Gordana Simunovic and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs
[2012] AATA 421
•6 July 2012
[2012] AATA 421
Division GENERAL ADMINISTRATIVE DIVISION File Number(s)
2011/3303
Re
Gordana Simunovic
APPLICANT
And
Secretary, Department of Families, Housing, Community Services and Indigenous Affairs
RESPONDENT
DECISION
Tribunal Ms A F Cunningham (Senior Member)
Date 6 July 2012 Place Hobart The decision under review is affirmed.
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Ms A F Cunningham (Senior Member)
CATCHWORDS
SOCIAL SECURITY - overseas age pension - assets test - application of financial hardship provisions - whether investment land holding in Croatia is an unrealisable asset, property advertised for sale at prices well in excess of advised value - decision under review affirmed
LEGISLATION
Legislation
Social Security Act 1991, ss 11, 43, 44, 55, 1064, 1129
Social Security (Administration) Act
Social Security GuideCASES
Drake and Minister for Immigration and Ethnic Affairs 1979 2 ALD 60
REASONS FOR DECISION
Ms A F Cunningham (Senior Member)
1.The applicant, Gordana Simunovic seeks the review of a decision of the Social Security Appeals Tribunal (SSAT) dated 9 June 2011 which affirmed a decision of Centrelink cancelling Mrs Simunovic’s age pension from 30 December 2010. The decision followed a review of the financial hardship provisions under which Mrs Simunovic was granted payment of an age pension in 2009. The Centrelink officer’s decision was affirmed by an Authorised Review Officer and by the SSAT on 9 June 2011.
2.Mrs Simunovic had previously been paid age pension under the financial hardship provisions on the basis that land owned by her in Croatia was an unrealisable asset and unable to be sold because of zoning restrictions. The review subsequently found that the subject land did not constitute an unrealisable asset as the term is defined in the Social Security Act 1991 (the Act). Although Mrs Simunovic meets the qualification provisions under the Act for age pension, it was found that she did not qualify under the assets test.
3.Mrs Simunovic’s application for review was heard by telephone as she is currently residing in Croatia. Mrs Simunovic represented herself and gave oral evidence. The respondent was represented by Brian Sparkes.
BACKGROUND
4.It was Mrs Simunovic’s evidence that she left Australia to reside permanently in Croatia in 2000 and has lived there ever since. Although she had intended to return to Australia her husband became ill and later died in Croatia in June 2001.
5.Mrs Simunovic sold her property in Australia which netted $1,500,000.00 after the repayment of outstanding mortgage loans. In 2002 she paid 500,000 euro for property in Starigrad on the island of Hvar (the property) from the proceeds of sale of her Australian property. The balance of the monies were used to purchase the house in which Mrs Simunovic currently lives for 44,000 euro (approximately AUS $65,000.00). Mrs Simunovic said that she used approximately $500,000.00 to assist with her grandchildren’s care following the death of their mother.
6.Mrs Simunovic was asked by Mr Sparkes how she disposed of the balance of the proceeds of the sale which he calculated in the sum of $650,000.00, between the years 2002 and 2008 when she lodged a claim for age pension. Mrs Simunovic said that she had given some of this money to her son for business enterprises, however he was subsequently declared bankrupt and the money was not recoverable.
7.It was Mrs Simunovic’s evidence that she paid 25 euro per square metre for 20,000 square metres with the intention of obtaining planning approval and developing the property to maximise its value.
8.Following Centrelink’s decision to cancel the pension because her assets exceeded the allowable limit, on 15 April 2009 Mrs Simunovic lodged a claim for reconsideration under the assets hardship provision. A delegate determined that the property was unrealisable and that the hardship provisions applied. Mrs Simunovic was regranted age pension on 15 April 2009. Mrs Simunovic continued to receive age pension until the review conducted on 12 January 2011 and her age pension was cancelled from 29 December 2010.
THE LEGISLATION
Age pension is paid pursuant to the provisions of the Social Security Act 1991 and the Social Security (Administration) Act 1999 (the Administration Act).
As stated above Mrs Simunovic meets the qualification requirements for age pension under section 43 of the Act. Section 55 provides that the rate of age pension is calculated using the Pension Rate Calculator A at the end of section 1064 of the Act. The Pension Rate Calculator provides a Method statement that outlines the procedure for calculating the reduction of the age pension due to income and assets. The Pension Rate Calculator A includes modules detailing how to calculate the reduction due to income and assets. Module G provides the assets test. Assets are defined in section 11 of the Act as “means property or money (including property and money outside Australia)”.
The Method statement contained in Module G sets out the impact of a person’s assets on the person’s maximum payment rate. The person’s assets value limit is set out in section 1064-G3 which includes Table G1. This provision states that where a person is not a member of a couple and is a homeowner the assets value limit as at 30 December 2010 was $181,750.00. The evidence was that Mrs Simunovic is a homeowner as the term is defined in the Act. At the time of the decision the assets cut off limit before no age pension was payable was $659,250.00.
It was Mrs Simunovic’s evidence that she purchased the property for 500,000 euro in 2002. The equivalent value was assessed by Centrelink on 29 February 2008 as $818,330.60 which is well in excess of the asset limit stated above.
There has been no reduction in the value of the land, indeed it has significantly increased in value. Tendered in evidence was correspondence from Tim Coulson, Property Developer and Director, dated 16 March 2011 that the current value of the land was 150 euro per m² and up to 200 euro per m² with the approval of a UPU (low level infrastructure) planning agreement with council.
It was pursuant to section 44 of the Act which states that an age pension is not payable if the rate of pension would be nil and section 80 of the Administration Act which provides that a payment must be cancelled where it is not payable, that Centrelink determined to cancel Mrs Simunovic’s age pension.
The issue for the Tribunal to determine is whether the financial hardship provisions of the Act apply with respect to the property in Croatia.
Section 1129 of the Act provides that in the event that a person claims to suffer severe financial hardship due to the application of the assets test and they have an unrealisable asset, they can apply for consideration of the financial hardship rules. An unrealisable asset is defined in section 11 of the Act as:
“11.(12) An asset of a person is an unrealisable asset if:
(a) the person cannot sell or realise the asset; and
(b) the person cannot use the asset as a security for borrowing.
11.(13) For the purposes of the application of this Act to a social security pension (other than a pension PP single)), an asset of a person is also an unrealisable asset if:
(a) the person could not reasonably be expected to sell or realise the asset; and
(b) the person could not reasonably be expected to use the asset as a security for borrowing”.
IS THE PROPERTY UNREALISABLE?
The Tribunal finds on the basis of the evidence that Mrs Simunovic’s sole source of income up until the date of cancellation, was her Australian age pension. The evidence was that she has no savings or other sources of income. The Tribunal is accordingly satisfied that Mrs Simunovic would suffer severe financial hardship in the event of cancellation of her age pension. The Tribunal is also satisfied on the basis of the evidence provided, that at the relevant time, being the date to cancel her age pension, given the economic climate in Croatia and the uncertainty regarding the development potential of the land due to its location, Mrs Simunovic was unable to use the asset as security for borrowing. The question for the Tribunal to determine is whether at the relevant time, Mrs Simunovic was unable to sell or realise the asset and nor could she be reasonably expected to do so.
The Social Security Guide provides at 4.6.7.50 as follows:
“Unable to sell or borrow against an asset
Accept that a pensioner is unable to sell or borrow against an asset if:
The asset is on the market but cannot attract a buyer and the asking price is no higher than 10% above the assessed assets test value, or
The asset is located in a declared Exceptional Circumstances area, or in an area where there has been an interim declaration, and the practical effect is to render the asset unsaleable while this situation continues, or
There is a legal restriction or court order which prevents the asset being sold or borrowed against, or the asset is subject to a pending property settlement, or
The asset is a jointly owned home and the pensioner has fled the home as a result of domestic violence, or
The asset is owned jointly with another person and this person refuses to consent to the sale of the asset, or
The asset is owned as a tenant in common and the practical effect of this form of ownership is that the asset would be unsaleable”.
In line with the findings in Drake and Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60, the Tribunal considers it appropriate to refer to the provisions of the Social Security Guide for clarification of when it would be an unreasonable expectation for a person to sell or realise a real estate asset. It was Mrs Simunovic’s evidence that she had made attempts to sell the property which was purchased for investment purposes. The Tribunal concludes that, in the circumstances where Mrs Simunovic owned her own home and had no other source of income apart from the Australian age pension, it was not an unreasonable expectation that the property be sold or otherwise realised.
In a letter from Tim Coulson dated 2 December 2010 in which he describes himself as a “business owner”, he states that whilst the property has been actively marketed since 2005, due to planning complications regarding a lack of clarity as to potential development, coupled with local administration it has been impossible to obtain a buyer who will commit to purchase. However council have recently approved a “PLUVIA doo” which may assist in bringing about “low level planning” which may make the land saleable to international investors. However it is expected the process would take some 12 to18 months. It is Mr Coulson’s opinion that in its current state the land was worth in the region of 150 euro per m² but this would depend on the final outcome of the UPU however he did not expect the variation to be more than 10 to15% above or below this figure. Mr Coulson went on to state that “… due to the current financial conditions in Europe, there are no investors in the marked looking for this type of product due to the fact that both the second homes market is now very depressed and the local market is unable to access credit. We expect conditions to improve sometime in 2012 all be it slowly”.
Mr Sparkes submitted that there is no evidence however that there was any legal barrier to the land being sold by Mrs Simunovic. Mr Sparkes referred to a copy of the “Contract of Collaboration on designing the zoning plans” which do not reveal any obstacles to a sale pending further planning approvals.
During the course of her evidence Mrs Simunovic advised that she had endeavoured to sell the property on several occasions but had been unsuccessful. In response to the Tribunal’s questions as to when the property was first placed on the market Mrs Simunovic replied, in 2004 for 120 euro per m².
In the SSAT’s decision at paragraph 28 it is recorded:
“In recent months Mrs Simunovic approached another real estate agent in Split and listed her properties for sale at €170m². A potential buyer is currently assessing the offer, along with the proposal subsequently submitted by Mrs Simunovic’s real estate associate to buy the other lots that are part of the UPU”.
Mr Coulson advised on 7 June 2011 that Mrs Simunovic was trying to sell the land despite the absence of an UPU agreement and had ” placed it with lots of different agents in Split which is the nearest mainland city to Hvar Island and where most of the agencies are. She does have interest in several funds but due to the current economic situation as well of the lack of clarity regarding what can be built it is proving difficult to get anyone to commit to actually buying it.”
At the conclusion of the hearing Mrs Simunovic was invited to submit documentary evidence of her previous attempts to sell the property.
In compliance with this direction the Tribunal received an email from Mrs Simunovic stating that she was attaching:
“… one offer and a couple of agreements with different agents regarding the sale of the property on the island of Hvar.
Although the property was listed with several agents no sale was achieved, prior to the development plan from the local Council.
Fortunately, the final agreement, regarding the development plan was singed four days ago between the local Council and Pluvia, which represents me.
This will enhance the possibility for the sale of the property and definitely attract perspective buyers.
If required I will furnish you with the copy of the development plan (UPU), when I receive it from the architect.
Please find attached the copy of the contract regarding the sale of the boat. …”
The documents which were received by facsimile indicate that the property was marketed for 170 euros per m² on 20 August 2011 and 230 euro per m² on 25 October 2010. A letter addressed to Mr Coulson dated 10 June 2010 appeared to be an offer for 45,000 m² at 150 euro per m² on conditions including the approval of the UPU. This included land owned by neighbouring land-owners.
FINDINGS
The property comprising 20,000 m² was purchased by Mrs Simunovic for 500,000 euros for investment purposes. The Tribunal accepts that Mrs Simunovic has placed the property for sale with various agents over a number of years. The Tribunal accepts the evidence that the sensitive location of the land close to the coast and the lack of an approved UPU has made the land more difficult to sell at its advertised prices due to development uncertainty. The only evidence provided regarding the value of the property was from Mr Tim Coulson, a property developer and director, who stated in correspondence dated 16 March 2011 that the current worth of the land was 150 euro per m² but that it could be sold for a price of up to 200 euro per m² with the approval of a UPU agreement.
Despite Mrs Simunovic’s oral evidence to the Tribunal that the property was first placed on the market in 2004 at a price of 120 euro per m², she failed to provide any documentary confirmation. The documents received by the Tribunal indicate that the property was advertised for sale at 230 euro per m² on 25 October 2010 and 170 euro per m2 on 20 August 2011. The offer of 150 euro per m² for 45,000 square metres was conditional on approval of the UPU. The 45,000 m² included land from adjoining land-owners.
There is no persuasive evidence that the property has been offered for sale at the value assessed by Mr Coulson of 150 m² or within 10% of that figure being the percentage recommended by the Guide in determining the saleability of an asset. The lowest asking price was 170 euros per m² in August 2011 which represents approximately 13% on the 150 euro per m² estimated by Mr Coulson in his letter dated 2 December 2010. At the relevant time, being the date of decision under review, the evidence is that the property was being marketed for 230 euro per m² which is a considerable increase on Mr Coulson’s estimated value. It is also notable that on 10 June 2010 there was an offer to purchase the property which included Mrs Simunovic’s property at 150 m² subject to the successful approval of the UPU. It would thus appear that the asking price of 230 m² in the absence of an approved UPU was excessive and unrealistic. The offer also suggests that Mr Coulson’s estimated valuation in the absence of a UPU was unrealistic. It is noted that he does not profess to be a registered property valuer.
Mrs Simunovic purchased the property in 2002 for 500,000 euro. The size of the property was just under 20,000 square metres giving a price per square metre of approximately of 25 euro. Even at a sale price of 50 euro per square metre Mrs Simunovic would have doubled her investment return.
Whilst the Tribunal understands Mrs Simunovic’s desire to maximise her return on the property purchased for investment purposes as is evidenced by the prices for which the property has been advertised for sale in recent years, as stated in the Guide at 4.6.7.10 “a customer is expected to re-arrange their financial affairs before calling on the community for income support through the social security system”.
There was no evidence of a legal impediment to selling the property or that a UPU agreement with council would not be forthcoming at some stage. On the available evidence the Tribunal is satisfied that the land was realisable in the absence of a finalised UPU for a price less than that for which it has been marketed from time to time. Mrs Simunovic has been trying to sell the property in the absence of a finalised UPU and there has been interest by prospective purchasers but not at the advertised price.
The Tribunal agrees with the submission advanced on behalf of the respondent that it is an inappropriate application of the social security legislation for a person to rely on the social security system for support while developing an asset for better return. At the relevant time the property was being marketed for 230 euro per m² which if sold, would have grossed an amount of 4 million euro in excess of the original purchase price.
The Tribunal concludes that the property could be sold albeit at a more realistic price and it was not unreasonable for Mrs Simunovic to be expected to sell the property. For these reasons the Tribunal determines that the property comprising some 19,709 m2 in Stari Grad, Croatia is not an unrealisable asset for the purposes of the Act and consequently the financial hardship provisions have no application.
The decision under review is accordingly affirmed.
I certify that the preceding 35 (thirty -five) paragraphs are a true copy of the reasons for the decision herein of ........................................................................
Administrative Assistant
Dated
Date(s) of hearing 12 April 2012
Applicant In person
Counsel for the Respondent Mr Brian Sparkes
Solicitors for the Respondent Centrelink – Program Litigation and Review Branch
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