Igeski and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs

[2008] AATA 80

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2008] AATA 80

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2007/0077-78

GENERAL ADMINISTRATIVE DIVISION		)
Re		ALEXANDER IGESKI VEZIRA IGESKA

Applicants

And SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS

Respondent

DECISION

Tribunal Ms N Isenberg, Senior Member

Date31 January 2008

PlaceSydney

Decision The Administrative Appeals Tribunal sets aside the decision of the Social Security Appeals Tribunal and remits the matter to the Respondent for calculation of the Applicants’ assets, and consequent entitlement to age pension in accordance with this decision.

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

Ms N Isenberg
  Senior Member

CATCHWORDS

SOCIAL SECURITY – age pension – assets test – applicant previously co-owner of commercial property with son and business partner – son and business partner default on loan repayments – applicants discharged mortgage in relation to sum borrowed by son and business partner – ownership of commercial property transferred to applicants – right to indemnification constitutes loan for purposes of assets test – whether there has been disposal of an asset – debt forgiven in case of son – gift – whether failed investment – decision under review set aside and remitted to the respondent for calculation of applicants’ assets and entitlement to age pension

Social Security Act 1991 – sections 9, 11, 1064, 1064-A1, 1077, 1083, 1121, 1122, 1123, 1126AD

Re Eimberts and Repatriation Commission (1988) 16 ALD 19

McDermott v Black (1940) 63 CLR 161

REASONS FOR DECISION

31 January 2008 Ms N Isenberg, Senior Member   

DECISION UNDER REVIEW

1.      Mr Igeski and Mrs Igeska (“the Applicants”) applied to the Administrative Appeals Tribunal (“the Tribunal”) for review of the decision of the Social Security Appeals Tribunal (“the SSAT”) dated 8 December 2006 in relation to their application for age pension made on 17 July 2006.

2.      The information provided by the Applicants in relation to their application was referred to a Complex Assessment Officer (“CAO”) on 20 July 2006.  On 4 August 2006, the CAO advised that the claims should be rejected. Mr Igeski was informed by letter dated 14 August 2006 that Centrelink had rejected his claim for age pension because the value of the couple’s combined assets was over the allowable threshold.  Mrs Igeska was given the same advice in respect to her claim for age pension in a letter dated 28 September 2006.  On 3 October 2006, the original decision maker affirmed the decision to reject the application for age pension.  The decision was affirmed by an Authorised Review Officer (“ARO”) on 20 October 2006.

3.      The SSAT, in its decision of 8 December 2006, set aside the decisions made by Centrelink and remitted the matter to Centrelink for assessment of the claims for pension on a different basis to that originally used to determine their entitlement.  The effect of the SSAT decision was that the Applicants remained ineligible to receive the age pension.

LEGISLATIVE FRAMEWORK

4. Age pension is a payment governed by a means test. That means test is worked out, in the case of a couple, either by reference to their “income” or by reference to their “assets”. The rate payable is the lower of those two calculations: section 1064-A1 of the Social Security Act 1991 (“the Act”).  If the allowable assets limit is exceeded the claimant or claimants are not eligible to receive the age pension.  In specified circumstances, the value of an asset that has been disposed of can be included in the person’s assets for the purposes of the assets test.  Such assets are called deprived assets: section 9(4).

BACKGROUND

5.      The Applicants owned their own home at Bexley and an investment property at Turrella.

6.      In October 2003, Mrs Igeska, with her son Bill and his business partner, Mr Joakim Opostolas (“Joe”), entered into a partnership to purchase an investment property in Bay St, Brighton Le Sands (“the Bay St property”) for $1,150,000.  They held the property as tenants-in-common in the ratio 2:1:1.  The property was to be used by Bill and Joe for their jewellery business.  

7.      On settlement the amount of $1,286,794.43 was supplied to cover the purchase (with incidentals) with a surplus amount of approximately $97,335 being distributed to both Bill and Joe with the intention that this money would assist them to service loan repayments in the early years of the investment. (There was no evidence as to who supplied the deposit paid.)  This amount of $1,286,794.43 was financed as follows:

·A mortgage of $740,732.50 with Suncorp-Metway, secured over the Bay St property.  Bill and Joe borrowed this amount, but their borrowings were guaranteed by Mrs Igeska. 

·A mortgage of $143,429.59 from Perpetual Trustees, borrowed by Mrs Igeska and secured over the Bexley property.

·A mortgage of $256,531 from ANZ Bank, borrowed by Mrs Igeska and secured over the Turella property.

·Mrs Igeska contributed an amount of $146,101.34.

8.      The jewellery business did not prosper and Bill and Joe vacated the premises.  A tenant was found for $3,958.33 per month (excluding GST) but this was insufficient to meet the loan repayments.  In March 2005, $265,500 was raised by the sale of some taxi plates which Mrs Igeska and Bill owned in equal shares. 

9.      Bill and Joe defaulted on their loan repayments and Suncorp-Metway appointed a receiver to the Bay St property on 25 January 2006.  Mrs Igeska informed her solicitor of her intention to pay out the Suncorp-Metway mortgage and advised that a property was being sold for this purpose. The Turella property was sold in April 2006.  The mortgage over this property was discharged, but there was still not enough to pay out the Suncorp-Metway mortgage.

10.     In June 2006 the sum of $868,840.57 was paid by the Applicants to discharge the Suncorp-Metway mortgage and ownership of the Bay St property was transferred to them.  (The Transfer noted the transferors, being Joe, Bill and Mrs Igeska had received $400,000 by way of consideration although the Bay St property was valued at $1.2 million on 30 March 2006.).  Other expenses associated with the purchase, such as legal fees, rates, stamp duty and valuer’s fee, brought the cost to the Applicants to $888,566.37. Further costs incurred in association with the transaction resulted in a total cost of $940,566 to the Applicants and this was financed by mortgages totalling $900,000 from IMB secured against the Bay St property.  The CAO’s report of 4 August 2006 recorded the additional costs as being $15,000 for commission to the real estate agent, $12,000 for land tax and $25,000 for the costs of the receiver.

11.     On 17 July 2006, the Applicants lodged a claim for Age Pension with Centrelink.  In support of the application the Applicants provided an Income and Assets form listing their assets as:

·a 1990 vehicle worth $2,000

·a 2002 vehicle worth $15,000

·household contents worth $2,000

·a St George bank account

·214 QANTAS shares

·20 TAB shares

·20 Telstra shares

·an additional 13 Telstra shares

·a property other than their home

·an interest in a business

12.     On 17 July 2006, the Applicants told Centrelink the Bay St property was valued at $1.2 million, that they receive $4,364 per month in rent and that there is a mortgage on this property.

13.     At the time of the claims, the assets test threshold was $509,500.  Centrelink rejected both claims for age pension on the basis of the assets test.  This was affirmed on internal review.

14.     Centrelink, in coming to its decision to reject the claim for age pension, treated the transaction of June 2006 as creating a loan obligation by Bill and Joe who were being relieved of their mortgage obligations in respect to the Bay St property.  The CAO’s report dated 4 August 2006 stated:

Mrs Vezira Igeski previously owned 50% interest in the 348 Bay Street property. She paid $940,566 to buy the property from Suncorp Metway on 2/6/2006. The cost for her to buy the extra 50% interest from their son and Joachim Opostolas is $470,283. She discharged a mortgage of balance $868,840.57 as at 2/6/2006 from Suncorp Metway. The mortgage was 50% each responsible by the son Bill Igeski and Joachim Opostolas. That means the son Bill and Joachim owe Mr & Mrs Alexander Igeski of ($868,840.57 - $470,283)/2 = $199,279 each from 2/6/2006.

15.     For the purpose of determining the Applicants’ eligibility to receive age pension the loans to Bill and Joe were considered by Centrelink to be part of Mrs Igeska’s assets (with Mr Igeski).

16. On 8 December 2006 the SSAT set aside the decisions and sent the matter back to Centrelink with the directions that the claims for age pension be assessed on the basis that no amount should be attributed to the value of the Applicants’ supposed right to seek an indemnity for the mortgage defaults by Bill and Joe; but that the claims should be assessed on the basis of the application of the disposition rules in Part 3.12, Division 2 of the Act. The SSAT stated in its decision that it “was not aware of any authority which would characterise as a ‘loan’ the in personam ‘right to indemnity’ which a former co-owner may have in respect of another but defaulting co-owner”. The right to sue for indemnification was, in the SSAT’s view, “more akin to a ‘chose in action’ (or ‘debt’), and thus entitled to be counted in the assets test on that basis”. The SSAT considered that the purchase of the other half of the Bay St property constituted a settlement at which time the right to sue for indemnification was lost. The SSAT concluded that the termination of the right to be indemnified in circumstances where the consideration was less than “full” consideration constituted a disposal of assets pursuant to section 1123 of the Act.

17.     On 16 January 2007, the Applicants lodged an application for review with the Tribunal.

18.     At the hearing, the position presented on behalf of the Respondent was that an amount of $258,840, calculated by subtracting half the value of the property ($600,000) from the sum paid to discharge the mortgage and allowing $10,000 as a gift, should be treated as a deprived asset. This was on the basis that Mrs Igeska paid $868,840.57 as guarantor of the Suncorp-Metway loan. The Guide to Social Security Law states that :

Guarantor arrangements

A person does not dispose of assets merely by agreeing to be guarantor for a loan (1.1.G.75). However if the borrower defaults on the loan, the guarantor becomes liable to repay the loan.

The deprivation rules apply to the amount the customer (guarantor) has repaid, from the date the guarantor repaid the loan (or had an asset sold to repay the loan).

Exception: If the customer takes legal action against the borrower to recover the amount they repaid on the borrower's behalf, the deprivation rules do NOT apply. The amount the customer repaid is treated as a debt owing to the customer. This means it is assessed as an asset of the customer. The assessable value is the recoverable value. Deeming does NOT apply.

ISSUE BEFORE THE TRIBUNAL

19.     The issue before the Tribunal is whether the value of the Applicants’ assets was under the allowable threshold of $509,000 when they lodged their applications for the age pension on 17 July 2006.  Specifically, I must consider, for the purposes of the application of the assets test, the treatment of the discharge of the Suncorp-Metway mortgage by the Applicants.

EVIDENCE

20.     I had before me documents lodged pursuant to section 37 of the Administrative Appeals Tribunals Act 1975 ("the T-documents"), which the Tribunal took into evidence.

21.     In addition, the following documents were provided to the Tribunal:

·     Tax returns for each of the Applicants and the partnership between Joe, Bill and Mrs Igeska for the 2004, 2005 and 2006 financial years;

·     Offer of finance from Suncorp-Metway to Bill and Joe dated 4 September 2003;

·     Bank and mortgage transaction statements and related correspondence and documentation;

·     Documentation relating to the sale of taxi plates in May 2005;

·     Documentation relating to the sale of the Turella property;

·     Copies of documents lodged with Land and Property Information in respect to various property transactions;

·     Valuation of the Bay St property as at 30 March 2006.

22.     There was no dispute in relation to the value of the Applicants’ minor assets:

Vehicles	$17,000
household contents	$2,000
St George bank account	$9,079
Shares:         Qantas	$648
TAB	$303
Telstra	$127

23. In relation to the Bay St property, it was valued at $1.2 million. The mortgage on the property was $900,000. The property’s value is properly assessed at $300,000: subsection 1121(1) of the Act.

24.     Together, therefore, these assets total $329,157. On that basis, the Applicants are under the asset threshold.  However, there remains to be considered the treatment of the amount paid by Mrs Igeska to discharge the Suncorp-Metway at which time the ownership of the Bay St property was transferred into the Applicants’ names. 

CONSIDERATION OF THE EVIDENCE AND FINDINGS

25.     In coming to the correct and preferable decision, I took into account all the evidence, submissions, case law and relevant legislation.

26.     Firstly, Mrs Igeska did not discharge the Suncorp-Metway loan as a guarantor.  Nor is the discharge of the mortgage properly characterised as a loan to Bill and Joe as the formal requirements for a loan are not present. It is clear from the mortgage documents that Mrs Igeska, as a co-owner, contracted with Suncorp-Metway to be jointly and severally liable to pay the whole of the mortgage on the Bay St property. In a letter dated 4 April 2006, her solicitor, correctly in my view, pointed out Mrs Igeska’s right to indemnification by Bill and Joe in “respect to their proportion of the mortgage”. There was no documentary evidence as to the arrangements between her and Bill and Joe as to their respective contributions to the mortgage payments which would suggest otherwise. Mrs Igeska has chosen not to take the course recommended by her solicitor and pursue Bill and Joe for their share of the mortgage repayments.

Is mrs Igeska’s right to recover from Bill and Joe an “asset”?

27. The term "asset" is defined in subsection 11(1) to mean "property … (including property … outside Australia)". There is no definition of "property" in the Act.

28.     In Re Eimberts and Repatriation Commission (1988) 16 ALD 19, the Tribunal considered:

It is clear that parliament intended property to be considered in its most comprehensive sense to include all real and personal property of any description: see Re Wachtel and Repatriation Commission (1986) 11 ALN N213 and Re Christian and Secretary, Department of Social Security (1987) 13 ALD 222. By itself, property must be taken to include all debts, shares and other things in action of a personal nature as well as the rights normally associated with ownership of such things. The word “property”, alone will also comprehend all legal and beneficial rights and interests whether of a real or personal nature.

29. On that basis, in my view, Mrs Igeska’s right to recover against Joe and Bill is an asset for the purposes of section 11 of the Act.

30.     As regards Joe, Mrs Igeska knows his whereabouts – apparently he now operates a jewellery business in the city.  He has been uncommunicative and, for reasons which are unclear, she continues to receive bills in relation to the business.  She considered taking legal action against Joe but the solicitor wanted money on account, and she has no money to pay her. 

31.     While ever the right to pursue Joe continues – and it will until the expiry of the limitation period – this will be properly considered to be an asset.  The value of this asset is half the amount calculated at paragraph 18 above, that is, $134,420.29.

32.     Bill’s debt to Mrs Igeska is in a slightly different category.

33.     The documentary evidence showed that when Mrs Igeska and Bill sold the taxi plates, in an attempt to manage the mortgage payments, she gave him only $57,130 of the proceeds of sale, instead of the $132,500 (less expenses) to which he was entitled.  In doing so, she regarded Bill’s debt to her in relation to the Bay St property as “cleared”.  That is, on my calculations, she accepted $72,127.50 in settlement of the debt of $134,420.29.  In my view there was a clear intention to dissolve the whole of the debt to her in respect of the property: McDermott v Black (1940) 63 CLR 161.

34. In that respect, she forgave Bill’s debt to the extent of approximately, taking into account expenses, about $62,292. That, in my view, constitutes a disposal of an asset, and subsequently is a “gift” for social security purposes as it falls within section 1123, which states:

1123  Disposal of assets

1123(1)     For the purposes of this Act, a person disposes of assets of the   person if:

(a)  the person engages in a course of conduct that directly or indirectly:

(i)  …;

(ii)  disposes of all or some of the person’s assets; or

(iii)  …; and

(b)  one of the following subparagraphs is satisfied:

(i)  …;

(ii)  the person receives inadequate consideration in money or

money’s worth for the destruction, disposal or diminution;

(iii)  …

35.     In accordance with section 1126AD, the gifting (“disposition”) provisions would bring the value of the debt forgiven back into account for five years, subject to the $10,000 allowable gifting amount per year or $30,000 over a five year period, from the date of the gift, 23 March 2005, being the date of settlement of the sale of the taxi plates.

36.     It was contended, on the Applicants’ behalf, that Mrs Igeska had become involved in a business venture which had “gone bad” and that, in her naiveté she had “bailed out” her son and his business partner.  It was said that the purpose of the purchase of the Bay St property was to buy the property with a view to possible redevelopment.  This was somewhat at odds with her evidence that her daughter had executed the mortgage under Power of Attorney while she was absent overseas and that it was entered into “without her knowledge”.

37. Unfortunately, neither the original nor the subsequent purchase of the whole property amounts to a financial investment as defined in section 9(1) of the Act. Hence, Mrs Igeska is not able to take advantage of the Act’s provisions in relation to failed financial investments.

38.     Mrs Igeska told me that the rent of the property does not meet the mortgage payments and, in addition, they still have the mortgage over the home.  I canvassed with her the prospect of selling the Bay St property.  Mrs Igeska said that the property would now realise $1.1 million and that if she sold the Bay St property she would be forced to sell her home.

39.     I accept that she felt she had a “moral obligation” to “bail out” her son and (perhaps reluctantly) his business partner.  In fact, she had a legal obligation.  If her daughter acted outside the scope of the Power of Attorney – although it was unclear if this was actually alleged – she should pursue that.

DECISION

40.     The Administrative Appeals Tribunal sets aside the decision of the SSAT and remits the matter to the Respondent for calculation of the Applicants’ assets, and consequent entitlement to age pension in accordance with this decision.

I certify that the 40 preceding paragraphs are a true copy of the reasons for the decision herein of Ms N Isenberg, Senior Member

Signed:         ...............[sgd].................................................................

  Associate

Dates of Hearing  12 June and 13 December 2007
Date of Decision  31 January 2008

Solicitor for the Applicant          Self-represented, assisted by Mr J Papaspiros, accountant

Solicitor for the Respondent     Ms S Mantaring, Centrelink Legal Services