Gordon and Secretary, Department of Family and Community Services

[2005] AATA 331

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2005] AATA 331

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No N2004/1340

GENERAL ADMINISTRATIVE DIVISION		)
Re		EDWARD GORDON

Applicant

And SECRETARY, DEPARTMENT OF FAMILY & COMMUNITY SERVICES

Respondent

DECISION

Tribunal Ms Robin Hunt, Senior Member

Date14 April 2005

PlaceSydney

Decision The decision under review is affirmed.

...................[sgd]...........................

Ms R Hunt

Senior Member

CATCHWORDS

SOCIAL SECURITY- Age pension - Definition of asset - Financial asset and financial investment - Financial investment includes loan - Drawdown facility secured over home – Drawings made by children – Applicant’s claim that guarantor - Contract between applicant and bank - Loan is assessable asset for purposes of pensions assets test

Social Security Act 1991 – sections 9(1), 11(1), 1064, 1077, 1122

Ropert and the Secretary, Department of Social Security [1999] AATA 15

Unicomb and the Secretary, Department of Social Security (1998) 82 FCR 96

REASONS FOR DECISION

14 April 2005 Robin Hunt, Senior Member         

summary

1.      The applicant, Mr Gordon, had a revolving loan facility with a bank which was secured by the house in which he and his wife lived. He repaid most of the amount owing when he became eligible for the pension but kept the revolving loan facility. Mr Gordon and his wife were receiving the age pension when, on 19 September 2003, they completed an updated income and assets statement at the request of Centrelink. This statement showed that Mr and Mrs Gordon’s children were using their parents’ revolving bank facility. Centrelink treated the amounts borrowed by the children as loans made by Mr Gordon to his children. The SSAT on 14 September 2004 confirmed that this was the correct treatment for calculation of the pension, only varying the decision as to the actual calculation of the reduced pension payable. This resulted in a small adjustment in favour of Mr Gordon. The Tribunal has decided that the decision of the SSAT was correct and has affirmed the decision as explained below.

issue

2.      The question before the Tribunal was whether the decision to assess the advances to Mr Gordon’s children as loans and hence as financial assets of Mr Gordon for age pension purposes was the correct decision. 

evidence

3.      Mr Gordon told the Tribunal at a hearing on 24 March 2004, that he was simply a guarantor for loans advanced to his children by the bank. Mr Gordon also said that the documentation for this arrangement was between himself, or himself and his wife, and the bank that advanced the funds. The amounts borrowed by his children were secured by Mr and Mrs Gordon’s house. He received no benefit from the arrangement, made no repayments and received no money from his children. The children made repayments directly to the bank. He had changed banks since the Centrelink decision was made in 2003 but still had a similar arrangement whereby his children used a revolving facility secured over his house.

4.      Mr Gordon gave further evidence that he and his wife saw a Centrelink officer before they entered into this arrangement with the bank and the children and that the officer told them that the arrangement would not cause any problem with their pension entitlement. They then went ahead and allowed the children to draw down on the facility.

5.      Documents before the Tribunal include the updated assets and income statement signed by Mr and Mrs Gordon, dated 17 September 2003, and a bank statement for August 2003 in respect to Mr Gordon’s “mortgage power account”. The assets and income statement, at item 12, which refers to the place for declaration of money on loan to another person, indicates that the children are borrowing directly from “my facility”. Mr Gordon repeated in oral evidence that he was not earning anything from these transactions. He said that the debts had incurred about $5,000 in interest.  Mr Gordon said he regarded himself as a guarantor only and not a lender.    

6.      Mr Gordon’s pension was reduced on 20 November 2003. The Respondent’s advocate told the Tribunal that Centrelink accepted that the SSAT had made the correct decision on review and that Centrelink had implemented the SSAT decision by making repayment to Mr Gordon of $2.24.

legislation

7. Section 55 of the Social Security Act 1991 (the Act) sets out how to calculate a person’s age pension rate by reference to section 1064. Section 1064 contains modules and one of these, Module G, sets out how to reduce the rate of pension where a person is affected by the “assets reduced rate”.

8.      Pursuant to section 11(1) of the Act, the definition of "asset" includes "property or money". Section 9(1) of the Act defines "financial assets" as including a financial investment. As well, "financial investment" in section 9(1) of the Act is defined so as to include “a loan that has not been repaid in full”.

9.      Under section 1077, a person is deemed to receive ordinary income on “financial assets”. Any actual return is not treated as ordinary income, due to section 1083. The value of a loan is calculated according to section 1122. Section 1122 reads:

“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.”

analysis

10.     Mr Gordon told the Tribunal that his son and daughter were using his revolving bank facility and making repayments directly to the bank. The transactions taking place meant that the amount outstanding on the bank facility varied. Mr Gordon notified Centrelink from time to time about the amounts outstanding. Mr Gordon did not produce the bank documents that enabled his children to draw down on either the facility in place at the time of the 2003 pension reduction or at the time of the hearing. However, Mr Gordon told the Tribunal that it was correct to say that he was the person who had a contract with the bank. He stated that there was no contract between his children and the bank. He had changed banks since the date of the documents before the Tribunal. He said the new bank gave better terms than those with the bank he had been using previously.  The contracts with both banks were with him and not with his children.

11.     Mr Gordon’s evidence shows that the children have no obligation to the bank to make repayments. Their obligation is to their father, Mr Gordon. While the advances are drawn down directly by Mr Gordon’s children and they make repayments directly to the bank, this is because of the understanding between Mr Gordon and his children. It is clear that Mr Gordon’s children have no contractual arrangement with the bank and that Mr Gordon has authorised them to draw down on his facility. It follows, in my opinion, that his children’s borrowings are amounts lent by him. In other words, these amounts are loans and financial assets in accordance with section 9(1).

12.     Mr Gordon has argued that he receives no benefit from these arrangements and does not regard the advances to his children as loans by him. However, the legislation directs otherwise. As set out under the legislation above, the provisions of sections 1122, 11(1) and 9(1) lead to the inevitable conclusion that Mr Gordon’s rate of pension must be reduced by the value of his financial assets, being the loans advanced to his children. I find that the amounts drawn down are loans under sections 9(1) and assessable financial assets under section 11(1).

13.     Further, nothing in section 1122 qualifies the “value of the assets” of the person by reference to interest or related income. For the purposes of this Act, the value of a loan asset includes so much of that amount as remains unpaid. The value of these loan assets of Mr Gordon is the amount that remains unpaid, in accordance with section 1122. The amount remaining unpaid is not reduced by the interest due to the bank.

14.     The Tribunal also finds support for this interpretation in policy at paragraph 4.2.2.40 of the Guide to Social Security Law and in decided cases. The Guide points out that loans made to family members are nevertheless loans. As to whether the amount of the loan can be reduced by interest, the Tribunal agrees with an earlier Tribunal decision in Ropert and the Secretary, Department of Social Security, where the Tribunal held that no set-off was available. The Tribunal in Ropert referred to Unicomb and the Secretary, Department of Social Security where Branson J observed that nothing in section 1122 suggested that the net advantage to the person from a transaction might be considered in calculating the value of the asset. Therefore, I am of the opinion that the interest which Mr Gordon remarked was accruing on the loans does not reduce the value of his loans to his children. It follows from Unicomb that interest accruing on the loans drawn down in this case does not reduce the amount of the loan for calculation of Mr Gordon’s pension entitlement.

15.     As to the correctness of the actual calculations made by the SSAT, which were based on the loan account statements supplied by Mr Gordon, there is nothing before me to suggest that these are wrong. In addition, I note that Centrelink has implemented the rate adjustment as redetermined by the SSAT.  

16.     I therefore find that the decision to assess the advances to Mr Gordon’s children as loans and hence as financial assets of Mr Gordon for age pension purposes was the correct decision. It follows that the Tribunal affirms the decision.

17.     During the Tribunal hearing, Mr Gordon mentioned that he had sought the advice of Centrelink before he entered into the loan arrangements concerned in this case. He claimed to have relied on the advice he and his wife received. The Respondent’s advocate observed that there was an administrative scheme available to assist certain persons who had been misled or disadvantaged by an error or poor advice. It may be that Mr Gordon might have some recourse to this scheme but it is a matter for Mr Gordon whether to investigate this possibility. The Tribunal must apply the legislation as it is and has no discretion in this matter.

I certify that the 17 preceding paragraphs are a true copy of the reasons for the decision herein of Robin Hunt, Senior Member.

Signed:         .....................................................................................
  Associate: Reuben Mansour

Date of hearing  24 March 2005
Date of decision     14 April 2005
Representative for the Applicant  Self Represented

Advocate for the Respondent  Mr Lozynsky