Hewitt and Department of Family and Community Services - [2002] AATA 348

DECISION AND REASONS FOR DECISION [2002] AATA 348

ADMINISTRATIVE APPEALS TRIBUNAL )

) No N2001/1287

GENERAL ADMINISTRATIVE DIVISION     )
           Re      Mary Hewitt
  Applicant
           And    Secretary, Department of Family and Community Services
  Respondent

DECISION

Tribunal Ms N Bell, Member

Date15 May 2002
PlaceSydney

Decision The Tribunal sets aside the decision under review and remits the matter for reconsideration with the direction that the whole of the Applicant's property at 1A Gladstone Street Burwood is her principal home within the meaning of section 11(5) of the Social Security Act 1991.

……………………….
Ms N Bell
Member
CATCHWORDS
Social Security – age pension – assets test – Applicant owns and lives in a duplex of two units – one unit of the duplex is rented out – property is on one title - whether whole or part of the Applicant's property is her principal home

Social Security Act 1991 – sections 11 and 1118

Re Di Primio v Secretary, Department of Social Security (1993) 31 ALD 233
Ovari v Secretary, Department of Employment, Education, Training and Youth Affairs (1999) AAR 476.
Secretary, Department of Employment, Education, Training & Youth Affairs v Ovari (2000) 98 FCR 140

REASONS FOR DECISION

Ms N Bell, Member

This is an application by Mrs Mary Hewitt ("the Applicant") for review of a decision by the Social Security Appeals Tribunal ("the SSAT") on 30 July 2001 to affirm the decision of a Centrelink delegate of the Secretary, Department of Family and Community Services ("the Respondent") on 9 March 2001 to reduce the rate of the Applicant's age pension on the basis of her assets. That decision had been affirmed by an authorised review officer on 22 May 2001.
The Applicant appeared on her own behalf and the Respondent was represented by Ms Susan Mantaring. The Applicant gave oral evidence to the Tribunal and the following documents were before the Tribunal:
Exhibit           Document     Date
TD 1 Documents produced by Respondent pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 (T1-12 pp 1-27)
A1      Letter of Linda Forbes of Welfare Rights Centre to the Applicant      22 October 2001
A2      Applicant's statement         27 March 2002
R1      Respondent's Statement of Facts and Contentions     17 December 2001
R2      Respondent's letter to Applicant   27 March 2002
R3      Applicant's tax return for the year 2000   N.A

background

The Applicant, who is 78 years old, owns a property that is a duplex comprising two units at 1A Gladstone Street Burwood, each self contained and on the same title. She resides on the top floor while the ground floor is rented out. The Applicant had been in receipt of age pension when the Respondent obtained a valuation of the Applicant's property from the Australian Valuation Office ("the AVO"). That valuation increased the value of her property and, in particular, increased the value of the ground floor part of her property. On the basis of this valuation and the application of those provisions in the Social Security Act 1991 ("the Act") relating to the effect of a person's assets on their rate of pension, the Respondent decided to reduce the rate of the Applicant's pension from $211.65 to $84.55 per fortnight (T10).
Issues and legislation
The issue raised in this application is whether the Respondent was correct in including the value, as assessed by the AVO, of the downstairs part of the Applicant's property as an asset for the purposes of the calculation of her rate of pension. It is common ground that the Applicant's principal home is exempt from such inclusion. It is therefore necessary to consider whether the whole or only part of the Applicant's property is her principal home.
The legislation relevant to the above issues is sections 11 and 1118 of the Act which provide, relevantly:
"Principal home
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 home unit—a garage or storeroom that is used primarily for private or domestic purposes in association with the flat or home unit.
Certain assets to be disregarded in calculating the value of a person's assets
1118.(1) In calculating the value of a person's assets for the purposes of this Act (other than sections 198H, 198HA, 198HB, 198J, 198JA, 198JB, 198K and 198L, subparagraph 501E(1)(d)(iv) and sections 1125, 1126, 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:
(i)is a right or interest that gives the person reasonable security of tenure in the home;"

Applicant's evidence

The Applicant, who was born in 1923, told the Tribunal that the property was built by a member of her family when she was very young. She said the property was built as a duplex, comprising two units. She said that when she was about 16 years old she, her parents and her sister moved into the ground floor unit. Her aunt occupied the upper floor unit. The Applicant said she remained living in the property until she was 33 years old and got married. She then moved to her husband's house until she moved back to the property in 1967 or 1968. She currently rents the ground floor unit at a rental of $240.00 per week.
The Applicant described the access to the units as being, for the ground floor unit, through double doors on the front porch and, for the upper floor unit, through a single door on the right side of the porch and up an internal staircase. She said the property has one water meter and she pays all water bills in respect of both units. There are, however, separate meters for electricity and gas. There is one laundry for the whole property but this is currently used by the Applicant as a storeroom. She keeps a washing machine and dryer in her bathroom and her tenants keep a washing machine on the verandah at the back of the unit they occupy. There is also a garage on the property but this is not used by the tenants. The Applicant told the Tribunal that she is responsible for looking after the courtyard at the back of the property and for the paved area at the front.
The Applicant said that she never enters the ground floor unit without the tenants' permission although she does hold a key to that unit.
The Applicant said she has owned the property since 1977. Her husband's name was never on the title. In a written statement to the Tribunal (Exhibit A2) the Applicant described her recent discussions with Burwood Council ("the Council") about the possibility of converting the property to strata title to enable the sale of the ground floor unit. She said she has been advised that the Council would be unlikely to consent to such a conversion. She said she has also been advised by the Council that in order to effect a conversion she would have to obtain a search of the property at a cost of $88.00, for Council to supply details of the original approval of the building of the duplex. She also said she was advised she would have to secure the services of a surveyor with expertise in town planning and a consultant to act on her behalf. She said she was also advised by the Council that she would have to satisfy the requirements of the Land Titles Office and the Department of Urban Affairs and Planning and would have to comply with a State Environmental policy. She said she was also advised by the Council that it has a concern to preserve low cost accommodation and that there may be other issues such as safety requirements, including the need for fire doors. In addition, the Applicant said, she would have to establish a separate water meter for each unit. This would all be very costly and, according to the Applicant, beyond her means.
The Applicant also described a number of health problems that she has experienced recently. She said she does not wish to leave her home where she feels safe and protected, with friendly and helpful neighbours she has known for many years.
Submissions
The Applicant submitted that the assessable value of the lower unit in her proerty is nil because it cannot be separately realised, given its one title, and she is unable to have the property converted to strata title.
The Applicant drew the Tribunal's attention to the Tribunal's decision in Re Di Primio v Secretary, Department of Social Security (1993) 31 ALD 233 and sought to distinguish the circumstances of that case from the Applicant's circumstances in that whereas the applicants in Di Primio's case occupied a part of commercial premises and sought, successfully to have that part of the premises exempted as their principal home, the Applicant in this case occupies residential premises, a part of which she rents out to tenants.
The Applicant also referred the Tribunal to the decision of the Federal Court in Ovari v Secretary, Department of Employment, Education, Training and Youth Affairs (1999) AAR 476.
The Respondent submitted that the term "principal home" is not exclusively defined in the Act and that the ordinary meaning should be given to those words, that is, the portion of a property in which a person exclusively resides for private or domestic use. This, according to the Respondent, excludes commercial or income producing purposes.
The Respondent submitted that the possibility that the lower unit in the Applicant's property cannot be separately realised does not mean that the lower unit has no value and referred to the assets hardship provisions of the Act as a remedy for such situations. The Tribunal noted that Exhibit R2, tendered by the Respondent, is a letter to the Applicant from the Respondent dated 27 March 2002 advising her of the Respondent's decision to reject her claim for an increase in her rate of payment of age pension under the Assets Hardship Provisions on the basis that she has an unrealisable asset.
At the hearing of the application the Tribunal referred the parties to the decision of the Full Federal Court in Secretary, Department of Employment, Education, Training & Youth Affairs v Ovari (2000) 98 FCR 140 and gave the parties the opportunity to make further written submissions on the effect of that decision. Ms Mantaring, for the Respondent, very helpfully arranged to have the matter brought to the attention of the Welfare Rights Centre so that submissions might be made on the Applicant's behalf by that Centre.
The submission of the Welfare Rights Centre, on the Applicant's behalf, was that this case is similar to that of Ovari (supra) in that the Applicant is in effect running a business from her principal home and the part of her home used for business purposes cannot be separated. The Welfare Rights Centre submitted that an asset value cannot be assigned to the tenanted flat separate to the entire property as it cannot be sold or realised separately, it has no separate commercial value as an asset and as such comprises part of the Applicant's principal home.
Ms Mantaring for the Respondent submitted that the circumstances in this case can be distinguished from those in Ovari (supra) because, whereas in Ovari the property in question was a family home that was also used for conducting the family's business and no physical part of the property was exclusively used for business purposes, in the Applicant's case the property was built as a two storey duplex with 3 bedrooms on each floor. Ms Mantaring noted the Applicant's evidence that at one point the Applicant lived with her mother, father and sister on the ground floor and her aunt and uncle lived on the upper floor. Ms Mantaring emphasised the separateness of the 2 units and submitted that a distinct physical part of the property is used for business purposes.
Consideration
There is no dispute that the Applicant owns a property that is a duplex comprising two units at 1A Gladstone Street Burwood, each self contained, with separate access but on the same title. The Applicant resides on the top floor while the ground floor is rented out. The Tribunal accepts the Applicant's evidence that she receives weekly rent of $240.00 for the ground floor of the duplex and that, while the Applicant has a key to the ground floor unit, she does not enter it without the tenants' permission.
The Tribunal also accepts the Applicant's evidence that the units share a water meter and that she pays the water bills for both units but that they are separately metered for gas and electricity.
The Tribunal also accepts the Applicant's evidence that she lived at the property from when she was 16 years old until she was 33 years old and got married. She moved back to the property in 1967 or 1968 and has lived there since then.
The decision of Giles J in Ovari v Secretary, Department of Employment, Education, Training and Youth Affairs (supra) was upheld by the Full Federal Court in Secretary, Department of Employment, Education, Training & Youth Affairs v Ovari (2000) 98 FCR 140. That case concerned the Austudy Regulations but centred on an identical definition of "principal home". Their Honours said:

"12 In our respectful view, his Honour was correct. The term "principal home" as such is not defined in the regulations. Regulation 15(1) only deals with some specific situations in which there might be some room for argument as to the physical extent of the "principal home". It could not be doubted that a suburban residence of the kind described was a home of the respondents' family. The adjective "principal" is directed to excluding holiday homes and the like. No such suggestion is raised in the present case.
13 Therefore the Monash property is an asset ("any kind of property") but once identified as the "principal home" it is to be excluded by reg 15 from the family assets for the purposes of the AUSTUDY assets test. Provided the property in question is properly characterised as a principal home, the regulations do not provide for apportionment by reference to any non-domestic uses to which the home may be put. This is in contrast with the specific provision in s 51(1) of the Income TaxAssessment Act 1936 (Cth) where the words "to the extent to which" have been held to authorise and require apportionment: Ronpibon Tin No Liability v Federal Commissioner of Taxation (1949) 78 CLR 47, 55, 58-59.
14 The regulations are concerned with the value of assets. To the extent that a person or a person's family has assets, such assets can be turned into money and the person is less in need of taxpayer-funded financial support for study. The regulations fix an arbitrary limit under which a person may have assets and still receive support. Thus the focus is on value, that is to say the money equivalent of assets.
15 There was no evidence, nor did the AAT find, that the market value of the Monash property was increased or decreased by the fact that it was partly used for business purposes. Given the nature of the property, such a variation seems inherently unlikely. Nor was there any evidence or finding that some physical part of the property was exclusively used for business purposes.
16 As his Honour noted, there are cases such as that dealt with by the AAT in Re Di Primio v Secretary, Department of Social Security (1993) 31 ALD 233 which involve somewhat unusual premises, but they turn on their own facts."

The Respondent submitted that the Applicant's property is a different kind of dwelling to that considered by the Federal Court and Full Federal Court in Ovari (supra). While it is certainly the case that there is a distinction between a 4 bedroom suburban house and a two story suburban house comprising two self contained 3 bedroom dwellings, much of the reasoning of the Full Federal Court is applicable to the circumstances of the Applicant. There is no dispute that the property is her principal home. There is no provision in the Act for the kind of apportionment undertaken by the Respondent. There is, in this case, as in Ovari (supra), no evidence that the market value of the Applicant's property is increased or diminished by its partial use for income generating purposes.
While the Full Court, in Ovari (supra), noted that no part of the property in that case was exclusively used for business purposes, the Tribunal is mindful of the Full Court's comments in relation to the use, by doctors, of a portion of the doctor's principal home exclusively for the practice of medicine. In commenting on the hypothesis put forward by the Department of Employment, Education, Training and Youth Affairs in that case, of two doctors, one of whom practises from home and the other from a surgery at separate premises, noted that the different results in rate of pension arising from the circumstances of each of the doctors are not anomalous. The Full Court said:
"Different circumstances lead to different results. To take another example, a family might choose to live in a rented house and invest money which would otherwise have been used to buy a home. The family's investments would be included as assets for AUSTUDY purposes. The result is not anomalous. It simply reflects longstanding social and political policy also manifested in many other areas - capital gains tax being but one example - that a family home has a special importance beyond its value as an economic asset."
That Applicant's evidence was that she does not wish to leave her home, as she would have to were she to attempt to realise the value placed on the ground floor of her property. Her evidence was that she does not wish to leave her home where she feels safe and protected, with friendly and helpful neighbours she has known for many years. The Applicant has lived in the property continuously since 1967 or 1968 and prior to that spent the years from age 16 to 33 there. These matters serve, in the Tribunal's view, to attract the "longstanding social and political policy" referred to by their Honours in Ovari (supra)– "that a family home has a special importance beyond its value as an economic asset".
For these reasons, the Tribunal considers that the whole of the Applicant's property at 1A Gladstone Street Burwood is her principal home within the meaning of section 11(5) of the Act.
There is no dispute that the Applicant derives some financial benefit from the use of her home and that benefit, being currently a rental income of $240.00 per week, can be taken into account by the Respondent in the calculation of her rate of payment of pension by the application of the income test provisions of the Act.
Determination
The Tribunal sets aside the decision under review and remits the matter for reconsideration with the direction that the whole of the Applicant's property at 1A Gladstone Street Burwood is her principal home within the meaning of section 11(5) of the Social Security Act 1991.
I certify that the 28 preceding paragraphs are a true copy of the reasons for the decision herein of Ms N Bell, Member
Signed:       H. Sim           .....................................................................................
  Associate
Date of Hearing  28 March 2002
Date of Decision  15 May 2002
Representative for the Applicant           Self represented
Advocate for the Respondent  Ms Susan Mantaring