Kojcic and Secretary, Department of Social Services (Social services second review)
[2016] AATA 200
•1 April 2016
Kojcic and Secretary, Department of Social Services (Social services second review) [2016] AATA 200 (1 April 2016)
Division
GENERAL DIVISION
File Number
2014/5254
Re
Mirko Kojcic
APPLICANT
And
Secretary, Department of Social Services
RESPONDENT
DECISION
Tribunal Senior Member N A Manetta
Date 1 March 2016 Date of written reasons 1 April 2016 Place Adelaide For the reasons given orally at the conclusion of the hearing of this matter, the Tribunal
1. affirms the decision of the Social Security Appeals Tribunal to set aside the Authorised Review Officer’s decision; but
2. sets aside the directions given by the Social Security Appeals Tribunal on remitting the matter to the Respondent and substitutes in lieu thereof the following direction; namely, that the Respondent calculate and pay Mr Kojcic’s Newstart allowance to him with effect from 20 August 2013.
For the avoidance of doubt, it is noted that the Respondent, when calculating Mr Kojcic’s entitlement to Newstart allowance from 20 August 2013, is to ignore:
(1) the loan monies of $504,206.83 previously owed to Mr Kojcic by the M&M Kojcic Discretionary Trust (but which are now no longer owing), and
(2) the loans from the M&M Kojcic Discretionary Trust to the following persons: Elvis Kojcic ($16,830), Munnalita Kojcic ($14,872) and Tina Kojcic ($6,489).
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Senior Member N A Manetta
CATCHWORDS
SOCIAL SECURITY – assessable assets for sickness allowance – application for financial hardship declaration- earlier commencement – s1131
LEGISLATION
Social Security Act 1991
Social Security (Administration) Act 1999
REASONS FOR DECISION
Senior Member N A Manetta
1 April 2016
After delivery of my oral decision, I received a request for written reasons, which I now publish.
This is an application by Mr Mirko Kojcic seeking a review of the decision of the Social Security Appeals Tribunal (SSAT) dated 30 July 2014. Mr Kojcic had appealed to the SSAT against a decision taken within the respondent’s Department and affirmed by an authorised review officer (ARO) that he was ineligible to have his social security benefit backdated under the so-called hardship provisions in s 1131 of the Social Security Act 1991 (the Act). He had made an application under s 1131 on 20 February 2014.
The SSAT set aside the ARO’s decision and remitted the matter to Centrelink with a direction, amongst others, that Mr Kojcic’s level of assessable assets be reconsidered as at the date of his application for sickness allowance (i.e., 23 May 2013) and thereafter.
Mr Kojcic is dissatisfied with this direction. Ms Riley, appearing for Mr Kojcic, submitted that the directions should be set aside and a different direction be made; namely, one reflecting Mr Kojcic’s eligibility for a backdating of his social security benefit under the hardship provisions of s 1131. Mr Visser, appearing for the respondent, opposed this course.
BACKGROUND FACTS
I shall now set out briefly the salient background facts, together with my findings, and then turn to the applicable law.
Mr Kojcic, who is married, emigrated to Australia in November 1970. He is a stonemason by trade. He learned English “on the run” as he put it in his oral evidence to the Tribunal; his command of spoken English is still imperfect; and his reading skills are “poor” in his own estimation.
At the relevant time of his injury in 2012, Mr Kojcic offered construction services as an independent contractor. His business was known as “Stone Built Homes”. It was engaged to build, or contribute to the building of, the Mt Gambier Hospital and at the relevant time of his injury, Mr Kojcic was living and working in Mt Gambier. The business was a successful one, and Mr Kojcic gave evidence of employing some 30 people in it.
As the business prospered, Mr Kojcic took financial advice and decided to set up the business in connection with a discretionary family trust, presumably to lessen the income tax that would be payable if the net income of the business continued to be attributed to him alone. That is a common reason for the establishment of such trusts. He gave evidence that he did not understand the trust structure the accountant recommended. I accept that evidence, but he must live with the consequences of deciding to use these legal structures so far as his entitlements under the Act are concerned.
On 22 February 2012, or thereabouts, Mr Kojcic lifted a heavy piece of machinery awkwardly and tore the muscles on both sides of his stomach. He was unable to work. He received some monies from his insurer, which he said were substantially reduced because of legal fees. The tear, or hernia, he has suffered is reparable, but it requires a major operation. Mr Kojcic, who carries some weight, is not a suitable candidate for keyhole surgery. At least one operation has had to be postponed because Mr Kojcic was too unwell to withstand a general anaesthetic.
In April 2013, Mr Kojcic approached Centrelink and requested financial assistance. At that stage, Mr Kojcic was running out of money to meet his general living expenses and medical bills. He was given a bundle of forms to fill out for a sickness allowance (as it was assumed his illness would be temporary only).
He took the forms back to Centrelink but an allowance was refused on the basis that he exceeded the assets test. It is convenient to set out at this point was what assets Mr Kojcic was said to own.
MR KOJCIC’S ASSETS
As I have said, Mr Kojcic’s business was connected with his family trust. In the balance sheet of the discretionary trust for the year ended 30 June 2012, Mr Kojcic was listed as a creditor who was owed some $504,206 by the Trust.[1] In addition, the Trust was said to own land at Willow Avenue in Mt Gambier valued “at cost” at $235,760.[2] Mr Kojcic gave evidence, which I accept, that the land at Willow Avenue was not purchased, but assigned to the Trust by a person who owed money in respect of work completed by Mr Kojcic, and Mr Kojcic accepted the land as payment.
[1] Exhibit R1, “T” documents, T17, p.100.
[2] Ibid.
I need not set out the statutory provisions, but these assets were imputed to Mr Kojcic by the Act.
It may well be that the loan was, realistically speaking, worthless as at April 2013. The Trust, although established as a separate legal entity through its corporate trustee, was largely identifiable with Mr Kojcic himself. Nevertheless, the existence of the loan is one of the legal consequences to which I earlier alluded of choosing particular legal structures. Centrelink decided to include the outstanding loan when it applied the assets test of Mr Kojcic. In my opinion, it was correct to do so.
ASSETS TEST
Section 1122 of the Act requires the inclusion of any outstanding loan principal in the assets of a person.[3] Both Ms Riley and Mr Visser submitted that s 1122, properly construed, requires the principal sum lent by Mr Kojcic to the Trust to be included in an assets calculation, even though the loan is most unlikely ever to be repaid. I agree.
[3] But not outstanding interest.
The ARO indicated in her letter to Mr Kojcic dated 12 July 2013 that the asset test limit was $273,000 (exclusive of his home) and that the debt owing from the Trust to Mr Kojcic was some $504,000. Mr Kojcic failed, therefore, the assets test. Mr Kojcic appealed the departmental refusal of his application for a social security benefit to the SSAT, which eventually affirmed the ARO’s decision. He appealed to this Tribunal, but I assume the appeal was withdrawn.
Mr Kojcic was advised by the Department at the time his application was refused that he could make an application under the assets test hardship provisions but he was unlikely to be successful.[4] I note my concern about that advice.
[4] T27, p.357.
CLAIM FOR HARDSHIP RELIEF
On 20 February 2014, Mr Kojcic lodged a claim for financial hardship under s 1131 of the Act, which was rejected. The basis of that decision was that he and his wife had access to readily available funds of $39,267, greater than the allowable limit of $23,290. These funds were overwhelmingly made up of loan monies said to be owed to the Trust by Mr Kojcic’s children. Mr Kojcic appealed that decision to the SSAT.
Having taken advice from an officer at Centrelink in July 2013, Mr Kojcic also eliminated the debt the Trust owed him by deed. It took some time to arrange for a formal deed to be prepared and it was only executed in 17 June 2014,[5] some 11 months after the advice was received. He then began to receive social security payments from that time onwards.
[5] T14, p.93.
SSAT’S DECISION
I now turn to the SSAT’s decision in respect of Mr Kojcic’s hardship application which has led to the application to this Tribunal. The SSAT found that Centrelink was wrong to conclude that Mr Kojcic had ready access to the loan monies owed to the Trust by his children. The SSAT found that they had ceased to be enforceable by May 2013. As at the date of Mr Kojcic’s claim for financial hardship relief in February 2014, these loans had ceased to be seen by the Trust as recoverable and had been written off.
The SSAT declined, however, simply to order back payment of the social security benefit to Mr Kojcic. It decided that Centrelink should review Mr Kojcic’s assessable assets as at the date of his claim for sickness allowance (namely, as at 23 May 2013) and thereafter up to 17 June 2014 because he might be eligible for the allowance at any time from 23 May 2013 onwards. (This date is earlier than six months before the date of his hardship application in February 2014.) At this stage an appeal to the AAT was outstanding and the SSAT declined to proceed on the basis that the loan of some $504,000 had to be included. It held (at [48]) that a thorough review of Mr Kojcic’s circumstances was warranted.
REASONS
Before me, as I have said, Ms Riley accepted that s 1122 precluded a finding that Mr Kojcic was eligible for a social security benefit earlier than 17 June 2014 in the absence of the application of s 1131 to backdate the benefit. As I have said, I think that concession was properly made.
It follows that Mr Kojcic’s assets did include the loan owed to him by the Trust up until its forgiveness in June 2014.
In my opinion, Mr Kojcic meets the preconditions set out in the paragraphs of s 1131(1). In particular, a social security benefit was not payable to him because of the application of an assets test (paragraph (a)); Mr Kojcic had an unrealisable asset in the form of an outstanding loan owed to him by the Trust and there was no realistic chance of Mr Kojcic recovering monies from the Trust (paragraph (e)); the requisite form had been lodged (paragraph (f)); and Mr Kojcic would suffer severe financial hardship if the section did not apply (paragraph (g)).[6]
[6] The Secretary did not contend that any of the other paragraphs of the subsection I have not mentioned did not apply.
In respect of this last test, I do not accept on the evidence before me that Mr Kojcic had ready access to funds. As at 30 June 2013, the loans to the children had been written off as irrecoverable. It was not submitted to me by the Respondent that this entry in the accounts of the company was improper or designed merely to facilitate a claim to financial hardship; nor do I accept that these loan monies were readily recoverable. I accept Mr Kojcic’s evidence that there was little if any practical possibility of recovering them. On the face of matters, the Trust is not in a position to commence legal proceedings to recover effectively the monies said to be owed. I accept Mr Kojcic’s evidence that his children are not in a position to assist, or in any event have declined to assist, by repaying their loans. In the circumstances, I do not think it at all realistic to suppose Mr Kojcic should engage solicitors to seek to assist him to recover approximately $38,000 in the courts. That would involve a prolonged recovery, not an immediate one, and in any event it is clear that any legal expenses associated with the claim or enforcement could well make any recovery a pyrrhic victory, so to speak, in terms of a positive financial outcome for Mr Kojcic given the relatively small amount in issue.
Accordingly on the information before me, I would find that Mr Kojcic did not have at the relevant time of 20 February 2014 ready access to sums of money exceeding $23,290. All in all, therefore, the hardship test in s 1131 is satisfied according to the Respondent’s own criteria.
Section 1131(1) provides that if all the paragraphs in the subsection are satisfied, the Secretary must determine that s 1131 applies to a person. Section 1132 then provides for the unrealisable asset to be ignored in the determination of the person’s eligibility for a social security benefit. Section 1131(3) provides that the s 1131 determination applies from the date of the s 1131 application (in this case 20 February 2014); or, in special circumstances, the determination may be backdated six months but no further.
Absent special circumstances, Mr Kojcic’s allowance would be payable from 20 February 2014. In the circumstances of this case, I believe special circumstances do exist that warrant a backdating. I do not believe Mr Kojcic deliberately delayed the finalisation of the deed forgiving the loan. I do not see any obvious reason for his doing so. Centrelink’s advice to him that there had to be a deed of forgiveness led Mr Kojcic to seek to engage lawyers who, remarkably, charged Mr Kojcic significantly for preparation of the document. Apparently, there were delays in the preparation of the deed while Mr Kojcic gathered together monies to pay for his solicitor’s services. I accept Mr Kojcic’s evidence in this regard.
On the assumption a deed was required, it could have been quickly and easily prepared in a very short space of time and for a modest fee. On the face of matters, Mr Kojcic has received poor advice. Had the preparation of the deed proceeded in a timely way, Mr Kojcic could have eliminated the debt and begun to receive his social security benefit sometime in August 2013.
In my opinion, these are special circumstances to justify the backdating of the hardship declaration to 6 months prior to the application; namely, to 20 August 2013. There is no legal basis in my opinion for any further backdating and in this regard, I disagree with the SSAT.
I would note two other matters. First, the three blocks of land owned by the Trust do not appear to me to be assets that are readily realisable. Mr Kojcic gave evidence that he has been unable to sell them in the range of $70,000 to $80,000. Given a valuation for rating purposes of $50,000, the asking price is not on the evidence before me self-evidently too high. No evidence was led as to their saleability apart from Mr Kojcic’s evidence that the blocks were not located in a particularly desirable part of Mt Gambier.[7] There may need to be an adjustment in the asking price in due course; but at the present time, there does not appear to be market interest in the properties: it is not a case of the asking price being significantly inflated.
[7] I note that at T17, p.100 and T 12, p76, the land has had different values ascribed to it in the balance sheet: in 2012, $235,760 (“at cost”); in 2013 $276,294.65 (no method or basis of valuation specified); in 2014, $150,000 (Director’s valuation). The evidence before me suggests that the present day value of the land lies somewhere between $150,000 (the council valuation) and $210,000 (the lower end of the asking price of $70,000 for each block).
Moreover, I do not think it reasonable to expect Mr Kojcic to sell them at less than their fair value.
Secondly, it was submitted by the Respondent that Mr Kojcic was never eligible for sickness allowance since he was more than temporarily disabled. It appears the benefit he was granted in June 2014 was Newstart (incapacitated) rather than sickness allowance, which is fixed, however, at the same rate. Section 15(1) of the Social Security Administration Act 1999 provides for a person to be deemed to have made an application for the right benefit as at the date of claim for a wrong benefit in certain circumstances. I think this section applies here and as much was conceded by Mr Visser. I note that although paragraph (b) of s 15(1) requires there to be a written claim for the correct social security benefit, none appears to have been filled out as Centrelink apparently transferred Mr Kojcic to Newstart and waived the need for a formal application. Mr Visser very fairly did not press me with a submission that paragraph (b) was not satisfied in this case. In my opinion, it is reasonable to treat Mr Kojcic’s claim for sickness allowance as a claim for Newstart allowance at the time it was made.
DECISION
In all the circumstances of the case, the appropriate decision on the evidence before me is to set aside the directions of the SSAT and to substitute a direction that the respondent calculate and pay to Mr Kojcic his Newstart allowance with effect from 20 August 2013. In calculating his entitlement, the loan asset of some $504,000 is to be ignored as well as the loans from the Trust to his three children.
I certify that the preceding 34 (thirty-four) paragraphs are a true copy of the reasons for the decision herein of Senior Member N A Manetta ....... [Sgd] .......................................
Administrative Assistant
Dated 1 April 2016
Date(s) of hearing 15 February 2016 and 1 March 2016 Advocate for the Applicant Ms M Riley Solicitors for the Applicant Welfare Rights Centre (SA) Inc Advocate for the Respondent Mr C Visser Solicitors for the Respondent Department of Human Services
Program Litigation and Review Branch
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