Ieraci and Secretary, Department of Employment and Workplace Relations
[2007] AATA 1561
•18 July 2007
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2007] AATA 1561
ADMINISTRATIVE APPEALS TRIBUNAL )
) No S 200600255 &
GENERAL ADMINISTRATIVE DIVISION ) S 200600256 Re COSIMO IERACI AND CHARMAINE HELEN IERACI Applicants
And
SECRETARY, DEPARTMENT OF EMPLOYMENT AND WORKPLACE RELATIONS
Respondent
DECISION
Tribunal Senior Member L Hastwell Date18 July 2007
PlaceAdelaide
Decision The Tribunal affirms the decisions under review.
..............................................
L HASTWELL
(Senior Member)
CATCHWORDS
SOCIAL SECURITY – pensions, benefits and allowances – Disability Support Pension – Wife Pension – assets test – value of real estate – can secured debt be used to reduce value – funds at bank – write off – waiver – special circumstances considered – decisions affirmed
Social Security Act 1991 ss 11(1), 1064-G1, 1064-G3, 1064AZ, 1121(1), 1223(1), 1236(1A), 1237A(1), 1237AAD
Social Security (Administration) Act 1999 s 68(2)
Re Beadle and Director-General of Social Security (1984) 6 ALD 1
REASONS FOR DECISION
18 July 2007 Senior Member L Hastwell 1. Cosimo and Charmaine Ieraci (the applicants) were at all relevant times recipients of Disability Support Pension (DSP) and Wife Pension (WP) respectively. For pension calculation purposes, their assessable assets included real estate situated at 351 Regency Road, Prospect (the Regency Road property) and Lot 101, Kings Road, Paralowie (the Kings Road property).
2. The applicants had provided the respondent (the Department) with valuations for those properties which were the Registrar-General’s valuations and were the values used by council in assessing rates, etc. The Department had accepted those values and had assessed the pension entitlements accordingly.
3. In 2004, after receiving some information from the public, the Department commenced an inquiry into the financial affairs of the applicants. It came to the Department's attention that in an application for finance lodged by the applicants in October 2003, the value of the two relevant properties had been declared by the applicants as having a considerably higher value than that which they had provided to the Department some months earlier.
4. The Department commissioned an independent valuation as a result of which they determined that the applicants’ assets were valued at a higher level than that previously accepted by the Department. An overpayment in respect to DSP and WP was raised against each of the applicants.
5. Mr Ieraci also had $60,000 in a bank account and the Department brought to account $50,000 of that sum in assessing the value of his assets. Mr Ieraci asserted that all these funds belonged to his son.
6. An Authorised Review Officer affirmed the decision in relation to each of the applicants on 5 June 2006. The applicants sought review of the decisions to the Social Security Appeals Tribunal (SSAT). Both applications were heard by the SSAT on the same date and were affirmed on 11 July 2006. The applicants seek review of the SSAT decisions to this Tribunal.
7. Mrs Ieraci’s entitlements to WP are dependant on her husband’s entitlement to DSP. Their assets are treated as joint assets, and so the Tribunal will deal with both matters in the one decision.
relevant legislation
8. The relevant legislation is found in the Social Security Act 1991 (the Act) and the Social Security (Administration) Act 1999 (the Administration Act).
9. Entitlements to DSP and WP are subject to an assets test. Section 11(1) of the Act defines assets in the following terms:
“asset means property or money (including property or money outside Australia).”
10. Section 1121(1) of the Act provides:
“1121(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.
Note: this section does not apply to an asset to which section 1121A (primary production assets) applies.”
11. Section 1064-G1 of the Act sets out the assets test relevant to DSP and WP in the following terms:
“1064-G1 This is how to work out the effect of a person’s assets on the person’s maximum payment rate:
Method statement
Step 1. Work out the value of the person’s assets.
Note 1:for the treatment of the assets of members of a couple see point 1064-G2.
Note 2:for the assets that are to be disregarded in valuing a person’s assets see section 1118.
Note 3:for the valuation of an asset that is subject to a charge or encumbrance see section 1121.
Step 2. Work out the person’s assets value limit (see point 1064-G3 below).
Note: a person’s assets value limit is the maximum value of assets the person can have without affecting the person’s pension rate.
Step 3.Work out whether the value of the person’s assets exceeds the person’s assets value limit.
Step 4.If the value of the person’s assets does not exceed the person’s assets value limit, the person’s assets excess is nil.
Step 5.If the value of the person’s assets exceeds the person’s assets value limit, the person’s assets excess is the value of the person’s assets less the person’s assets value limit.
Step 6.Use the person’s assets excess to work out the person’s reduction for assets using points 1064-G4 to 1064-G7 below.”
12. Section 68(2) of the Administration Act provides:
“68 Person receiving social security payment or holding concession card
…
(2)The Secretary may give a person to whom this subsection applies a notice that requires the person to do either or both of the following:
(a) inform the Department if:
(i)a specified event or change of circumstances occurs; or
(ii)the person becomes aware that a specified event or change of circumstances is likely to occur;
(b)give the Department one or more statements about a matter that might affect the payment to the person of the social security payment.
…”
13. Section 1223(1) of the Act provides that an overpayment becomes a debt due to the Commonwealth in the following terms:
“1223(1) Subject to this section, if:
(a) a social security payment is made; and
(b)a person who obtains the benefit of the payment was not entitled for any reason to obtain that benefit;
the amount of the payment is a debt due to the Commonwealth by the person and the debt is taken to arise when the person obtains the benefit of the payment.
…”
14. There can be waiver or write-off of a debt in particular circumstances. These provisions are set out in the following sections of the Act:
“1236(1A) The Secretary may decide to write off a debt under subsection (1) if, and only if:
(a) the debt is irrecoverable at law; or
(b) the debtor has no capacity to repay the debt; or
(c)the debtor’s whereabouts are unknown after all reasonable efforts have been made to locate the debtor; or
(d)it is not cost effective for the Commonwealth to take action to recover the debt.
…
1237A(1)Subject to subsection (1A), the Secretary must waive the right to recover the proportion of a debt that is attributable solely to an administrative error made by the Commonwealth if the debtor received in good faith the payment or payments that gave rise to that proportion of the debt.
Note:Subsection (1) does not allow waiver of a part of a debt that was caused partly by administrative error and partly by one or more other factors (such as error by the debtor).
…
1237AAD Waiver in special circumstances
The Secretary may waive the right to recover all or part of a debt if the Secretary is satisfied that:
(a) the debt did not result wholly or partly from the debtor or another person knowingly:
(i) making a false statement or a false representation; or
(ii)failing or omitting to comply with a provision of this Act or the 1947 Act; and
(b)there are special circumstances (other than financial hardship alone) that make it desirable to waive; and
(c) it is more appropriate to waive than to write off the debt or part of the debt.
Note 1: Section 1236 allows the Secretary to write off a debt on behalf of the Commonwealth.
Note 2: This section has effect subject to section 1237AAE in relation to an assurance of support debt.”
issues
15. In each case the issues to be determined are:
·the value of Mr Ieraci’s assets during the relevant period of the overpayment, being 23 October 2003 to 8 February 2005;
·whether the value of his assets was such that an overpayment of DSP and WP has been correctly raised;
·whether there has been a correct calculation of the overpayment;
·can the line of credit facility taken out by Mr Ieraci in late 2003 and secured against one of the two relevant properties be treated as an encumbrance that reduces the value of that asset;
·whether $50,000 of the funds held in a bank account in Mr Ieraci’s name were properly included as his asset even though he asserts that he has gifted those funds to his son;
·whether the overpayment is a debt due to the Commonwealth; and if so
·is there any basis for write-off or waiver of some or all of the debt?
the hearing
16. The applicants represented themselves at the hearing. Ms Boylan represented the Department. Both the applicants gave evidence and David Conigrave, a valuer from the Australian Valuation Office, gave evidence for the Department. The documents filed under s 37 of the Administrative Appeals Tribunal Act 1975 were received into evidence.
17. The applicants did not dispute the calculation of the overpayments. Their argument was that no overpayment existed at all as their assets had been wrongly valued by the Department and liabilities had not been properly brought to account.
18. Mrs Ieraci gave evidence. She said that she had always given the Registrar-General’s values to the Department with respect to the two properties in question and the Department had not previously questioned those valuations. She could not understand why they could now produce their own independent valuation and, based on that, raise an overpayment.
19. In around 2003 she and her husband decided that they would build three units on the Regency Road property, with a view to being able to generate an independent source of income and cease reliance on Social Security payments.
20. Building of the units on the Regency Road property commenced in December 2003. They financed the development by drawing up on a line of credit as payments became due. By 30 June 2004, approximately $260,000 had been drawn on the investment loan secured against the Regency Road property.
21. They then travelled overseas in August 2004 and when they returned to Adelaide in October of that year they found a letter from Centrelink indicating that an investigation of their financial affairs had commenced.
22. With respect to the $60,000 in Mr Ieraci’s bank account, Mrs Ieraci told the Tribunal that this was child endowment saved for the children. She said her husband also put their son’s money in his personal account. She said that these funds belonged to their son and should not be maintained against their assets.
23. She agreed that in a loan application to the Commonwealth Bank for funding for their property development dated 23 October 2003 (T18/278) they had asserted that the Kings Road property was worth $480,000 and the Regency Road property was worth $300,000. She said that the bank told her and her husband to put those figures on the document so that they would succeed in obtaining a loan. She acknowledged that she was a joint applicant for the loan, but said that they had inflated the value of the two properties.
24. The three units are complete and are being rented out. Mrs Ieraci is now working. She is currently an undischarged bankrupt and said that this was due to her gambling, which arose from depression.
25. Mr Ieraci also gave evidence. He confirmed his wife's evidence. He agreed that in October 2003 he had applied to the Commonwealth Bank for a loan to develop the Regency Road property. He said that he had inflated the value of the properties when filling out the application. He said that his accountant had said that the fact that he was borrowing meant that he had no difficulties with receiving ongoing payments from Centrelink while doing the development.
26. When it was put to him that he had received letters requiring him to notify the Department if there was an increase in the value of his assets, his response was simply that the Department never challenged the value of assets previously.
27. He did not agree with the value put on the properties by the independent valuer commissioned by the Department. He called no independent evidence of his own as to valuation of the two relevant properties.
28. David Conigrave gave evidence for the Department. He is a licensed valuer employed by the Australian Valuation Office. His witness statement was received into evidence as Exhibit R11 and he confirmed his valuations of the two subject properties. He was confident as to his valuation based on his experience valuing similar properties in the market. His valuation report had valued the Kings Road property, at $155,000 as at 1 October 2003. He valued the Regency Road, property at $160,000 as at the same date.
contentions
29. The Department contends that at the date that the applicants applied for finance to develop the Regency Road property in late 2003, they were aware that the values of the two subject properties were considerably higher than the value that they had provided to the Department some months earlier. Their application for finance to the Commonwealth Bank was dated 23 October 2003 and is contained at T18/278.
30. The Department contends that the applicants had an obligation to inform the Department of the increased value of their assets and that they failed to do so. Their pension entitlements should be re-assessed in light of the correct values of the properties as at that date. The Department now relies on Mr Conigrave’s valuations and the overpayments in each instance are now $9,672.53.
31. The Department has agreed to write-off Mrs Ieraci’s debt until such time as she is discharged from bankruptcy in 2010. Nevertheless, the Tribunal still needs to consider whether there has been an overpayment in each case.
32. The Department argues that the line of credit that was used to fund the building on the Regency Road property is not an encumbrance that can be used to reduce the value of that asset. That line of credit was drawn down progressively as building took place and so the value of the Regency Road property would have increased commensurately with the increase in the line of credit.
33. The Department argues that the value of the loan should not be offset against property value because the net effect is neutral. The Department relied on a statement of Esmond McKeown (Exhibit R4), a complex assessment officer with the Department, as to why the debt is not offset. The funds were first made available to the applicants in late December 2003, with drawdowns occurring until August 2004, at which time the advance limit of $260,000 had been reached. There is no contention that these funds were spent on anything other than building the units at the Regency Road property, and therefore the funds spent on the properties are added to their value and if relevant apportioned between them on the basis on their respective values.
34. The Department further contends that the Act provides for the assets of a couple to be pooled and so even though the assets are not in the name of Mrs Ieraci, s 1064AZ of the Act allows the Department to pool the assets for the purposes of determining each party’s entitlement to a pension.
35. With respect to the sum of $60,000 which the applicants claim belongs to their son on the basis that it includes child endowment payments received for their son over the years and loans from their son, the Department argues that there is absolutely no evidence that these funds belong to anyone other than Mr Ieraci and should be properly included in his assets with the allowance of $10,000 per year that can be disregarded on the basis of the gifting rules. There is no independent evidence to substantiate Mr Ieraci’s assertion that these funds do not belong to him.
36. The Department says that there is no basis for variation or write-off of the debt. They concede that as Mrs Ieraci is now bankrupt, her debt has been temporarily written-off and the Department will not seek to recover that debt until she is discharged from her bankruptcy. Mr Ieraci has the capacity to repay. The debt is recoverable and it is cost effective for the Department to recover it.
37. The applicants relied on their argument that the assets should be reduced by the value of the debt and that their accountant told them that there would not be a problem.
findings of fact
38. The Tribunal made the following findings:
·The applicants were both recipient of pensions as at 23 October 2003 and Mr Ieraci’s assets at that date included the properties at Regency Road and Kings Road.
·At all relevant times the applicants provided the Department with the Registrar-General's valuation for the two properties. For the 2002/03 and 2003/04 financial years, Regency Road was attributed a value of $110,000. Kings Road was attributed a value of $56,000 for the 2002/03 financial year and $71,000 for the 2003/04 financial year.
·On 23 October 2003 the applicants applied to the Commonwealth Bank for a loan for the purposes of developing units on the Regency Road property. In their loan application they declared the value of the Regency Road property to be $300,000 and the value of the Kings Road property to be $480,000.
·On the strength of this loan application, they were granted a loan of $260,000 which was effectively a secured line of credit against the Regency Road property.
·The loan became available in late December 2003. The borrowers were both of the applicants.
·The investment home loan was used solely for the purpose of developing units on the Regency Road property, and bank statements showed progressive drawdowns on that loan until it was fully drawndown by August 2004.
·The applicants were overseas between August and November 2004. They failed to respond to a letter from Centrelink to Mr Ieraci requesting that he have a medical review for his DSP. When they returned from overseas they discovered that they were still receiving the pension despite their failure to respond to the letter.
·As at 1 October 2003 the value of Lot 101 Kings Road, Paralowie, was $155,000.
·As at 1 October 2003 the value of the Regency Road property was $160,000.
·The sum of $60,000 was in a bank account in the name of Mr Ieraci .
discussion of evidence and application of the law
39. The facts in this case are straightforward. There is no challenge by the applicants to the amount of the overpayments, but they challenge the fact of the overpayments.
40. The Tribunal is satisfied, on the balance of probabilities, that when the applicants applied for a loan in October 2003 they were aware that the value of the two properties was higher than that which was being used by the Department for the purposes of assessing their entitlement to DSP and WP.
41. The Tribunal is satisfied, on the balance of probabilities, that Mr Ieraci’s son has no claim to the funds in Mr Ieraci’s account in which he held $60,000.
42. DSP is subject to an assets test pursuant to s 1064-G1 of the Act. The two properties are within the definition of assets as set out under s 11(1) of the Act.
43. The applicants both received letters from the Department on a regular basis requiring them to advise Centrelink of any changes to their circumstances that may affect their entitlements. At no stage did they advise the Department of any alteration in the value of their assessable assets during the relevant period.
44. Pursuant to Table G-1 (Assets Value Limit) in s 1064-G3 of the Act, the applicable individual asset value limit for a person in Mr Ieraci’s position was $78,750 as at 23 October 2003. Mrs Ieraci’s entitlement to WP is calculated by taking into account the joint assets of both parties and so the fact that the properties are registered solely in Mr Ieraci’s name is immaterial and her entitlement to a pension is also affected by the asset value of the properties.
45. Although Regency Road became subject to an encumbrance at the point where the applicants were granted a secured line of credit in late 2003, it is appropriate to allocate the expenditure of those funds on the property as the expenditure was improving the value of the properties as is indicated by the fact of the progressive drawdowns on that loan as building progressed. The applicants drew the loan down for the building of the units.
46. The Tribunal accepts the calculations set out in Exhibit R4 in that regard. The funds were spent on the Regency Road property. Their value was increasing commensurately with the expenditure on them.
47. With respect to the $60,000 which came into a bank account in September 2004, the applicants were not able to give any satisfactory explanation as to why their son had any legitimate claim to those funds. The fact that some of it could be derived from child endowment payments does not give ownership in those funds to the son. It is notable that their son was not called to give evidence.
48. Their bank account showed substantial savings for people on pensions. There was evidence of significant withdrawals and then significant deposits over a period of time. No documentary evidence was produced with respect to any debt owed to a third party, nor did any third party give evidence with respect to funds owed to them by Mr Ieraci. In the circumstances, the Tribunal finds, on the balance of probabilities, that the funds at the bank have been correctly attributed to Mr Ieraci’s assets.
49. The Tribunal is satisfied that there has been an overpayment of DSP and WP as calculated by the Department. The Tribunal must then have regard to whether there are any circumstances in this case that would justify waiver or write-off of the debt in question. The Tribunal notes that there has already been a write-off of Mrs Ieraci’s debt until she is discharged from her bankruptcy.
50. If the applicants could establish that the debt arose solely from administrative error and that the funds were received in good faith, then the Tribunal would be required to waive the debts under s 1237A of the Act.
51. There is no evidence here of administrative error other than that the Department continued to pay the pensions to the applicants after they had failed to respond to a letter from the Department in August 2004. Nevertheless, the applicants continued to accept their pensions until notified of the overpayment in 2005. That part of the overpayment did not arise solely from a Departmental error. It arose partly from an administrative error but the applicants could not be said to have acted in good faith in continuing to receive and use those funds. They acknowledge that they were surprised to still be receiving the pension upon their return from overseas. They now object to having to repay any of the overpayment that has been raised.
52. There is no basis to write-off Mr Ieraci’s debt. He has assets and savings and receives income from the rental properties. He is in a position to repay the debt and it is cost-effective for the Commonwealth to take action to recover the debt.
53. A debt can be waived in special circumstances. In that regard the Tribunal refers to s 1237AAD of the Act (supra paragraph 14).
54. The cases establish that for the Tribunal to find that special circumstances exist there must be something unusual, uncommon or exceptional about the facts of a particular case to justify waiver (Re Beadle and Director-General of Social Security (1984) 6 ALD 1). The Tribunal is satisfied that there is nothing unusual, uncommon or exceptional in this case and there is no basis for waiver of either of the debts.
55. In the circumstances the Tribunal affirms both decisions under review.
I certify that the 55 preceding paragraphs are a true
copy of the reasons for the decision herein of
Senior Member L HastwellSigned: ...................J Coulthard..................................
AssociateDate of Hearing 19 April 2007
Date of Decision 18 July 2007
Advocate for the applicants In personAdvocate for the respondent Ms M Boylan
Centrelink Legal Services Branch
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