Gable and Secretary, Department of Social Services (Social services second review)
[2021] AATA 3893
•22 October 2021
Gable and Secretary, Department of Social Services (Social services second review) [2021] AATA 3893 (22 October 2021)
Division:GENERAL DIVISION
File Number(s): 2021/1248
Re:Miriam Gable
APPLICANT
AndSecretary, Department of Social Services
RESPONDENT
DECISION
Tribunal:Emeritus Professor P A Fairall, Senior Member
Date:22 October 2021
Place:Sydney
I affirm the reviewable decision, being the decision of the AAT1 dated 8 February 2021.
....................................[SGD]....................................
Emeritus Professor P A Fairall, Senior Member
CATCHWORDS
SOCIAL SECURITY – age pension – where part age pension was initially granted – company valuation – whether the mortgage debt on the applicant’s principal residence can be set off against other assets for the purposes of the asset test - whether the Applicant experienced severe financial hardship – decision affirmed
LEGISLATION
Social Security Act 1991 (Cth) ss 1118, 1121, 1122 and 1129
CASES
Achkar and Department of Family and Community Services [2001] AATA 684
Glover and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs (2010) AATA 565
Quiggin and Secretary, Department of Social Services [2019] AATA 3324
Repatriation Commission v Albert Laurence Harrison & Anor (1997) FCA 956
SECONDARY MATERIALS
Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2017
REASONS FOR DECISION
Emeritus Professor P A Fairall, Senior Member
22 October 2021
INTRODUCTION
In April 2020, the applicant applied for Age Pension (AP).[1] Centrelink rejected her application on the basis that her assets exceeded the asset test limit. She asked the Administrative Appeals Tribunal (the Tribunal) to review the Centrelink decision.
[1] T4/43-49.
On 8 February 2021, the Social Services and Support Division of the Tribunal (AAT1) revalued her combined assets at just below the relevant cut-off point for part AP, and held that she was entitled to a reduced rate of AP. The AAT1 decided that the amount held in one of her bank accounts was not assessable, being held in trust for her separated husband. The value of her motor car was reduced. Everything else remained the same. As a result, her assets were reduced by $196,955.00. Her total assets came in at $568,547.00, just below the cut-off for a part AP, as shown in the following table.
Asset
Value
Household and personal effects
$3,000.00
Vehicle
$4,000.00[2]
ANZ Saving Account No 1
$93,356.00
ANZ Savings Account No 2
$190,955.00[3]Interest in real estate 43E
$250,000.00
Loan to Company
$170,128.00
Interest in Company assets
$48,063.00[4]
Total
$568,547.00
[2] The value of the applicant’s motor vehicle was assessed as $4,000 rather than $10,000.
[3] These funds were analysed as trust funds that did not form part of the applicant’s assets.
[4] AAT1 accepted the amount as calculated by the Complex Assessment Officer.
On 12 February 2021, the applicant was approved to receive a part AP with effect from 6 April 2020, on the basis of the AAT1 decision.[5] She received an immediate payment of $4,593.98.
[5] T19/195; T20/223.
The applicant remained dissatisfied with the outcome, and applied to the Tribunal for a second review. She argued for more of her assets to be discounted.
The Tribunal heard the matter on 9 August 2021. The applicant was self-represented and gave oral evidence to the Tribunal. Ms Lauren Boyd represented the respondent. I am satisfied that the AAT1 decision is correct, for the reasons set out below, and affirm the decision under review.
BACKGROUND
The applicant and her husband are directors of a private company Sydney Steam Services Pty Ltd (‘the Company’). They own one ordinary share each.
In around 2013, they sold their home and moved to an apartment. A couple of years later, the Company acquired a factory (44F) in an industrial complex in Padstow. They already owned a leased factory (43E) in the same complex. The source of funding for the purchase by the Company of unit 44F was a matter of contention in the present case.
Later the applicant and her husband purchased a residential unit in Ramsgate Beach, which they own as joint tenants. Unfortunately, sometime later their relationship failed and they separated. Following this, the applicant resided in the apartment in Ramsgate, and her husband and his son moved to the more recently acquired factory (44F). I note in passing that Centrelink assessed this as the husband’s principal residence, while noting some concern as to whether it was a residential property.
The National Australia Bank (NAB) loan has an outstanding balance of approximately $300,000.[6] The applicant told the Tribunal that the NAB mortgage is serviced by the rent from unit 43E.[7] In her application for AP she stated: “My husband lives at [Unit 44F] no rent, he lives there. [Unit 43E] is rented $650 per week. I have $300,000 loan with NAB. I have $75,000 in bank. I have no super, no shares.”[8] She told the Tribunal that the NAB is unwilling to transfer the mortgage to other security owned by the couple, and she does not wish to do a property settlement. She wanted the NAB mortgage debt to be taken off the value of her other non-exempt assets.
[6] T4/54.
[7] T20/219.
[8] T6/57.
The Company valuation
The applicant provided a Mod PC Form following her AP application. This form is required when a person has an interest in a private Company. She did not personally complete the AP form or the Mod PC form. She said the accountant filled it out and she just signed it.
On 24 September 2020, a Complex Assessment Officer (CAO) completed an assessment of the Applicant's interest in the assets of the Company and found that she had an attributable asset value of $48,063.00, being 50% of the Company's net assets calculated as shown below.[9]
[9] RSFIC [9].
Asset Value Cash on hand $2,279 44F $430,000 Plant and equipment $166 Motor vehicles $3,745 Company's Total Assets $436,384 Less total liabilities -$340,256 ATTRIBUTION ASSETS $96,128 Applicant's share of attribution assets (50%) $48,063
Note:
Attributable assets to Miriam Gable are $48,063.
The applicant did not contest the valuation of unit 44F, or the assessment of other corporate assets, or the calculation method itself.
I note the reference in the spreadsheet to total liabilities of $340,256. In the Mod PC form the applicant declared that the Company owes her $170,128. She declared an equal amount as owing to her husband, making a total of $340,256.[10]
[10] T6/69. See Mod PC Private Company Form.
In her oral evidence, the applicant was vague and uncertain about the loan. Surprisingly, she said she knew nothing about it.[11] This is consistent with what she told a Centrelink officer.[12]
[11] Transcript, 9 August 2021, at 25, 26.
[12] See T20/219.
There is no evidence before the Tribunal relating to the terms of a loan by the applicant and her husband to the Company, the amount originally advanced, the rate of repayment, interest and so on.
The respondent contends that because the loan is reflected in the Company's financial statements, in the absence of evidence that the loan was valueless or forgiven, the Tribunal should infer that the loan is a financial asset. Moreover, the applicant had asserted the existence of the loan to the Company in her AP application.
I note that section 1122 of the Act states that:
If a person lends an amount after 27 October 1986, the value of the assets of the person for the purposes of this Act includes so much of that amount as remains unpaid but does not include any amount payable by way of interest under the loan.
The valuation of the applicant’s share of the Company is related to this issue.
I am satisfied that Applicant is an attributable stakeholder in the Company and should be assigned an attribution percentage of 50%, by reference to the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2017 (the Attribution Principles).[13] The applicant is one of two directors of the Company; holds 50% of the Company's shares, and was a substantial investor in the Company.
[13] RSFIC [21].
As to whether the loan is properly regarded as a financial asset, although the applicant was vague about the circumstances of this loan, she appeared to recognise during the hearing that a loan of about $340,000 was made to the Company. This supported her declaration in the Mod PC form she signed.
But in any event, it is hard to see any advantage for the applicant arising from this issue. If the loan to the Company is removed from consideration, the effect will be to increase the value of the applicant’s attribution share in the Company by a commensurate amount. This could be avoided only by treating the loan as an ongoing Company liability, while discounting it as a financial asset of the applicant. There is no justification for doing so.
I am satisfied that the AAT1 was correct to treat the loan to the Company as a financial asset. Taking the loan into account, I am satisfied that at the time of her application for AP, the Company had net assets of $92,167.18 and, based on an attribution of 50%, the amount to be attributed to the Applicant is $48,063.[14]
Can the mortgage debt on her principal residence be set off against other assets for the purposes of the asset test?
[14] RSFIC [41-2].
The proper treatment of the NAB mortgage and the Company loan were central issues in this review. The respondent provided the Tribunal with title searches for the Ramsgate property, which is subject to a mortgage to the NAB, and a second mortgage to the ANZ. The applicant told the Tribunal that the ANZ mortgage had been discharged.[15]
[15] Transcript, 9 August 2021, 20-21.
The relevant legislation may be found in the Act.
Section 1118 of the Act provides:
Certain assets to be disregarded in calculating the value of a person's assets
(1) In calculating the value of a person's assets for the purposes of this Act (other than sections 198F to 198MA (inclusive), Division 1B of Part 3.10, Division 2 and sections 1133 and 1135A), 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 is a right or interest that gives the person reasonable security of tenure in the home;
(b) if the person is a member of a couple--the value of any right or interest of the person in one residence that is the principal home of the person, of the person's partner or of both of them that is a right or interest that gives the person or the person's partnerreasonable security of tenure in the home;
Section 1121 of the Act provides:
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.
…
(2) Subsection (1) does not apply to a charge or encumbrance over an asset of a person to the extent that:
(a) the charge or encumbrance is a collateral security; or
(b) the charge or encumbrance was given for the benefit of a person other than the person or the person's partner.
(3) Subsection (1) does not apply to a charge or encumbrance over assets that are to be disregarded under section 1118.
The solicitor for the respondent conceded that the NAB mortgage may have some indirect connection with the loan to the Company. It may have been provided as security for the Company loan. But even if there were some indirect relationship or connection between the mortgage debt and the corporate loan, the respondent contends that the legislation does not permit a general offsetting.[16]
[16] See Repatriation Commission v Albert Laurence Harrison & Anor (1997) FCA 956 (17 September 1997); Glover and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs (2010) AATA 565 (29 July 2010); Achkar and Department of Family and Community Services [2001] AATA 684 (1 August 2001).
It is not inconceivable that money was taken from or withheld from the residential mortgage and loaned to the Company for the purpose of buying the factory (44F). But the applicant did not provide any evidence to support such a connection. Indeed, she was uncertain about the very existence of the corporate loan. There is no direct evidence before the Tribunal of any nexus between the mortgage balance and the amount loaned to the Company. There is nothing to suggest that the mortgage is secured over any of her non-exempt assessable assets. The respondent provided a title seach on the investment property (unit 43E) showing it to be unemcumbered.
The applicant’s principal residence is not an assessable asset under the asset test. The mortgage debt over her principal residence cannot be set off against the value of non-exempt assets.
Financial hardship
The financial hardship provisions of the Act are relevant in determining whether particular property may be unrealisable. However, there is no evidence that the applicant applied for severe financial hardship under section 1129(1)(e) of the Act and there is no basis for making a retrospective claim: Quiggin and Secretary, Department of Social Services [2019] AATA 3324 at [24].
In any event, the evidence would not support a claim of financial hardship. The applicant has access to financial assets including a residential property, an investment property owned jointly with her husband, as well as her share in the Company. Her reluctance to upset the status quo and engage in discussions with her husband about a property settlement is understandable but it cannot sustain a claim of financial hardship. The finality of a property settlement is a deterrent for some separated couples, although without a settlement, problems can arise, as illustrated by the present case.
CONCLUSION
I am satisfied, firstly, that the loan to the Company of $170,128 made by the applicant is a financial asset that must be taken into account in the assessment of her assets under the asset test; secondly, that the finding of AAT1 that the applicant’s attributable interest in the Company assets is $48,063 is correct, based on the calculation made by the Complex Assessment Officer; and finally, that the NAB mortgage is not relevant to the valuation of the applicant’s non-exempt assets under the asset test.
I also note that there is no challenge from either party to the revaluation of the applicant’s motor car at $4,000, or to the finding that the monies in her No 2 account are held in trust for her separated husband. I am satisfied that these findings are justified by the evidence presented to the Tribunal.
DECISION
I affirm the reviewable decision, being the decision of the AAT1 dated 8 February 2021.
I certify that the preceding 34 (thirty-four) paragraphs are a true copy of the reasons for the decision herein of Emeritus Professor P A Fairall, Senior Member
.................................[SGD].......................................
Associate
Dated: 22 October 2021
Date(s) of hearing: 9 August 2021 Applicant: In person Solicitors for the Respondent: Ms L Boyd, Hunt & Hunt Lawyers
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