Karunatilake and Secretary, Department of Social Services (Social services second review) - [2021] AATA 5

Karunatilake and Secretary, Department of Social Services (Social services second review) [2021] AATA 5 (12 January 2021)
Division:GENERAL DIVISION
File Number(s): 2019/3232
Re:Nandana Karunatilake
APPLICANT

AndSecretary, Department of Social Services
RESPONDENT

DECISION
Tribunal:Brigadier A G Warner, AM LVO (Retd), Member
Date:12 January 2021
Place:Perth

The Tribunal affirms the decision under review.
.......................[Sgd].................................................
Brigadier A G Warner, AM LVO (Retd), Member
CATCHWORDS
SOCIAL SECURITY – age pension – rate of payment – income test – transfer of 50% share – disposal of asset – rate reduction – consideration of financial hardship rules –
decision under review affirmed
LEGISLATION
Aged Care Act 1997 (Cth)
Social Security Act 1991 (Cth) – ss 8, 8(2), 9(1), 9(4), 11(1), 11(12), 11(13), 55, 1064,
div 1B, pt 3.10, 1064-E10, 1076, 1076(2), 1076(3A), 1081, 1082, 1123, 1124, 1126AA, 1129, 1129(1)(d)
Social Security (Administration) Act 1999 (Cth) – s 79
CASES
Cummins and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2011] AATA 513
Henderson and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2008] AATA 468
Quiggin and Secretary, Department of Social Services [2019] AATA 3324
Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634
SECONDARY MATERIALS
Department of Human Services – Centrelink, A Guide to Australian Government Payments 20 September – 31 December 2018
Guides to Social Policy Law, Social Security Guide version 1.275 (7 December 2020)
REASONS FOR DECISION
Brigadier A G Warner, AM LVO (Retd), Member
12 January 2021
INTRODUCTION

The decision under review is a decision of the Social Services & Child Support Division of the Administrative Appeals Tribunal (AAT1), made on 3 May 2019, to affirm the decision of an authorised review officer (ARO) of Services Australia in relation to the rate of the Applicant’s Age Pension.
A hearing was conducted in Perth by telephone conference on 15 December 2020.
The Applicant did not attend the hearing. He was represented by his son,
Mr Mayura Weerakoon Karunatilake (Mr Karunatilake), who has an Enduring Power of Attorney.
Mr Thomas Tsao represented the Respondent.
BACKGROUND
The Applicant was granted Age Pension on 24 March 2016, his eligibility for Age Pension having been assessed using the income test (T19/115).
In 2003, the Applicant and his wife jointly purchased a property in Willetton, Western Australia (the Willetton property). They each held a 50% interest in the property.
In 2004, the Applicant and his wife separated, and the Applicant and Mr Karunatilake
(the son of the Applicant and the Applicant’s wife) continued to live in the Willetton property (T2/8; T18/108) until the Applicant moved out of the property on 15 February 2016 (T13/88). The Applicant and his wife have never officially divorced (Transcript, p9). The Applicant commenced living in residential aged care accommodation on a permanent basis on
28 June 2018 (T18/105).
On 30 November 2017, the Applicant transferred his 50% share of the Willetton property to his estranged wife. The relevant Transfer of Land document records that the Applicant received ‘ZERO DOLLARS (GIFT) given by [the Applicant] to [the Applicant’s wife]’ (Original emphasis) in respect of consideration for the transfer of his interest (T7/56).
On 29 March 2018, Mr Karunatilake informed Services Australia that the Applicant had transferred his 50% share of the Willetton property on 30 November 2017 (T22/129).

A CommSec portfolio statement dated 29 March 2018, indicates that as at that date,
the Applicant held $18.52 worth of shares (T10/59).
On 5 April 2018, Mr Karunatlake submitted an aged care means test form to
Services Australia on behalf of the Applicant, stating that the Applicant had $100 worth of household contents and personal effects (T12/66).
Mr Karunatilake was given an Enduring Power of Attorney on 6 June 2018 (ST3/6-8).
On 26 June 2018, Mr Karunatilake submitted a ‘real estate details MOD R’ form to Services Australia on the Applicant’s behalf, stating that the estimated market value of the Willetton property was $490,000 (T15/93). Services Australia accepted this to be the market value of the Willetton property.
On 6 September 2018, Services Australia decided to reduce the Applicant’s rate of
Age Pension payment (T22/150; T16/98) on the basis that the Applicant’s 50% interest in the Willetton property was a deprived asset and the Applicant received deemed income from this deprived asset.
On 31 January 2019, an ARO of the Department affirmed the decision of the Department made on 6 September 2018 (T19/113-119), and on 15 February 2019, the Applicant requested review of the ARO decision by the AAT1 (T2/7). On 3 May 2019, the AAT1 affirmed the ARO (T2/6- 9).
On 9 June 2019, the Applicant applied for second review of the AAT1 decision (T1/1- 5). The application claimed the decision was wrong for the following reason:
1)The tribunal does not accept that having schizophrenia necessarily means a person lacks the capacity to enter into legal agreements. There was no medical evidence. -we can contact the hospital to get the medical evidence required,
2)The tribunal finds Mr Karunatilake resided at [omitted], Willetton up until 2016 and paid no rent. This demonstrates he had an interest in the property – it was discussed how [the Applicant] paid all the utility bills and property maintenance costs from his fortnightly Centrelink funds in lieu of rent to Sakuntala. His Centrelink funds were not sufficient to even pay a rent on top of all those costs and his personal costs. He had no other income.
NOTE: Tribunal decision was dated 10/5/19, however posted to wrong address. So when I received the redirected mail from WA to VIC, it was 22/5/19.
(T1/4)
ISSUES
The issue in this matter is whether the Applicant’s rate of Age Pension payment was correctly calculated. This involves the consideration of whether the Applicant’s transfer of his half interest in the Willetton property to his wife was a disposal of assets; and if so whether the Applicant’s rate of Age Pension should be reduced due to deemed income.
RELEVANT LEGISLATION AND POLICY
The relevant law is contained in the Social Security Act 1991 (the Act) and the
Social Security (Administration) Act 1999 (the Administration Act).
The relevant policy is contained in the Social Security Guide (the Guide). The Tribunal,
as a decision maker, will generally apply the guidance contained in the Guide unless there are cogent reasons no to do so (Re Drake and Minister for Immigration and Ethnic Affairs
(No 2) (1979) 2 ALD 634, at 644-645).
Value of the Applicant’s assets and application of the pension income test
Section 55 of the Act provides that a person’s rate of Age Pension (as relevant in the Applicant’s case) is calculated using the Pension Rate Calculator A at the end of s 1064. Module A of the rate calculator in s 1064 establishes the overall rate calculation process. The rate of payment is calculated separately under both the income and assets tests.
The test that results in the lower rate of pension is the one that applies.
Section 11(1) of the Act defines an ‘asset’ as property or money. Section 9(1) of the Act defines ‘financial asset’ as including an asset that has been disposed of by a person, as follows:
financial asset means:
(a) a financial investment; or
(b) a deprived asset.
Note:For deprived asset see subsection (4).
(Original emphasis.)
Section 9(4) of the Act relevantly states:
(4) For the purposes of this Act, an asset is a deprived asset if:
(a) a person has disposed of the asset; and
(b)the value of the asset is included in the value of the person’s assets by section 1124A, 1125, 1125A, 1126, 1126AA, 1126AB, 1126AC or 1126AD or an amount is included in the value of the person’s assets in respect of the disposal by section 1126E (so far as that section relates to section 1126AA, 1126AB, 1126AC or 1126AD).
(Original emphasis.)
Section 8 of the Act sets out income test definitions and relevantly defines ‘income’ as an ‘amount earned, derived or received by the person for the person's own use or benefit’. Section 8 also provides that ‘ordinary income’ means income that is ‘not maintenance income or an exempt lump sum’. Section 8(2) of the Act further provides:
(2)A reference in this Act to an income amount earned, derived or received
is a reference to:
(a) an income amount earned, derived or received by any means; and
(b) an income amount earned, derived or received from any source (whether within or outside Australia).
(Original emphasis.)
Division 1B of Part 3.10 provides for ‘deeming’ of income from a person’s financial assets.
Section 1076(2) of the Act provides:
A person who has financial assets is taken, for the purposes of this Act,
to receive ordinary income on those assets in accordance with this section.
In accordance with s 1076 of the Act, a person’s financial assets are added together and deemed income is calculated from the total amount. The deeming rates are revised periodically in accordance with ss 1081 and 1082 of the Act. The Guide includes a table showing the historical deeming rates and applicable thresholds: see, the Guide at 4.4.1.10. That table relevantly shows that on 7 May 2018, the relevant thresholds were as follows:
Date Below threshold Above threshold Threshold amount
1/7/2018 1.75% 3.25% $51, 200
The effect of the ‘method statement’ in s 1076(3A) of the Act is that the ‘below threshold’ rate is applied on the first $51,200 for a single person. The ‘above threshold’ rate is applied to the balance of the person’s financial assets.
Module E of the rate calculator in s 1064 sets out how to work out the effect of a person's ordinary income on the person's maximum payment rate. The Department of Human Services Centrelink policy document ‘A Guide to Australian Government payments
20 September-31 December 2018’ sets out the income test for Age Pension. It states that from 20 September 2018 to 31 December 2018, a single person’s income of more than $172 per fortnight ($4472 annually) reduces the rate of Age Pension by 50 cents in the dollar (ST4/44).
The Act does not specify how a person’s assets are to be valued. In Exhibit R1 at paragraphs [32] to [35], the Respondent cites a number of authorities in which the issue of valuation is addressed. Relevantly, the Guide at topics 4.6.6.10 and 1.1.M.40 respectively, provides:
4.6.6.10Assets are generally assessed at their net market value (1.1.M.40). The net market value is the amount a person would expect to receive if they sold the asset on the open market, less any valid debts or encumbrances (1.1.E.108).
and
1.1.M.40 The market value is the point at which a willing purchaser and a willing, but NOT anxious vendor, would reach agreement.
The Respondent notes that in two of the cases cited (Cummins and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2011] AATA 513 and Henderson and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2008] AATA 468), the Tribunal:
… made clear that valuations provided by the Australian Valuation Office or professional valuers are to be preferred over valuations performed by real estate agents, local councils, State Valuers-General and Applicants themselves as those sources determine values for different purposes (for example, to calculate rates), rather than for market value.
(Exhibit R1, para 35)
Disposed value of the Willetton property
Division 2 of Part 3.12 of the Act concerns disposal of assets. Section 1123 of the Act states:
(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)     destroys all or some of the person's assets; or
(ii)    disposes of all or some of the person's assets; or
(iii)   diminishes the value of all or some of the person's assets; and
(b)one of the following subparagraphs is satisfied:

(i)     the person receives no consideration in money or money's worth for the destruction, disposal or diminution;
(ii)    the person receives inadequate consideration in money or money's worth for the destruction, disposal or diminution;
(iii)   the Secretary is satisfied that the person's purpose, or the dominant purpose, in engaging in that course of conduct was to obtain a social security advantage.
…
(2)For the purposes of subsection (1), a person has a purpose of obtaining a social security advantage if the person has a purpose of:
(a)obtaining a social security pension, a social security benefit, a parenting allowance, a service pension, income support supplement or a veteran payment or enabling the person's partner or someone else of whom the person is a family member to obtain such a pension, benefit, allowance, supplement or payment, or a youth training allowance…
Section 1124 of the Act states, relevantly:
If a person disposes of assets, the amount of the disposal or disposition is:
(a)if the person receives no consideration for the destruction, disposal or diminution-an amount equal to:
(i)     destroys all or some of the person's assets; or the value of the assets that are destroyed; or
(ii)    the value of the assets that are disposed of; or
(iii)   the amount of the diminution in the value of the assets whose value is diminished; or
(b)if the person receives consideration for the destruction, disposal or diminution--an amount equal to:
(i)     the value of the assets that are destroyed; or
(ii)    the value of the assets that are disposed of; or
(iii)   the amount of the diminution in the value of the assets whose value is diminished;
less the amount of the consideration received by the person in respect of the destruction, disposal or diminution.
…
Section 1126AA of the Act states:
1126AA Disposal of assets in income year - individuals
Disposals to which section applies
(1) This section applies to a disposal (the relevant disposal) on or after 1 July 2002 of an asset by a person who is not a member of a couple at the time of the relevant disposal.
Increase in value of assets
(2) If the amount of the relevant disposal, or the sum of that amount and the amounts
(if any) of other disposals of assets previously made by the person during the income year in which the relevant disposal took place, exceeds $10,000, then, for the purposes of this Act, the lesser of the following amounts is to be included in the value of the person's assets for the period of 5 years starting on the day on which the relevant disposal took place:
(a) the amount of the relevant disposal;
(a)the amount by which the sum of the amount of the relevant disposal and the amounts (if any) of other disposals of assets previously made by the person during the income year in which the relevant disposal took place, exceeds $10,000.
…
Consideration of the financial hardship rules
Section 1129(1)(d) of the Act requires that an application be lodged with the Respondent to activate the hardship provisions. Section 1129 of the Act provides that a person is to be given access to the financial hardship rules if all of the following requirements are met:
·Age Pension is not payable to the person or the person’s rate is reduced because of the application of an assets test; and
·Either the disposal of asset provisions does not apply to the person, or the Secretary determines that those provisions should be disregarded; and
·The person has an unrealisable asset; and
·The person lodges the approved form, applying for access to the financial hardship rules; and
·The person would suffer severe financial hardship if the section did not apply to the person.
Section 11(1) of the Act provides:
unrealisable asset has the meaning given by subsections (12) and (13).
Sections 11(12) and (13) of the Act relevantly provide
(12)An asset of a person is an unrealisable asset if:
(a)the person cannot sell or realise the asset; and
(b) the person cannot use the asset as a security for borrowing.
and
(13)For the purposes of the application of this Act to a social security pension (other than a pension PP (single)), an asset of a person is also an unrealisable asset if:
(a) the person could not reasonably be expected to sell or realise the asset; and
(b) the person could not reasonably be expected to use the asset as a security for borrowing.

Rate reduction

Section 79 of the Administration Act states:
(1)If the Secretary is satisfied that the rate at which a social security payment is being, or has been, paid is more than the rate provided for by the social security law, the Secretary is to:
(a)determine that the rate is to be reduced to the rate provided for by the social security law; and
(b) specify the last-mentioned rate in the determination.

EVIDENCE

The Tribunal had before it the following evidence:
·The ‘T Documents’ (T1-T22, pp1-151);
·The Supplementary ‘T Documents’ (ST1-ST7, pp 1-57);
·Bentley Health Service medical documents totalling eight pages, including Senior Medical Officer letter dated 5 August 2013, Discharge Summary dated
25 February 2003, Discharge Summary dated 21 May 2003 (Exhibit A1);
·Royal Perth Bentley Group Freedom of Information acknowledgement letter
dated 7 July 2020 (Exhibit A2);
·Credit Force home loan approval advice dated 28 April 2004 (Exhibit A3);
·Statutory Declaration of Mr Karunatilake dated 27 July 2020 (Exhibit A4);
·Secretary’s Statement of Facts & Contentions dated 27 July 2020 (Exhibit R1); and
·the oral evidence of Mr Karunatilake.

CONSIDERATION

During the hearing, Mr Karunatilake said that his core argument against the decision under review was based on his belief that his father had never owned or demonstrated ownership of the Willetton property; that he was already separated at the time of entering into the home loan contract; and that based on medical evidence, he did not have the capacity to enter into any such agreement at that time (Transcript p6).
The Respondent contends that:
·     the Applicant’s transfer of his 50% interest in the Willetton property to his former wife was a disposal of assets; and
·     a disposal amount of $235,000 is to be included in the Applicant’s assets for a period of 5 years; and
·     the Applicant’s rate of Age Pension was correctly reduced on the basis of deemed income calculated from the Applicant’s financial assets, including the disposal amount.
(Exhibit R1, para 17)
The Mod R form received on 26 June 2018 gave the Willetton property an estimated market value of $490,000 at the time that the Applicant transferred his interest in the property to his wife (T15/93). There is no evidence before the Tribunal to suggest that the market value of the Willetton property should have been a different amount at the relevant time or that the valuation had been obtained for the types of purpose mentioned in paragraph [31] above. Further, the valuation is not in dispute.
Mr Karunatilake contends that the Applicant should not be taken to have disposed of his interest in the Willetton property because the Applicant should never have been allowed to purchase the property jointly with his wife. Mr Karunatilake contends that the relevant builder of the property and the relevant bank misled the Applicant and his wife as they did not advise the Applicant of the repercussions of purchasing a property jointly with his wife. Additionally, Mr Karunatilake contends that the Applicant should have been precluded from entering into a contract to purchase the property in 2003 because he suffered from schizophrenia (see also Mr Karunatilake’s core argument at paragraph [39] above).

The Tribunal has regard to the medical evidence at Exhibit A1. A Mills Street Centre Discharge Summary dated 25 February 2003 details the Applicant’s admission
29 December 2002 to 3 January 2003 with a diagnosis of first episode psychosis.
The Applicant was a voluntary patient and was discharged outright. A further Discharge Summary dated 21 May 2003 details the Applicant’s admission 17 January 2003 to
29 April 2003 with a diagnosis of schizophrenia, disorganised type. The summary states that ‘It was not necessary to put this man under the Mental Health Act’ (Exhibit A1,
fifth page), and again he was discharged outright. There is no medical evidence that the Applicant lacked capacity at the time of entering the relevant contract. Further,
the Tribunal does not accept that suffering from the mental illness of schizophrenia necessarily means that a person lacks the capacity to enter into legal agreements.
Nor is there normally an onus on a builder or a bank to enquire as to a person’s capacity.
In a letter from the Mills Street Centre dated 5 August 2013, a senior medical officer notes that Mr Karunatilake is the administrator of the Applicant’s public trust order and states:
Whilst I do not believe that [the Applicant] has the capacity to manage his own affairs, the arrangements put in place by the son may be satisfactory.
…
The son manages housing/mortgage payments, car payments etc via the internet and does this for both his father and his mother and is fully aware of both their financial situations.
(Exhibit A1, seventh page)
The evidence is that Mr Karunatilake was given an Enduring Power of Attorney for the Applicant in June 2018 (ST3/6-8; T22/128), being some seven months after the Applicant transferred his 50% interest in the Willetton property to his wife.
The Applicant was married when he and his wife jointly purchased the Willetton property. There is no evidence before the Tribunal that the Applicant and his wife were misled by the builder and the bank when they contracted to buy the Willetton property, as asserted by Mr Karunatilake. Nor is there evidence to suggest that the builder or bank were acting as financial advisers to the Applicant or his wife. Further, without evidence to the contrary in the Applicant’s specific circumstances, the Tribunal does not consider the joint purchase of a property by a married couple reliant on the earning capacity of one of the joint purchasers to be unusual, unethical or illegal.
When the Applicant and his wife separated in 2004, the Applicant continued to live in the Willetton property, rent-free (T2/8; T18/108) until the Applicant moved out of the property on 15 February 2016 (T13/88). The AAT1 decision dated 3 May 2019 relevantly records that:
18.Mr Mayura Karunatilake told the tribunal that after his parents separated in 2004, he and his father continued to live at [omitted], Willetton until 2016. His mother paid the mortgage payments and rates and taxes.
His father paid the utilities costs.
(T2/8)
In his Statutory Declaration dated 8 July 2020, Mr Karunatilake stated that from 2008 his mother continuously considered removing the Applicant as a joint owner of the Willetton property, but did not do so because it would have required a costly restructure of the loan and payment of significant duty on transfer (Exhibit A4, para (2)).
The Tribunal finds that the Applicant purchased the Willetton property jointly with his wife in 2003 and continued to hold a legal interest in the property until he disposed of his 50% interest in the property for the purposes of s 1123 of the Act when he transferred his interest to his wife in return for no consideration on 30 November 2017.
As stated at paragraph [41] above, the value of the Willetton property for the purposes of this review was $490,000. It follows that the 50% interest transferred by the Applicant was $245,000. Pursuant to s 1126AA of the Act, the value of the Applicant’s 50% interest in the Willetton property for the purposes of the income test is the value of the disposed interest ($245,000), less consideration received ($0), less $10,000, which is $235,000.
The evidence shows the total value of the Applicant’s financial assets as being $235,116 ($235,000 disposed interest, $100 in savings and $16 in shares) (T21/122-123), and this is the value subject to the deeming provisions under the income test pursuant to s 1076 of the Act. The calculation at T21/123 shows that the Applicant is deemed to be receiving an annual income of $6,873.27.
Given that the basic annual income free amount during the relevant time was $4,472 (T19/116), the Applicant’s Age Pension would be affected if he received annual income exceeding this income free amount, and it does so by $2,401.27 ($6,873.27 minus $4,472). Pursuant to s1064-E10 of the Act, the amount exceeding the income free amount should be reduced by 50%. Accordingly, the Applicant is taken to have exceeded the annual income free amount by $1,200.63 ($46.17 per fortnight).
During the hearing Mr Karunatilake referred to Exhibit R1, paragraph 27, and asked that should the Tribunal affirm the decision under review, could the deeming rate be revised to reflect today’s low interest rates (Transcript p10). In reply, the Respondent submitted
‘if the member were to affirm the decision under review, then the effect would be such that as if the decision was made in 2018’ (Transcript p11). The Tribunal agrees.
The Respondent notes that ‘pursuant to section 1126AA of the Act, the disposed asset value of $235,000 will continue to be assessed as a gift for the purposes of the income test until 30 November 2022 (being 5 years after the date of disposal)’ (Exhibit R1, para 49).
In the decision letter dated 31 January 2019, the ARO noted that the Applicant’s nominee ‘has submitted a claim for financial hardship assistance in relation to your residential aged care’ (T19/116). The Respondent makes a similar note in these proceedings, and correctly submits that this claim relates to eligibility for financial hardship supplement under the Aged Care Act 1997 (Cth) and is not an application for the purposes of s 1129 of the Act (paragraph [55] below refers) (Exhibit R1, para 54).
The Respondent contends, correctly, it seems to the Tribunal, that the Applicant cannot access the financial hardship rules under the Act because:
(a)the Applicant’s rate of Age Pension is determined under the income test,
not the asset test as required by section 1129; and
(b)the Applicant has not sought access to the financial hardship rules by lodging the approved form; and
(c)access to the financial hardship rules cannot be granted retrospectively
(see Quiggin and Secretary, Department of Social Services (Social services second review) [2019] AATA 3324 at 24).
(Exhibit R1, para 53)

CONCLUSION

It follows from the above that the Applicant held a legal interest in the Willetton property, purchased jointly with his wife in 2003, until he transferred his 50% interest to her with no consideration. That transfer was a disposal of assets, and the Applicant’s rate of
Age Pension was correctly reduced pursuant to s 79 of the Administration Act because the Applicant’s deemed fortnightly income had changed, thus affecting his rate of payment.
DECISION
The Tribunal affirms the Decision of the Social Services & Child Support Division of the Administrative Appeals Tribunal dated 3 May 2019, which affirmed the decision of an ARO of Services Australia in relation to the Applicant’s Age Pension.

I certify that the preceding 57 (fifty-seven) paragraphs are a true copy of the reasons for the decision herein of Brigadier A G Warner, AM LVO (Retd), Member

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Associate
Dated: 12 January 2021

Date of hearing: 15 December 2020

Advocate for the Applicant: Mayura Weerakon Karunatilake

Counsel for the Respondent: Thomas Tsao

Solicitors for the Respondent: Services Australia

Date of hearing:	15 December 2020
Advocate for the Applicant:	Mayura Weerakon Karunatilake
Counsel for the Respondent:	Thomas Tsao
Solicitors for the Respondent:	Services Australia