Koch and Department of Family and Community Services - [2002] AATA 407

DECISION AND REASONS FOR DECISION [2002] AATA 407

ADMINISTRATIVE APPEALS TRIBUNAL )

) No S1999/496

GENERAL ADMINISTRATIVE DIVISION       )
           Re      JULIE KOCH
  Applicant
           And    SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES
  Respondent

DECISION

Tribunal Mr DJ Trowse (Member)

Date29 May 2002
PlaceAdelaide

Decision      The decision under review is affirmed
  (signed)
  DJ TROWSE
   (Member)
CATCHWORDS
SOCIAL SECURITY – pensions, benefits and allowances – Newstart Allowance – whether applicant's assets exceed assets test limit – "reasonable security of tenure" – whether applicant is deemed to be a homeowner
Social Security Act 1991 sections 11, 611, 612, 1122
Delos Reyes and Secretary, Department of Social Security (unreported, AAT Decision No 9212, 23 December 1993)
Johnston and Repatriation Commission (1994) AAT 9508, 31 May 1994

REASONS FOR DECISION

29 May 2002 DJ Trowse (Member)

This is an application for review of a decision of the Social Security Appeals Tribunal (the SSAT) of 26 November 1999, which affirmed a delegate's decision of 6 August 1999, as affirmed by an Authorised Review Officer on 9 September 1999, to reject the applicant's claim for Newstart Allowance.
The evidence before the Tribunal comprised the documents lodged pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 (the T Documents), together with the exhibits tendered by the parties. The applicant appeared on her own behalf and gave oral evidence. Mr Kilderry represented the Department.
The issue before the Tribunal is whether the applicant was a homeowner in terms of sub-section 11(4) of the Social Security Act 1991 (the Act). Fundamental to that matter is the question, did the applicant have "reasonable security of tenure" in the residence she and her family occupied and which is located on farming land held by a proprietary company, namely Pinegrove Pastoral Company Pty Ltd (Pinegrove). An affirmative answer will result in an exceeding of the prescribed asset threshold figure of $181,500 and thus no entitlement to benefit. A negative reply lifts the threshold to $273,000 and enhances the prospects of qualification.
On 7 July 1999 the applicant lodged a claim for Newstart Allowance which was rejected on the basis that her and her husband's combined assets exceeded the asset limit of a partnered homeowner. Central to that decision was the view that the applicant had reasonable security of tenure of the residence owned by the Company.
This decision was affirmed by a delegate on 6 August 1999, by an Authorised Review Officer on 9 September 1999 and by the SSAT on 26 November 1999.
In arriving at its decision, the respondent made the following assessment of the combined assets of the applicant and her spouse, Andrew John Koch:
Shares in Pinegrove           1,113
Net Assets in Partnership of AJ & JM Koch       56,241
Loan to Rekow Pty Ltd       230
Loan to DJ Koch     48,564
Loan to Pinegrove   149,727
           $255,875
Pinegrove owns approximately 1,560 acres of farming land situated in the hundred of Kilkerran. In turn, it has debts secured by mortgages to the Bank of South Australia and the Bank of Melbourne. Shareholders in the company are –
Applicant      1
Her husband, Andrew        1
Rekow Pty Ltd as Trustee for the B.J Koch Family Trust         90
Total Shares Issued         92

The applicant and her husband are the only directors of the Company.

Rekow Pty Ltd is the trustee of the B.J Koch Family Trust. Its shareholders are the applicant and her husband. They are also the only directors. The sole asset of the trust is the majority shareholding in Pinegrove. The Trustee has the discretion to distribute the income and capital of the trust among any of the children and remoter issue of Jennifer Mona Koch and the spouses, widows and widowers of any such children and remoter issue. The children of Jennifer Mona Koch are the applicant's husband and his three sisters.
Since about 1990 the applicant and her husband have traded as a farming partnership under the name of AJ & JM Koch. The partnership uses the rural lands owned by Pinegrove and in return pays an annual rental of $30,000. It should be noted that the partnership net asset figure applied by the respondent in calculating the combined asset position of the applicant and her husband as at July 1999 had been extrapolated from the partnership balance sheet prepared as at 30 June 1998. Also, the applicant's asset situation and the valuation thereof were further clouded by the belated bring to account of shareholdings in AMP Society and Phosphate Co-op Company. The Tribunal was frustrated to learn that a correct accounting may have produced a result in excess of the threshold set for a non-homeowner. In any event, the hearing proceeded on the understanding that the only matter requiring determination was the issue of security of tenure, that is, whether the applicant and her spouse were homeowners.
Since their marriage in 1984, the applicant, her husband and their children, who now number eight, have progressively occupied homes located on the property owned by Pinegrove. Of more recent times, they have resided in a home built to their specifications and costing in the region of $250,000. Throughout the latter period of their overall occupancy, the applicant and her husband have paid to Pinegrove a weekly sum of $80 which, together with the annual farm rental of $30,000 and amounts received from the husband's father who resides in a city house also owned by Pinegrove, have been used to satisfy the company's mortgage commitments. The applicant classifies the payments of $80 to Pinegrove as rental and, by way of inference, regards the amount as representing full commercial value. It appears that the income and expenditure of Pinegrove are in balance and that the company has not at any stage declared a dividend to its shareholders.
It is the contention of the applicant that had they not paid rent at a commercial rate for the use of their residence, then those trust beneficiaries unsympathetic to the applicant and her husband would be entitled to take legal action resulting in their expulsion from their positions of authority and that Pinegrove would be unable to meet its debts and subject, to any borrowing capacity, the land would have to be sold (or new tenants located). It was submitted that the entitlement of the applicant and her husband is contingent upon the continued payment of rent and is not associated with any ancillary right or interest in the property which would enable them to enjoy possession of the land in the absence of the payment of rent. According to the applicant, she does not have an inalienable right to occupy and enjoy the home without the fear of eviction in the event of failure to pay rent.
Undoubtedly, the view adopted by the applicant on the possibility of legal action and the removal from authoritative positions emanates from the previous and unpleasant experience of having an earlier trustee of the family trust dismissed for breaching her fiduciary duty. Bearing in mind certain family tensions, the applicant is fearful of a similar action being brought against her and her husband.
The Department contends that section 611(1) of the Act states that Newstart Allowance is not payable to a person if the value of their assets is more than the person's assets value limit. Section 611(2) sets out the methodology for working out a person's assets value limit. The variables are the person's family situation, whether they are partnered or not and, if partnered, whether the partner is getting pension of allowance. Section 612 of the Act applies such that the value of the applicant's assets include the value of the assets of her husband.
The Department submits that the applicant's relevant assets value limit is $181,500 as she is partnered, her partner is not receiving a pension or allowance under the Act and, in terms of sub-section 11(4) of the Act, she and her husband are homeowners. The provisions of the sub-section are as follows:
"11 (4)         For the purposes of this Act:
          (a)      a person who is not a member of a couple is a homeowner if:
(i)the person has a right or interest in the person's principal home; and
(ii)the person's right or interest in the home gives the person reasonable security of tenure in the home; and
(b)      a person who is a member of a couple is a homeowner if:
(i)the person, or the person's partner, has a right or interest in one residence that is:
(A)      the person's principal home; or
  (B)      the partner's principal home; or
  (C)      the principal home of both of them; and
(ii)the person's right or interest, or the partner's right or interest, in the home gives the person, or the person's partner, reasonable security of tenure in the home; and
(c)      a person (whether a member of a couple or not) is a homeowner if:
(i)the person has sold the person's principal home not more than 12 months previously; and
(ii)the person is likely to apply some or all of the proceeds of the sale in acquiring another residence that is to be the person's principal home."
The term "reasonable security of tenure" is defined in section 11(8) of the Act as follows:
"11 (8) If a person has a right or interest in the person's principal home, the person is to be taken to have a right or interest that gives the person reasonable security of tenure in the home unless the Secretary is satisfied that the right or interest does not give the person reasonable security of tenure in the home."
The application of sub-section 11(4) requires a two staged approach. First, it must be determined whether the applicant or her husband have a right or interest in their principal home. Secondly, in the event that a right or interest exists, does the right or interest give either of them reasonable security of tenure in the home.
As to the first step, the Tribunal commences with the opinion that a right or interest in the principal home is synonymous with a right or interest in real property. Support for this view is to be found in Tribunal decision Delos Reyes and Secretary, Department of Social Security (unreported, Decision No 9212, 23 December 1993, Deputy President Forrest) and which was followed in Johnston and Repatriation Commission (Decision N0 9508, 31 May 1994, Deputy President Forgie, Messrs Argent and McLean, Members). Interestingly, in both of those cases, which involved home ownership by family trusts with the lessees acting as either trustees in their own right or as directors of a trustee company, the Tribunal concluded that the leasing arrangements constituted a right or interest in the homes within the meaning of the Act. The comments made by the Tribunal in Johnston supra at paragraphs 34 and 35 are apposite:
"34 Although we have already decided that they do not have a right or interest in the Beaumaris property by virtue of their being beneficiaries of a discretionary trust, it has been agreed that Mr and Mrs Johnston do occupy the property. There is no written lease agreement and so the lease would not be enforceable at law (see Property Law Act 1958 (Victoria)). It will, however, be enforceable in equity. Having considered the evidence, we have decided that the lease is either a periodic lease or a tenancy at will. It could be a periodic lease for 12 monthly terms on the basis that the book entries for the rent are made on an annual basis. The payment of rent need not be determinative, however, and it may be that the conditions under which Mr and Mrs Johnston occupy the house is on the basis of a tenancy at will. In view of the conclusions we reach in the following paragraphs it does not matter greatly whether the tenancy is of one type or another.
35 As a lessee, Mr and Mrs Johnston are regarded as having an interest in real property and not as simply having rights under a contract. Is such an interest a 'right or interest' in the residence within the meaning of the Act? We think that it is. …"
In the current matter there was a written lease covering the period 8 October 1999 to 30 June 2000. That document had been executed, first, by the applicant on behalf of Pinegrove and then by her as the tenant. The Tribunal concludes that, at all other times, the arrangement was either a periodic lease or a tenancy at will. In any event, the Tribunal takes the view that the arrangement between the company, the applicant and her husband would be enforceable in equity. As lessees, the applicant and her husband are regarded as having an interest in real property which, in the Tribunal's opinion, represents a 'right or interest' in their principal home.
That brings the Tribunal to the question of whether the right or interest so found gives the applicant and her husband reasonable security of tenure in the home occupied by them. In terms of subsection 11(8) of the Act, such security of tenure will exist unless the Tribunal is satisfied that their right or interest does not bestow upon them that kind of security. As noted in Johnston, supra, the test to be applied is an objective one and thus the subjective personal views expressed by the applicant are of limited assistance in the determination of this issue. Once more referring to the case of Johnston, the Tribunal accepts that the words 'security of tenure' means a certainty or an assurance of occupation. Also it should be observed that the security of tenure need only be reasonable and not absolute.
Notwithstanding the often held view that tenants do not generally possess reasonable security of tenure, the Tribunal takes the view that, in the circumstances as outlined, it is required to look beyond the agreement entered into and to examine the relationship of the relevant parties. An examination of that kind reveals that the lessees, that is the applicant and her husband, are also the controlling minds of the lessor, Pinegrove. Furthermore, their directorships in Pinegrove are ensured by their control of the trust company which, on behalf of the family trust, holds a majority shareholding in Pinegrove. Against this background, it is highly unlikely that the applicant and her husband would, as the controllers of Pinegrove, resolve that they be evicted from their home. In that event, the Tribunal concludes that the interest held by the applicant and her husband as lessees gives them reasonable security of tenure in the home located on the farming property. This conclusion means that the applicant and her husband are homeowners under subsections 11(4) of the Act.
Unfortunately, the applicant's reliance upon the earlier action whereby the previous controller of the company and trust was removed was misplaced. Having endured the trauma attaching to that dismissal and bearing in mind the attentiveness of other contingent beneficiaries of the family trust, it seems most improbable that the current controllers will breach their fiduciary duty.
For these reasons, the decision under review is affirmed.

I certify that the 22 preceding paragraphs are a true copy of the reasons for the decision herein of Mr DJ Trowse (Member)
Signed:         .....................................................................................
  Assistant
Date/s of Hearing  8 February 2002
Date of Decision  29 May 2002
Counsel for the Applicant        In person
Solicitor for the Applicant         -
Counsel for the Respondent    Mr R. Kilderry
Solicitor for the Respondent    Centrelink