB) for the income stream has occurred.
…
(1EA) The Minister may, by legislative instrument, determine requirements for the purposes of paragraph (j) of the definition of financial investment in subsection (1).
…
(9) For the purposes of this Act, a person has an investmentin a superannuation fund or approved deposit fund if the person has benefits in the fund (whether the benefits are attributable to amounts paid by the person or someone else).
Section 1072 of the SS Act provides, as relevant:
General meaning of ordinary income
A reference in this Act to a person's ordinary income for a period is a reference to the person's gross ordinary income from all sources for the period calculated without any reduction, other than a reduction under Division 1A.
Certain qualifications apply to what is considered as “ordinary income”. Potentially relevant to this application are the qualifications under:
(a)Divisions 1B of Part 3.10 of the SS Act in respect of income from “financial assets” and certain income streams; or
(b)Division 1C of the SS Act in respect of income from income streams not covered by Division 1B.
Division 1B provides rules for deeming income derived from “financial assets”. The deeming provision is contained in s 1077 of the SS Act and is set out below, as relevant:
Deemed income from financial assets--members of pensioner couples
(1) This section applies to the members of a pensioner couple.
(2)If one or both of the members of a couple have financial assets, the members of the couple are taken, for the purposes of this Act, to receive together ordinary income on those assets in accordance with this section.
(3)If the total value of the couple's financial assets is equal to or less than the couple's deeming threshold, the ordinary income the couple is taken to receive per year on the financial assets is the amount worked out by multiplying the value of those assets by the below threshold rate.
(3A)If the total value of the couple's financial assets exceeds the couple's deeming threshold, the ordinary income that the couple is taken to receive is worked out as follows:
Method statement
Step 1.Multiply the couple's deeming threshold by the below threshold rate.
Note 1: For deeming threshold see subsection 1081(2).
Note 2: For below threshold rate see subsection 1082(1).
Step 2.Subtract the deeming threshold from the total value of the couple's financial assets.
Note: For deeming threshold see subsection 1081(2).
Step 3.Multiply the remainder worked out at Step 2 by the above threshold rate.
Note: For above threshold rate see subsection 1082(2).
Step 4.The total of the amounts worked out at Steps 1 and 3 represents the ordinary income the couple is taken to receive per year on the financial assets.
(4) Each member of the couple is taken, for the purposes of this Act, to receive, as ordinary income during each week, an amount worked out under the following formula:
Before 1 January 2015 the SS Act did not bring an asset-tested income stream that is an account-based pension within the definition of “managed investments”. Therefore, such an income stream was not considered under the legislation as a financial investment and consequently, a “financial asset” for the purpose of Division 1B. Instead, this type of income stream fell under Division 1C and was not subject to the deeming provisions contained in s 1077 of the SS Act.
Legislative amendments were introduced by the enactment of the Social Services and Other Legislation Amendment Act 2014 (No. 14., 2014) (Amendment Act), the provisions relevant to these proceedings took effect on 1 January 2015, subject to certain transitional savings provisions.[4] Those amendments altered the definition of “financial investment” as appearing in s 9(1) of the SS Act to include an asset-tested income stream (long term) that is an account-based pension within the meaning of the Superannuation Industry (Supervision) Regulations 1994.[5] This meant that on and after 1 January 2015, this type of income stream would now fall under Division 1B and be subject to the deeming provisions in s 1077 of the SS Act. Further, s 1097A(2) of the SS Act otherwise excluded the operation of Division 1C of the Act.
[4] Refer Schedule 11 to the Amendment Act.
[5] Refer s 1.03 of the SIS Regulations which defines “account based pension”.
The income stream derived from the funds transferred to AustralianSuper was an account-based pension as defined in the SIS Act.[6] Accordingly, this income stream fell within Division 1B after the legislative amendments referred to above took effect which meant that, on its face, the deeming provisions applied to this income stream.
[6] Refer T-Documents T4, p 25-27.
However, transitional savings provisions were also enacted providing for the “grandfathering” of the previous provisions in certain circumstances. Those circumstances are set out in Item 48 of Sch 11 to the Amendment Act as follows:[7]
[7] There reference in Item, 48(2)(a) to “income support payment” has the meaning given by s 23(1) of the SS Act which includes the age pension.
48 Applicant Provisions
(1) The amendments made by Part 1 apply in relation to working out the ordinary income of a person in relation to days occurring on or after 1 January 2015.
(2) However, if:
(a)a person was receiving an income support payment immediately before 1 January 2015; and
(b) either:
(i)an asset-tested income stream (long term), that is an account-based pension within the meaning of the Superannuation Industry (Supervision) Regulations 1994, was being provided to the person immediately before 1 January 2015; or
(ii) an asset-tested income stream (long term), that is an annuity (within the meaning of the Superannuation (Supervision) Act 1993) provided under a contract that meets the standards determined in an instrument under subparagraph 1099DAA(1)(b)(ii) of the Social Security Act 1991, was being provided to the person immediately before 1 January 2015; and
(c) since the start of that day:
(i) the person has been continuously receiving an income support payment; and
(ii) that asset-tested income stream (long term) has been provided to the person;
then the amendments made by Part 1 do not apply in relation to the person (the primary beneficiary) and that asset-tested income stream (long term).”
Mr and Mrs Farag (or their legal representative, Mr George Ghobrial, Flemington & Kensington Community Legal Centre) did not dispute that the income stream derived from the funds held in the new superannuation fund, AustralianSuper, is an “asset-tested income stream (long term)” as defined by s 9(1) of the SS Act or that it constitutes an “account based income stream” (allocated pension) as defined by the SIS Regulations.
From 1 January 2015 until the date that Mr Farag rolled over the funds on 26 February 2018, Mr and Mrs Farag met the requirements of Item 48(2) of Sch 11 to the Amendment Act which meant that these saving provisions applied to them in respect of the income stream from Host Plus. This meant that for the earlier period (before 26 February 2018), the deeming provisions under s 1077 of the SS Act did not apply to the income stream from Host Plus.
However, upon rolling over those funds on 26 February 2018, Mr and Mrs Farag no longer met the requirements under Item 48(2) of Sch 11 to the Amendment Act and the savings provisions no longer applied to their income stream from AustralianSuper. This meant that new provisions under the Amendment Act applied having the effect of bringing the income stream from AustralianSuper it within the definition of a “financial investment” making it a “financial asset” and therefore, covered under Division 1B to which the deeming provisions in s 1077 of the SS Act apply.
issues
The issue to be determined by the Tribunal is whether the deeming provisions under s 1077 of the SS Act apply to the income stream derived from the funds held by Mr and Mrs Farag with AustralianSuper. This will require the Tribunal to consider:
(a)whether the transitional savings provisions under Item 48 of Sch 11 to the Amendment Act apply to Mr and Mrs Farag in respect of that income stream, as from 26 February 2018; and
(b)if so, whether the Tribunal has any discretion under the SS Act to treat the deeming provisions under s 1077 of the SS Act as not applying to that income stream.
hearing
At the hearing, Mr Ghobrial requested that the Tribunal consider Mr Farag’s age, being 77 years old; his medical issues; the falling value of superannuation and that applying the deeming rules were “unrealistic under the current economic circumstances”. Mr Farag requested an exemption from the deeming rules on account of “special circumstances” and invited the Tribunal to exercise the “Ministerial power under s 1084” of the SS Act.
When Mr Farag asked at the hearing why he did not seek legal or financial advice at the time he changed from one superannuation fund to another, he informed the Tribunal that before he retired he had transferred funds from one fund to another without it having any effect, so he thought that it would not make a difference when he transferred the funds from Host Plus to AustralianSuper in 2018. He told the Tribunal that when he was with Host Plus, he had “found hidden fees” because the Government required the fund to declare those fees. He said that Host Plus and AustralianSuper had not advised him “what the effect would be” if he transferred.
Mr Farag said that the age pension helped him to pay for his medical expenses and living expenses. Mr Farag said that his blood pressure was “through the roof”; that he was “very old” and that “all these things are on my head”. Mr Farag submitted that the change in assessment of Mr and Mrs Farag’s “ordinary income” as a result of switching superannuation funds meant that they were no longer entitled to My Aged Care (Home Care).[8]
[8] Refer page 30 of the T-Documents.
The Secretary’s representative, Mr Brian Sparkes, submitted that he was sympathetic to Mr and Mrs Farag’s circumstances and acknowledged that the superannuation situation was complex. Mr Sparkes submitted that “investments were made with unfortunate consequences”.
Mr Sparkes referred the Tribunal to the explanation of the application of Divisions 1B and 1C of the SS Act on and after 1 January 2015 provided by Deputy President Forgie in paragraphs [18] and [19] in the decision of Howie; Secretary, Department of Social Services [2017] AATA 1149 (Howie). Those paragraphs are extracted below together with the preceding paragraphs in order to provide context (citations omitted, and emphasis in bold):
C.1 Divisions 1B and 1C before 1 January 2015
14.Divisions 1B and 1C of Part 3.10 of the SS Act deem a person’s financial assets to return a rate of income that is assessed in accordance with their provisions. Division 1B applied to deemed income from financial assets and Division 1C with income streams.
15.Beginning with Division 1B, a “financial asset” meant, as it still does, a “financial investment” or a “deprived asset”. As defined before the 2014 Amendment Act came into operation on 1 January 2015, a “financial investment” included available money, deposit money, a managed investment, a listed security, a loan that has not been repaid in full, an unlisted public security, gold, silver or platinum bullion or an asset-tested income stream (short term). Those investments are the subject of further definition in s 9. The expression “managed investment” has the meaning given by ss 9(1A), (1B) and (1C). The amount of income that a person was taken to have received each year was a deemed amount determined according to the formulae set out in Division 1B.
16.Income streams from account based superannuation funds of the sort held by Mr and Mrs Howie were not regarded as coming within the definition of a “managed investment”. An “asset-tested income stream (long term)” was not a “managed investment”, and so not a “financial investment” or a “financial asset” for the purposes of Division 1B. They were regarded as coming within Division 1C and were not the subject of deeming provisions.
17.Again before the amendments made by the 2014 Amendment Act with effect from 1 January 2015, Division 1C was concerned with “income streams” that are not family law affected streams. The definition of the expression “income streams” in s 9(1) included various income streams arising under arrangements regulated by the Superannuation Industry (Supervision) Act 1993 (SIS Act), a public sector superannuation scheme, a retirement savings account, provided as a life insurance business or designated as an income stream by the Secretary having regard to the guidelines determined under s 9(1E). Division 1C set out the ways in which income from various income streams was to be determined. Generally, it was the amount returned by the income stream less a certain amount.
C.2 Divisions 1B and 1C on and after 1 January 2015
18.After the amendments by the 2014 Amendment Act, Division 1C does not apply to an asset-tested income stream (long term) that is an account-based pension within the meaning of the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations) or an asset-tested income stream (long term) that is an annuity within the meaning of the SIS Act provided under a contract meeting the requirements determined under an instrument under s 9(1EA) of the SS Act. They are now included in the definition of a “financial investment” in s 9(1) and so a “financial asset” bringing them within the compass of Division 1B. At the same time, they are excluded from the scope of Division 1C by the addition of s 1097A(2) expressly excluding them. Therefore, they came within the provisions of Division 1B as “financial assets” and subject to its deeming provisions.
C.3 Transitional provisions
19.Part 1 of Schedule 11 to the 2014 Amendment Act contains the amendments bringing about the changes to which I have referred. Part 2 is concerned with the application of those amendments. Item 48 provides that the amendments made by Part 1 apply in relation to working out the ordinary income of a person in relation to days occurring on or after 1 January 2015.
Further, Mr Sparkes contends that the following decisions support the correctness of the Decision Under Review: Re Catterall; Secretary, Department of Social Services [2016] AATA 691, ReBeard and Secretary, Department of Social Services [2016] AATA 859 and Re Goonewardena and Secretary, Department of Social Services [2017] AATA 128.
Mr Sparkes submitted that the transitional provisions allowed for the “grandfathering” of the previous qualifications in circumstances where a person had continued to receive, without breaks, the income stream since before the amending legislation. Mr Sparkes said that he understood that the circumstances had resulted in unfairness for Mr Farag who has lost a substantial amount of his age pension, and that this was clearly unintended by Mr Farag’s actions.
Mr Sparkes pointed out that the Respondent wrote to Mr Farag in 2014 alluding to the changes to the deeming rules, but Mr Farag may not have understood. The Tribunal notes the letter from Centrelink to Mr Farag dated 17 September 2014 produced to the Tribunal headed “Changes to the assessment of superannuation account-based income streams” stating, relevantly, as follows:[9]
[9] Refer pages 120 and 121 of the T-Documents.
We are writing to you about changes to how we assess superannuation account-based income stream products (also known as allocated income streams and account-based pensions).
From 1 January 2015, the deeming rules that apply to financial investments will be extended to account-based income stream products. This means that all financial assets will be assessed under the same rules.
The deeming rules assume your financial assets are earning a certain amount of income, regardless of the income they actually earn. If you earn more than these rates, the extra income is not assessed. Deeming encourages you to earn more income from your investments and reduces the extent to which your payments may vary.
What this means for you
The following changes will apply from 1 January 2015.
·…
·If you change products or buy a new superannuation account-based income stream product from 1 January 2015, we will assess it using the deeming rules.
·…
Mr Farag gave evidence that he could not recall receiving this advice and that he was “under stress and being treated psychologically, and on medication”. He said he was also responsible for caring for Mrs Farag who reportedly had several medical conditions, as did Mr Farag.
However, Mr Sparkes contends that nothing turns on those adverse circumstances or whether Centrelink had failed to notify Mr Farag of the effect of those changes. In short, Mr Sparkes contends that there is “no scope” for the Tribunal to “enliven the savings provisions”, as it has no discretion under the provisions of the SS Act to do so.
consideration
Mr and Mrs Farag stated (and the Tribunal notes) that the reasons for seeking review of the AAT1 Decision are as follows:[10]
Seeking a second review to determine if a different decision to be made based on the information provided. I have been retired for 12 years. A lump sun was invested in shares. Last year, a change was made between superannuation holders from Host Plus Industry Fund to Australian Super Industry Fund due to being conned by hidden fees. Same amount and same kind of investment.
I was unaware that a movement would initiate changes to my situation under new superannuation regulations. This change meant that my superannuation amount is subject to deeming rules which affected the income for the purpose of calculating the fortnightly payment. Neither Host Plus or Australian Super informed or advised of the new superannuation rules.
I suffer from numerous health and medical issues, and have also not been well. My numerous health conditions include cancer and associated pancreatic operation for treatment, diabetes and back and shoulder pain. Having to pay costs associated with these health issues and treatments, financial stress has been caused.
[10] Refer pages 1 to 3 of the T-Documents: AAT second review application form lodged with this Tribunal on 20 December 2019.
Savings provisions under Item 48 of Sch 11 to the Amendment Act do not apply
Mr and Mrs Farag were in receipt of the age pension immediately before 1 January 2015 and therefore, in receipt of an “income support payment” under s 23(1) of the SS Act. The Tribunal is satisfied that the requirement under Item 48(2)(a) of Sch 11 to the Amendment Act is met. However, the asset-tested income streams provided by AustralianSuper as an account-based pension as defined under the SIS Regulations to Mr and Mrs Farag did not commence until after 1 January 2015, when Mr Farag rolled over the superannuation funds on 26 February 2018. Based on this finding, the Tribunal is satisfied that the requirement under Item 48(2)(b)(i) of Sch 11 to the Amendment Act is not met.
It follows from those conclusions that the savings provisions under Item 48 do not apply to Mr and Mrs Farag in respect of their income streams provided by AustralianSuper as an account-based pension since 26 February 2018.
The Tribunal does not have discretion to treat the deeming provisions under s 1077 of the SS Act as not applying to those income streams
The Tribunal asked Mr Ghobrial to clarify for the Tribunal the provisions that he considered conferred a discretion on the Tribunal not to apply the deeming provisions on account of Mr Farag’s adverse circumstances. Mr Ghobrial referred to s 1084(1), under which the Minister may determine that s 1077 does not apply to certain financial investments; and sub-s (2), which applies to unrealisable assets.
No discretion arises under s 1084 of the SS Act
Section 1084 is set out below, as relevant:
Certain money and financial investments not taken into account
(1) The Minister may determine that:
(a) specified financial investments; or
(b) a specified class of financial investments;
are not to be regarded as financial assets for the purposes of section 1076, 1077 or 1078.
(2)If a financial investment is an unrealisable asset for the purposes of section 1129, 1130B or 1131, the financial asset is not to be regarded as a financial asset for the purposes of section 1076, 1077 or 1078.
(3) A determination under subsection (1):
(a) must be in writing; and
(b) takes effect on the day on which it is made or on such other day (whether earlier or later) as is specified in the determination.
The Secretary contends that:
(a)s 1084 is not intended to apply where the legislation clearly intends that the account-based income stream received in Mr and Mrs Farag’s circumstances are to be subject to the deeming rules as from 1 January 2015; and
(b)in any event, the Tribunal has previously found that it does not have power to exercise the Minister’s power under s 1084 in the decisions of Re Cziesche and Secretary, Department of Family and Community Services [2003] AATA 1232 at [70]; and Re Hale and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2013] AATA 165 at [10].
Section 1084 of the SS Act does not assist Mr and Mrs Farag in the circumstances of these applications. Firstly, this provision does not confer a Ministerial discretion intended to be exercised in individual cases, but instead provides for the Minister to prescribe certain types of investments as being investments that are not to be regarded as “financial assets”, by the making of written determination. Those determinations, if made, have general application. Mr and Mrs Farag did not point to a determination that has been made under s 1084 that might potentially apply to their circumstances. Secondly, the Tribunal agrees with the Secretary’s contention as referred to in paragraph [40(b)] above that the Tribunal does not have power to make a determination under s 1084 of the SS Act.
The Secretary submitted that the circumstances where the Minister has exercised the power to exempt certain financial assets from the deeming provisions are described in the Social Security Guide (SS Guide). Paragraph 4.4.1.40 of the SS Guide is set out below:
4.4.1.40 Exemption of Financial Investments from Deeming
Summary
This topic provides information on the following subjects:
·background to deeming exemptions,
·date of effect for deeming exemptions,
·deeming exemptions for unrealisable assets assessed under the assets test financial hardship provisions,
·deeming exemptions for compensation and insurance payments held as financial investments,
·deeming exemptions for NDIS amounts,
·deeming exemption guidelines for financial investments in church and charitable organisations,
·deeming exemption guidelines for failed financial investments, and
·exemptions for financial investments in frozen unlisted property trusts and 'saved' personal (family) loans.
Note: Deeming exemptions for superannuation investments are covered in 4.4.2.
The Tribunal considers that none of the exemptions referred to in paragraph 4.4.1.40 apply to Mr and Mrs Farag’s circumstances. Mr and Mrs Farag’s investment in AustralianSuper cannot be considered a “failed financial investment” as those funds are still generating the income stream. Nor can this investment be considered an “unrealisable asset” as Mr and Mrs Farag may access those funds at any time. The Tribunal notes that those funds are described in the superannuation statement as “unrestricted non-preserved benefits (available now)”.[11]
[11] Refer page 20 of the T-Documents.
Regarding the note at the base of this paragraph, the Tribunal has considered paragraph 4.4.2 of the SS Guide. It contains a table dealing with different types of investments. In the row labelled “Income streams”, the following information is provided:
Income streams
Two types of income streams are included under deeming:
· short term annuities with a term of 5 years or less (asset-tested income streams (short term)), and
· from 1 January 2015, account-based income streams, which includes account-based pensions and account-based annuities.
Note: Annuities which are not account-based are not included in the deeming provisions and will continue to be assessed under the return of capital rules (i.e. gross annual income less deduction amount), see 4.9.3.30.
Policy reference: SS Guide 4.4.1.30 Scope of deeming, 4.9.3.30 Means test assessment of asset-tested income streams (long term)
Further, in the row labelled “Superannuation and roll-over investments” the following information is provided:
Superannuation and roll-over investments
Superannuation and roll-over investments are treated differently depending on the age and circumstances of the person:
· if the person has reached age pension age then their superannuation or roll-over investment is a financial asset,
· if the person is LESS than the pension age then their superannuation or roll-over investment is a disregarded financial asset and is NOT assessed.
Explanation: In a very small number of cases the Minister for DSS provides exemptions for superannuation assets.
The Minister is the only person with the legislative power to exempt a superannuation investment.
Exemptions are considered if all of the investment cannot be accessed where:
· the rules of the superannuation fund prevent release, OR
· there is a legislative bar. This may arise where a person cannot access their superannuation because they do not satisfy any of the 'conditions of release' specified in the superannuation regulations. There may also be other circumstances where a legislative bar prevents access to a person's superannuation benefits, such as a Family Law Court decision.
Act reference: SS Act section 1084(1) Certain money and financial investments not taken into account, section 1118A Value of superannuation investments determined by Minister to be disregarded
Policy reference: SS Guide 4.6.5.75 Treatment of Superannuation & Roll-over Investments Under the Assets Test, 4.8 Superannuation Funds, 4.9 Income streams
The Tribunal considers that there are no prescribed Ministerial exemptions referred to in those tables that apply to Mr and Mrs Farag’s circumstances.
The Tribunal does not accept Mr Ghobrial’s contention that the exemption specified in s 1084(2) of the SS Act applies to Mr and Mrs Farag’s circumstances because it is not satisfied the income streams from the account-based pensions are “unrealisable assets”. Section 11(12) of the SS Act defines “unrealisable assets” as assets which they cannot (or could not be expected to) sell or realise or use as security for borrowing.
As mentioned above in paragraph [43], Mr and Mrs Farag’s funds held by AustralianSuper are “available now” and can be accessed (or realised) by them at any time. The Tribunal concludes that the exemption under s 1084(2) does not apply to Mr and Mrs Farag.
In consideration of these matters, the Tribunal concludes that Mr and Mrs Farag are not assisted by s 1084 of the SS Act.
No discretion arises under s 1118 of the SS Act
Mr and Mrs Farag contend that their assets could “be revalued per s 1118 of the Act” by the Tribunal, which would result in a lower deemed income (as the “ordinary income” under the deeming provisions is calculated by reference to the value of their assets). But the Tribunal is unable to identity how that could be so, as it does not appear that Mr and Mrs Farag’s fund assets would be exempt under this provision. Specifically, s 1118(1)(f)(i) of the SS Act only exempts superannuation funds of a person up to pension age or before they start drawing a pension from those funds.
The Tribunal considers that Mr and Mrs Farag’s funds held by AustralianSuper are not exempt “assets” by reason of s 1118 of the SS Act, and therefore that section would not allow for the revaluation of their “assets” to reduce the assessment of their “ordinary income”.
conclusion
For the reasons outlined in paragraphs [36] and [37] above, the Tribunal concludes that as from 26 February 2018, when Mr Farag rolled over his and Mrs Farag’s funds from Host Plus to AustralianSuper, it had the effect that the savings provisions under Item 48 of Sch 11 to the Amendment Act do not apply to the income stream paid by AustralianSuper. This means that this income stream is subject to the deeming provisions under s 1077 of the SS Act.
The Tribunal considered whether it had discretion to find that the deeming provisions should not be applied to this income stream on account of the adverse circumstances of Mr and Mrs Farag. However, while acknowledging that Mr and Mrs Farag’s circumstances are difficult, the Tribunal concludes that it does not have any such discretion under the SS Act, after having considered the potential application of ss 1084 and 1118 based on the contentions of Mr Ghobrial. Those provisions do not assist Mr and Mrs Farag. The Tribunal understands that this is not the outcome that Mr and Mrs Farag will have hoped for in these applications, however, the Tribunal has no discretion to take a different approach than otherwise mandated by the legislation.
DECISION
The Tribunal affirms the Decision Under Review.
I certify that the preceding 53 (fifty-three) paragraphs are a true copy of the reasons for the decision herein of Member K. Parker
.....[sgd]..................................................................
Associate
Dated: 17 August 2020
Date of hearing: 21 April 2020 Solicitors for the Applicants: Mr George Ghobrial, Flemington & Kensington Community Legal Centre Solicitors for the Respondent: Mr Brian Sparkes, Services Australia
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