Huntly and Anor; Secretary, Department of Employment and Workplace Relations and Anor and

[2007] AATA 1660

Administrative Appeals Tribunal

DECISIONS AND REASONS FOR DECISIONS [2007] AATA 1660

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No  Q 200600224

GENERAL ADMINISTRATIVE  DIVISION		)
Re		Secretary, Department of Employment and Workplace Relations

Applicant

And  Kerry Huntly

Respondent

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No  Q 200600740

GENERAL ADMINISTRATIVE  DIVISION		)
Re		Kerry Huntly

Applicant

And Secretary, Department of Education, Science and Training

Respondent

DECISION

Tribunal Senior Member B J McCabe

Date10 August 2007

PlaceBrisbane

Decision The decisions under review are set aside and remitted to the respondents for reconsideration. The Tribunal finds Ms Huntly satisfied the assets test as at 24 May 2004 and 2 June 2004. She does not satisfy the test as at 9 September 2004, 12 October 2004, 24 June 2005 and 22 September 2005.

..................[Sgd].........................

SENIOR MEMBER

CATCHWORDS

SOCIAL SECURITY – Assets Test – exemption for principal place of residence - proceeds from sale of principle place of residence – amount held in term deposit was intended to be applied towards purchase of new principal place of residence – exemption satisfied – decisions set aside and remitted

SOCIAL SECURITY – Assets Test – property valuations and encumbrances – negative value not possible for purpose of assets test – cannot offset a negative value of a property against equity in another property – assets test not satisfied at later points

Social Security Act 1991 ss 500Q, 573, 1118, 1121

Kirkovski v Secretary, Department of Family and Community Services [2004] FCA 790

REASONS FOR DECISIONS

10 August 2007 Senior Member B J McCabe         

1.      These proceedings deal with two appeals arising out of the affairs of Ms Kerry Huntly. The first dispute relates to Ms Huntly’s receipt of parenting payments. The Secretary of the Department of Employment and Workplace Relations (SDEWR) concluded Ms Huntly was not entitled to receive the parenting payment during the period 24 May 2004 to 24 June 2005 because the value of her assets (and that of assets attributed to her) during the period was greater than that allowed for under the assets test imposed pursuant to the Social Security Act1991 (the Act). SDEWR decided to raise and recover a debt in the amount of $13,555.12.

2.      The Social Security Appeals Tribunal (SSAT) set aside SDEWR’s decision to raise and recover the debt. The SSAT said Ms Huntly was able to satisfy the assets test during part of the period identified by SDEWR. The debt was subsequently recalculated and reduced to $1829.08. SDEWR has now appealed that decision to this Tribunal.

3.      The second dispute relates to Ms Huntly’s entitlement to receive Austudy. Her application through Centrelink to the Secretary of the Department of Education, Science and Training (SDEST) was rejected because SDEST says Ms Huntly did not satisfy the assets test. Ms Huntly was unsuccessful in her appeal to the SSAT and she has asked this tribunal to reconsider the matter.

4.      I was told the dispute in both cases turns on the value of Ms Huntly’s assets at relevant times, and how assets belonging to a company in which she was involved should be attributed to her. The role of the company only came to light on the first day of the hearing. As it happens, I do not think the value of attributable assets belonging to the company makes any difference to the outcome of my review. I set out my findings below and remit both decisions for reconsideration in accordance with my findings.

background to the dispute

5.      Ms Huntly was formerly married to Mr Gregory Jones. Mr Jones was a builder. During the course of 2002 and 2003, Ms Huntly and Mr Jones began building a property portfolio. They placed deposits on a number of blocks of land held in their joint names and in the name of a company called Kemay Investments Pty Ltd. Ms Huntly was a director of that company.

6.      Ms Huntly and Mr Jones subsequently separated. One of the blocks – at 5 Jubilee Court – was transferred into Ms Huntly’s name on 11 July 2003. The property was valued at $91,000 for the purposes of that transfer. She retained an interest in that property throughout the period under review, although she mortgaged it to the National Australia Bank as security for an advance. She also purchased a home at 8 Windrush Close. That residence was subject to a mortgage. It was regarded as her principal home at the time.

7.      Ms Huntly and Mr Jones attempted to reconcile their differences in March 2004. Ms Huntly sold her home in Windrush Close. $52,000 from the sale was invested in a term deposit. The balance of the proceeds of the sale was paid into her mortgage account with the National Australia Bank in respect of the Jubilee Court property. The attempted reconciliation with Mr Jones was unsuccessful. She then purchased a property at Oxley Court in June 2004. The property became her principal place of residence. Its purchase was partially funded out of an advance provided by the Adelaide Bank and secured by a mortgage over that property. Ms Huntly also paid $32,000 of the money from the term deposit to fund the purchase of her new home in Oxley Court.

8.      Ms Huntly subsequently acquired a property in Flinders Way on 9 September 2004 for $350,000. The property was mortgaged to the Adelaide Bank as security for a loan in the amount of $195,000.

9.      Ms Huntly added a half share in a property in Canopy Close to her portfolio on 12 October 2004. The purchase price was $260,000. It follows the value of her half share in the property on that date was $130,000 less the amount of her borrowings.

operation of the assets test

10. Section 500Q of the Act says a parenting payment is not payable to someone who does not satisfy the assets test (ie, where the value of their assets exceeds the limit applicable at that time). The equivalent provision that qualifies entitlement to Austudy is found at s 573.

11. The provisions governing the operation of the assets test are found in Part 3.12 of the Act. Section 1118 identifies a number of assets that are not included for the purposes of the test, including the value of an interest in the applicant’s principal home. Section 1121 explains how I should deal with debts. The section says I should deduct the amount of a charge or encumbrance applying to an asset from the value of the asset. References to value are references to the market value of the asset which is determined with reference to comparable sales and the best use to which the asset could be put: Kirkovski v Secretary, Department of Family and Community Services [2004] FCA 790 at [17] per Bennett J.

12.     The SSAT decided to consider the value of Ms Huntly’s assets at a series of points throughout the period under review. The relevant dates coincided with major events, like property acquisitions, which resulted in changes to the value of her assets. The secretaries prepared their submissions on this basis. I accept that is a convenient and effective basis on which to deal with the matter.

valuation of the assets

(i) As at 24 May 2004

13.     The Australian Valuation Office initially opined the land at 5 Jubilee Court was valued at $140,000: see exhibit 2 - T64 at 595. Ms Huntly nominated the same value in a form containing details about her real estate interests that was supplied to Centrelink: see exhibit 1 - T14 at 95. The SSAT accepted a valuation of $139,000 – a similar figure to that proffered by the parties. The property was subject to a mortgage securing borrowings of $28,182.09: see exhibit 3 - ST 9. I accept the property was valued at $140,000 as at 24 May 2004 and that its value for the purpose of the assets test was therefore $111,817.91. At the same time, I note the applicant held $20,000 worth of household effects and a motor vehicle. There does not appear to be any dispute in relation to the value of those assets.

14.     There is a dispute in relation to the money held on term deposit. Ms Huntly says the term deposit represents the proceeds of the sale of her principal home. In due course, she points out at least $32,000 of the money was applied towards reducing the debt on her new principal place of residence in Oxley Court. She says at least $32,000 of that money should be exempt from the assets test.

15. The SSAT referred to two bases on which an exemption might be claimed in a situation like this. It concluded s 1118(1)(r) was not available. That provision deals with the situation where a person enters into agreement to buy a new principal home before he or she has been paid under the contract to sell the previous principal home. The SSAT found as a matter of fact that was not the case here. I think the SSAT’s analysis was right, and I agree with its reasoning and conclusions in this regard. The second basis for an exemption is found in s 1118(1B)(2) of the Act. That provision says it is possible to disregard the portion of the sale price of the principal home which is to be applied towards the purchase of a new principal home. That exemption is available for 12 months or until the Secretary is satisfied the owner of the asset no longer intends to use the money for the purpose of acquiring a new home within the 12 month period: s 1118(2)(c). The SSAT decided $32,000 of the money was exempt because it was in fact used in connection with the purchase of a new home. The SSAT suggested the use to which the funds were put was a good guide to the Ms Huntly’s intentions with respect to the money before the term deposit matured.

16.     The secretaries disagree with that approach. They say the money on term deposit was not clearly derived from the sale of the principal home. But I was told that even if I adopted the SSAT’s view and concluded only the balance of the monies held on term deposit (ie, $20,000) should be counted, that would still be enough when combined with the $20,000 in value attributed to household effects and the car and the net value of the land to put Ms Huntly over the asset limit. The addition of the amount attributed to Ms Huntly as a result of her interest in Kemay Investments Pty Ltd would take her even further beyond the asset limit. If I were to decide that no part of the amount of the term deposit were to be included for the purposes of the assets test, the addition of Ms Huntly’s other assets would not cause her to exceed the assets limit.

17.     The secretaries say it is difficult to tell whether the $52,000 that was placed on the term deposit was the proceeds of the sale of the principal home. Ms Huntly insists the money came from the sale of the Windrush Close property in February 2004 for $445,000. (The balance of the proceeds was paid into a National Australia Bank mortgage account.) I have no reason to doubt her explanation of the source of the money, and I accept it. But while her new principal home was purchased in June 2004, the term deposit did not mature until October 2004. Even then, the money was not applied immediately towards the purchase of the principal home. She first deposited the money in the mortgage account with the National Australia Bank that related to the Jubilee Court property on or about 11 October 2004. The following day, Ms Huntly transferred $32,000 from the National Australia Bank mortgage account to the Adelaide Bank account relating to the Oxley Court property: exhibit 2 - T49 at 357. What effect does this have?

18.     I am satisfied from Ms Huntly’s explanation that the money in the term deposit was intended to be applied towards the purchase of her new home. While she ultimately did not apply all of the money to that end, there is no evidence to suggest she had already changed her mind during the first period under review. It follows I am satisfied the amount of the term deposit should be excluded from her assets for the purposes of the assets test during that period. Even if one accepts the values assigned to all of the other assets, the deduction of $52,000 reduces the total value of assets to less than $149,500.

(ii) As at 2 June 2004

19.     The asset limit rose to $153,000 during this period but Ms Huntly’s assets and liabilities stayed roughly the same. If one excludes the term deposit from the calculation, the total value of her assets remains below the asset limit. I am not aware of any evidence suggesting Ms Huntly’s intentions with respect to the money on term deposit had changed at this point. There is no reason for me to doubt her explanation that she intended to use the money towards the purchase of her home, albeit once the term deposit matured. I therefore accept the whole amount of $52,000 should not be counted for the purposes of the assets test.

(iii) As at 9 September 2004

20.     Ms Huntly acquired a property in Flinders Way on 9 September 2004 for $350,000. (She entered into the contract to acquire the property on 20 August 2004.) She borrowed $195,000 from the Adelaide Bank for that purpose. The property therefore had a value of $155,000 for the purpose of the legislation. That amount exceeds the asset limit of $153,000. The fact Ms Huntly appeared to have negative equity in the Jubilee Court property at this point is irrelevant as it is impossible to assign a negative value to a property and debts can only be deducted from the value of the property in respect of which the debt was raised. It follows Ms Huntly is unable to satisfy the assets test at this point.

21.     The secretaries pointed out Ms Huntly entered into the contract to acquire the Flinders Way property on 20 August 2004. The SSAT used that date as its point of reference. The analysis performed on that date yields the same outcome as the analysis undertaken on 9 September 2004. Ms Huntly conceded at the hearing she did not challenge the SSAT’s conclusion that she did not satisfy the assets test as 20 August 2004. I accept that concession was appropriately made. 

(iv) As at 12 October 2004

22.     The next date to be considered is 12 October 2004. On that date, Ms Huntly acquired a half share of a property in Canopy Close in conjunction with Mr Jones. The contract (exhibit 1 - T47 at 284) suggests the purchase price was $285,000 but it was accepted at the hearing the correct price was $260,000. Ms Huntly’s share was therefore worth $130,000. She obtained approximately $33,000 of that amount by drawing down on her National Australia Bank facility that was secured by a mortgage over the Jubilee Court property. The mortgage was extended to cover Canopy Close. Her borrowings from the National Australia Bank (spread over the two properties) totalled $197,570.39. She obtained the balance of her share of the purchase price from Macquarie Bank under a separate loan agreement. The Macquarie Bank facility was activated when Ms Huntly refinanced the Flinders Way property in October 2004 and paid out the Adelaide Bank loan. The loan was secured by a mortgage over the Flinders Way property.

23. The secretaries point out s 1121(1) of the Act does not explain how I should deal with the situation where a mortgage extends over more than one property. The secretaries said I should follow the example of the SSAT and look to s 1121(4) which deals with an analogous situation in which a mortgage extends over an asset that must be taken into account and an asset which is disregarded for the purposes of the assets test. That section suggests I should allocate the amount of the encumbrance amongst the assets in proportion to their value. It sets out the formula to be applied:

value of the charge or encumbrance  x  value of the other assets

value of all the assets

24.     I agree it is appropriate to apply the same approach in the circumstances I face in this case. Sub-sections 1121(1) and (4) deal with different situations but they are analogous. There is no reason to doubt the parliament intended the two provisions should be applied consistently.

25.     There are some minor differences between the figures used by the SSAT and the secretaries on appeal as they undertook the analysis. The secretaries say the Flinders Way property should be valued at $370,000 on the basis of a valuation carried out by United Valuers for Macquarie Bank on 21 September 2004 in connection with the refinancing: exhibit 2 - T48 at 314. The SSAT settled for a value of $350,000. It did not appear to have regard to the evidence from United Valuers, a registered valuer. I think that evidence should be taken into account, and I accept it because the valuation was provided by an independent valuer.

26.     The property at Jubilee Court was worth $140,000 and Ms Huntly’s interest in the property at Canopy Close was worth $130,000. An amount of $197,570.39 was owed to the bank in respect of those properties. The application of the formula suggests Jubilee Court’s asset value for the purposes of the assets test is $37,556.09 and the asset value of Canopy Close is $34,873.52. When those figures are combined with the asset value of $74,000 for Flinders Way (being $370,000 less the debt of $296,000 in favour of Macquarie Bank) and the amount of $20,000 attributed to household effects and the motor vehicle, one is left with a total asset value of $166,429.61 – and that is before one considers the money in the bank account or the value of assets held by Kemay Investments Pty Ltd. Given the asset limit was $153,000 at the relevant time, it seems clear Ms Huntly was unable to satisfy the assets test as at 12 October 2004.

(v) As at 24 June 2005

27.     The next relevant date is 24 June 2005, when the parenting payment was cancelled. There is a dispute between the parties over the valuations attached to the various properties. The first dispute concerns the value of the Jubilee Court property. Ms Huntly commenced building a house on the land in early 2005. The house was finished early in August 2005, after the parenting payment was cancelled. She refinanced the property during that month. The Australian Valuation Office (AVO) valued the house and land package in July 2005 at $395,000. The valuation (at exhibit 1 - T29 at 196) referred to a number of recent sales of comparable properties. Ms Huntly said the valuation should be reduced by the amount of the loan to Westpac which was taken out in August. The SSAT declined to do so because the loan was arranged after the end of the period in question. I agree that was the appropriate course. It follows I will proceed on the basis that the arrangement with the National Australia Bank was still on foot as at 24 June 2005. The debt in the amount of $199,970.30 remained in place and needed to be factored into the assessment of the value of Jubilee Court and Canopy Close.

28.     The AVO opined that the Canopy Close property was properly valued at $360,000 at this point. Ms Huntly obtained the advice of a local real estate agent, LMW Residential Pty Ltd. That appraisal suggested the value was closer to $320,000. The property was subsequently sold for $330,000. The SSAT accepted the estimate supplied by the real estate agent.

29.     The AVO also offered a more bullish estimate of the value of the Flinders Way property. Ms Huntly has obtained an estimated value from First National Real Estate in Albany Creek. The agent suggests the property would sell at around $358,000. The United Valuers valuation obtained in connection with the refinancing of the loan, with Macquarie Bank suggested the property was valued at $370,000. The AVO concluded it was worth $390,000.

30.     The Tribunal ordinarily prefers the opinions of registered valuers but it is not obliged to do so in every case. A registered valuer ideally follows a rigorous process which includes comparisons and refers to a variety of other factors that might be relevant. The opinion of a real estate agent is not necessarily the product of a transparent, methodical process – although the agent may have the advantage of being more familiar with the local market. With the benefit of hindsight, I accept the real estate agent’s opinion most closely approximated the actual sale price of the Canopy Close property. While the fact of the sale at a particular price is not necessarily conclusive evidence of the true market value – the seller may have lacked ambition and provided someone else with a bargain – there is certainly no evidence of a forced sale or incompetent marketing or other evidence suggesting the applicant was not motivated by a desire to obtain the best price. I accept the valuation of the real estate agent in respect of the Canopy Close property.

31.     I am less impressed by the opinion of the real estate agent in relation to the Flinders Way property. There are two independent valuations which suggest a higher value is appropriate. The agent’s opinion does not appear to have adequate regard to evidence of rising values in the area. Even if I accept the AVO valuation was ambitious, the valuation obtained for Macquarie Bank confirms the property was increasing in value. I accept United Valuers’ valuation of $370,000.

32.     The secretaries suggest Ms Huntly owned assets worth $496,442.57. That amount exceeds the assets limit of $153,000. Even if I accept the lower valuations of the properties advocated by Ms Huntly, the total value of her assets still clearly exceeds the asset limit. It follows she cannot satisfy the assets test at this point.  

(vi) As at 22 September 2005

33.     The last date suggested by the secretaries is 22 September 2005. That date falls outside the period under review for the purposes of assessing Ms Huntly’s entitlement to parenting payment, but it may nonetheless be relevant for the purposes of assessing her entitlement to receive Austudy.

34.     Ms Huntly had sold her interest in the property at Canopy Close by this point. She was left with her interest in Jubilee Court (which had been refinanced through Westpac) and Flinders Way.

35.     There does not appear to be any dispute that $333,000 was owed in respect of Jubilee Court at this point. If one accepts the property had a value of $395,000, the net value for the purposes of this exercise is $62,000. I do not understand there is any dispute over this estimate of value, and I accept it. I also accept the value of Flinders Way is $370,000, rather than $390,000 as the secretaries contend. That valuation was provided by United Valuers for Macquarie Bank. Given Ms Huntly still owed $295,650.04, the net value of the property after deducting the amount of the loan is $74,349.46. If one adds $23,000 (being the value of the household effects and the motor car at this point) to these figures, one arrives at total of $159,349.46. Given the asset limit was $157,000, it is clear Ms Huntly cannot satisfy the assets test – and that does not take into account assets that might properly be attributed to Ms Huntly in connection with her interest in Kemay Investments Pty Ltd.

conclusion

36.     I am satisfied Ms Huntly was able to satisfy the assets test as at 24 May 2004 and 2 June 2004. She does not satisfy the test as at 9 September 2004, 12 October 2004, 24 June 2005 and 22 September 2005. The decisions are remitted to the secretaries for reconsideration in accordance with these reasons.

I certify that the 36 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member Bernard J McCabe.

Signed:         .....................................................................................
  Associate:     Stephen O’Grady

Date of Hearing  8 March & 27 April 2007
Date of Decision  10 August 2007
Ms Huntly represented herself at the hearing.
The secretaries were represented by Mr McLeod, of counsel.