LZBW and Secretary, Department of Health (Social services)

[2018] AATA 312

LZBW and Secretary, Department of Health (Social services) [2018] AATA 312 (23 February 2018)

Division:GENERAL DIVISION

File Number:           2017/1520

Re:LZBW

APPLICANT

AndSecretary, Department of Health

RESPONDENT

DECISION

Tribunal:Senior Member R W Dunne

Date:23 February 2018

Place:Adelaide

The Tribunal affirms the decision under review.

..............................[SGD]..........................................

Senior Member R W Dunne

CATCHWORDS

AGED CARE – Aged Care fees – assessment of assets for aged care purposes – refundable accommodation deposit – effect of loan and whether a charge or encumbrance – decision under review affirmed.

LEGISLATION

Aged Care Act 1997 (Cth), s 44.26A, 44.26B

Subsidy Principles 2014 (made under section 96 of the Aged Care Act 1997), s 47

Social Security Act 1991 (Cth), Division 1 of Part 3.12

CASES

Re Smith and Secretary, Department of Family and Community Services [1999] AATA 267

Re Stojanovski and Secretary, Department of Social Services [2017] AATA 1283

SECONDARY MATERIALS

Guide to Social Security Law

REASONS FOR DECISION

Senior Member R W Dunne

23 February 2018

INTRODUCTION

1. The applicant in this matter is elderly and she was represented by her daughter (“the Daughter”), who has power of attorney. 

2. In early 2016, the applicant left her retirement village unit (“Unit”) and entered an aged care facility (“Facility”).  A form was lodged on the applicant’s behalf with the Department of Human Services for the purpose of an assets assessment to determine whether the applicant was eligible for government assistance with her residential Aged Care fees.  These fees were to commence upon the Facility being entered.

3. Initially, the respondent made a decision to assess the applicant’s assets.  A review of that decision was sought and an authorised review officer (“ARO”) reduced the assets assessment at the time the applicant actually entered the Facility. 

4. In 2017, the applicant applied to this Tribunal for further review of the ARO’s decision on the basis that:

   (a)a sum representing the market value of the Unit was not a refundable accommodation deposit; and

   (b)the sum should have been reduced by a loan which was secured against the Unit.

5. At the hearing before me, the Daughter was supported by her partner. The respondent was represented by Ms E Moran from Sparke Helmore, Lawyers. I admitted into evidence the T documents lodged pursuant to s 37 of the Administrative Appeals Tribunal Act 1975,[1] together with an exhibit being a copy of the “Residents Agreement” for the Unit dated 22 September 2003.[2]

   [1] Exhibit R1.

   [2] Exhibit R2.

   ISSUE FOR THE TRIBUNAL

6. The issue for the Tribunal is whether the applicant’s assets have been correctly assessed for aged care fee purposes and specifically whether the sum of $450,000 representing the market value of the Unit:

   (a)should be considered as the value of the applicant’s principal place of residence or as a refundable accommodation deposit; and

   (b)should be reduced by the value of a loan of $395,000 (“Loan”).

   LEGISLATION

7. The legislation that applies in this case is contained in provisions in the Aged Care Act 1997 (“Aged Care Act”), the Social Security Act 1991 (“Social Security Act”) and the Subsidy Principles 2014 (“Subsidy Principles”).  The relevant provisions are set out below.

   Aged Care Act

   44-26A  The value of a person's assets

   (1)  Subject to this section, the value of a person's assets for the purposes of section 44-22 is to be worked out in accordance with the Subsidy Principles.

   …

   (4)  The value of a person's assets is taken to include the amount that the Secretary determines to be the amount:

   (a)… 

   (b)otherwise--that would be included in the value of the person's assets if Division 2 of Part 3.12 and Division 8 of Part 3.18 of the Social Security Act 1991 applied for the purposes of this Act.

   …

   (5)  If a person has paid a refundable deposit, the value of the person's assets is taken to include the amount of the refundable deposit balance.

   …

   (7)  In working out the value at a particular time of the assets of a person who is or was a homeowner, disregard the value of a home to the extent that it exceeded the maximum home value in force at that time.

   44-26B Definitions relating to the value of a person’s assets

   (1)In section 44-26A, and in this section:

   …

   "homeowner " has the meaning given by the Subsidy Principles.

   "maximum home value " means the amount determined by the Minister by legislative instrument.

   Social Security Act

8. The relevant provisions of Division 2 of Part 3.12 and Division 8 of Part 3.18

   Subsidy Principles 2014

   Subdivision D—Care subsidy reduction—value of assets

   47 Working out care recipient’s means tested amount – value of assets

   (1)For subsection 44‑26A(1) of the Act, the value of a person’s assets is the value worked out in accordance with Division 1 of Part 3.12 of the Social Security Act, reduced by any compensation payments received by the person…

   …

   (2A)Also, subsection 1121(1) of the Social Security Act does not apply, for the purposes of working out the person’s assets, to a charge or encumbrance over the amount of any refundable deposit balance in respect of a refundable deposit paid by the person.

   Value of home

   (3)For subsection 44‑26A(7) of the Act, the value of a home is the value worked out after applying this section.

   MATERIAL FACTS

9. The material facts in this case are largely not in dispute.  Based on the materials and submissions filed on behalf of the applicant by the Daughter, the respondent understands that the applicant agrees with most of the ARO’s assessment, except where the values of the Unit and the Loan are concerned.  I have also proceeded on this understanding.

10. As already stated, in early 2016 the applicant left the Unit and entered the Facility and a form was signed and lodged by the Daughter on behalf of the applicant for the purposes of an assets assessment in relation to her residential aged care fees.  In the form, the market value or entry contribution amount that would be refundable if the Unit was vacated was shown as $440,000.  It appears on the material available that the sum involved was $450,000, not $440,000. 

11. It was asserted by the Daughter that the treatment of the Unit should be considered over three periods.  The Unit was part of a retirement village.  The village complex included licenced aged care.  However, she said the Unit had to be sold.  It was not itself a licenced aged care facility, but was a ‘property’ and there was no refundable accommodation deposit.  The Unit could be sold through a real estate agent, even though the Retirement Villages Act1987 applied to the Unit.  In the course of the residential aged care fee assessment, it became apparent that there was a residential accommodation bond of $545,000 that had to be taken into account in the third period of the assessment.

12. In relation to the residential accommodation bond, it was asserted that it should be reduced by the value of the Loan.  The Daughter said that the Loan was taken out by the applicant’s son for his mother’s benefit.  It was said that the Loan was secured against the Unit and was for the purpose of partially funding the accommodation bond for the Facility.  Upon payment or repayment of the bond, the Loan was or would be immediately discharged. 

13. After the asset assessment was made, the Daughter requested a review of the figures involved.  An independent Review Officer conducted the review and communicated the results to the applicant in early 2017.  Oral evidence was obtained from the Review Officer and is set out in paragraphs 18 and 19 below.

    EVIDENCE

    Evidence of the Daughter

14. The Daughter was not happy with the review decision of the independent Review Officer.  She thought the decision was wrong.  In giving her evidence, she said the Unit had been acquired by her parents pursuant to the Residents Agreement with the operator of the retirement village (“the Operator”).  When her father died, the Unit passed to the applicant pursuant to his Will.  She acknowledged that the Unit was subject to the Retirement Villages Act 1987.  However, there were two different types of contract involved in the retirement village in which the Unit was situated.  Her parents’ contract was for a “market value” property.  However, when she read the contract, she said that the Operator would have to provide the loan money back.  This was not how her parents’ contract should have worked.  The Unit was a market value property and it took too long to sell.  The sale proceeds for the Unit amounted to $795,000, less certain deductions.  When the Unit was sold, a real estate agent was involved and that agent took commission.  The Daughter said the Unit was an asset of her mother, as she had been the owner.  It was not an asset of the village Operator. 

15. In relation to the Loan that her brother and his wife had made to the applicant, she said her mother needed $545,000 to pay the accommodation bond to the Facility.  Her mother could choose not to pay the bond, but the eventual cost would be much higher.  The applicant chose to pay the bond or deposit up front.  But she only had $150,000 available herself and needed $395,000 to avoid selling shares, which would give rise to taxable capital gains.  Her brother and his wife made the Loan, but they knew they would get the loan money back when the Unit was sold.  The Loan was made because there was security for it.  The security was the property (or the Unit) itself.  The Loan amount had been arranged by emails between the Daughter, on behalf of the applicant, and her brother and his wife.

16. In cross-examination by Ms Moran, the Daughter was referred to the Residents Agreement dated 22 September 2003.  Included within the Agreement was a Form 2 Disclosure Statement.  When referred to page 3 of the Form 2 the Daughter acknowledged that her mother’s tenure of the Unit under the Retirement Villages Act 1987 was a licence to occupy.  She also acknowledged that the land on which the Unit is located is (or was) owned by the Operator.  However, she said that her mother’s interest in the Unit was subject to sale.  And the sale agreement for the Unit was between the Daughter and her brother (on behalf of the applicant) and the purchaser, not the Operator.

17. The Daughter was then referred to clause 4.1 and clause 5.1 of the Residents Agreement.  In relation to clause 5.1, the Daughter said that there was no payment or repayment of a loan to the Operator.  She said there was no agreement dealing with the sale proceeds.  The arrangements for dealing with the sale proceeds were different to what was shown in the Residents Agreement.  She said that she was the one who dealt with the new purchaser of the Unit, not the Operator.  She was the one to decide whether or not to accept an offer for sale and whether to look for other offers. 

    Evidence of Review Officer

18. The Review Officer was Ms Sharon Perna.  She acknowledged that she was the author of the review outcome letter dated 14 February 2017.  She agreed that there was an entry contribution sum of $440,000 in relation to the Unit referred to in the letter, and that this sum would be returned to the applicant when she exited the retirement village and sold the Unit she had purchased in the village.  She confirmed that she had characterised the sum as an entry contribution from the retirement village, but she said it was not the same as a refundable accommodation deposit.  When she was asked what the difference was, she said a refundable deposit was the amount that a person pays or is required to pay, depending on their means, when they enter an actual aged care facility.  The entry contribution for retirement villages is a completely different arrangement that people have with a retirement village when they enter into a particular village.  When she was referred to the Residents Agreement for the applicant, she said she still believed that it was an entry contribution that the applicant had paid when she entered into the retirement village.  However, she said she understood that the aged care team had implemented a more favourable decision for the applicant which did not include that sum in their final assessment.  She said that, after reading the Residents Agreement, she considered the $440,000 should be $450,000.  She said that amount was the money that the applicant was entitled to get back when she sells the Unit back to the retirement village.  She confirmed that the sum of $450,000 was correctly treated as an asset of the applicant in the assessment. 

19. When questioned by the Daughter, Ms Perna said that she looked at the Retirement Village definition and what the Residents Agreement provided.  When she read the Agreement, she said it reinforced her view that it is actually an entry contribution, but it was still a retirement village and the $450,000 should be assessed as such.

    CONSIDERATION

    Have the applicant’s assets been correctly assessed for aged care fee purposes and specifically should the sum of $450,000:

    (a)be considered as the value of the applicant’s principal place of residence or as a refundable accommodation deposit; and

    (b)be reduced by the value of a loan in the sum of $395,000.

20. The person in this case who made the application for review was an elderly lady.  She was represented before me by her nominee, who is her daughter and has her power of attorney.  For confidentiality reasons, I have referred to these parties as the applicant and the Daughter. 

21. In early 2016, the applicant left her retirement village unit (which I have called “the Unit”) and entered an aged care facility (which I have called “the Facility”).  Before she entered the Facility, the Daughter signed and lodged a form with the Department of Human Services on behalf of the applicant for the purpose of an assets assessment to determine whether she was eligible for government assistance with her residential aged care fees.  Later in 2016, the Secretary made a decision to assess the applicant’s assets for aged care purposes.  When the applicant sought a review of the decision, it was undertaken by an authorised review officer (“ARO”).  The ARO changed the original decision when the applicant entered the Facility and when a refundable deposit of $545,000 was paid to the Facility.  In early 2017, the applicant lodged an application for further review of the decision of the ARO.  The basis for this application was that the sum of $450,000, also included in the assessment, was the market value of the Unit, and not a refundable accommodation deposit.  In addition, an issue was whether the $450,000 should be (or should have been) reduced by a loan of $395,000 made to the applicant by her son and his wife, which was said to be secured against Unit.

    Should the sum of $450,000 be considered as the value of the applicant’s principal place of residence or as a refundable accommodation deposit?

22. In determining whether the sum of $450,000 should be considered as the value of the applicant’s Unit or as a refundable accommodation deposit, I have examined the provisions of the Residents Agreement dated 22 September 2003.  The parties to the Agreement are expressed to be the applicant and her husband (now deceased) and the operator of the retirement village in which the Unit is (or was) situated (which I have called “the Operator”).  The Residents Agreement comprises various Parts and Schedules.  There are early Parts which, in my view, assist in the interpretation and understanding of the operation of the Agreement.  For example, PART I is described as ACCOMMODATION AND TENURE.  Next, PART II is described as LOAN AND REPAYMENT.  Also included in the Agreement is a document described as Form 2 DISCLOSURE STATEMENT, which makes it clear that the Agreement was (or was intended to be) governed by or under the South Australian Retirement Villages Act 1987.  

23. Clause 3 of PART I deals with TENURE, and clause 3.1 (headed Licence to Occupy) reads:

    “3.1 Licence to Occupy

    As the owner of the Property and subject to the Resident advancing the Loan in accordance with clause 4.1 the Operator grants to the Resident a licence to occupy the Apartment and enjoy the Common Areas in common with all Scheme Residents on the terms of this Agreement…..”

24. Clause 4 in PART II is headed PREMIUM – Loan, and clause 4.1 under Payment reads:

    “4.1 Payment

    The Resident will advance the amount of the Loan to the Operator as follows:

    (a)  the amount of $15,000 on the signing of this Agreement; and

    (b)  the balance of $435,000 by bank cheque or equivalent on or before the Agreed Date of Entry,

    and the Loan will be repayable free of interest in accordance with clause 5.”

25. Clause 5 in PART II deals with REPAYMENT of the Loan, and clause 5.1 reads:

    “5.1 Obligation to Repay

    Subject to clauses 4.4, 5.2 and 15.2 the Loan is repayable on the earlier of:

    (a)  12 calendar months after the Resident vacates the Apartment following termination of rights of occupancy under clause 11; or

    (b)  25 Business Days after the receipt by the Operator of the Next Loan,

    however the Operator will make any earlier repayment as may be required by the Act.”

26. It seems clear to me that the Residents Agreement between the applicant, her late husband and the Operator was a legal agreement to be carried out in its expressed terms.  When it was entered into in 2003, the intention was that the Retirement Villages Act 1987 applied to it.  However, the fact that the Agreement was not carried out in its expressed terms was as a result of other arrangements that the applicant and the Operator had gone into.  It appears there was no loan as such made by the applicant to the Operator and no repayment obligation.  If these obligations did exist, they were not complied with.  According to the Agreement, the Operator owned the Unit (or the land on which it was situated) and, subject to the loan in PART II, granted the applicant a licence to occupy the Unit.  The arrangements that were entered into for the sale of the Unit by the applicant and the involvement of a real estate agent to act for her in the sale were not in accordance with the Retirement Villages Act 1987. By the agreement of the parties, the relevant words of the Residents Agreement were ignored or not followed through.  Because of these circumstances, the questions arising from a reading of the Residents Agreement must be answered differently.

27. In considering the issue of whether the applicant’s assets have been correctly assessed and whether the sum of $450,000 representing the market value of the Unit should be considered as the value of the applicant’s principal place of residence or as a refundable accommodation deposit I have reviewed the decision reached by the Independent Review Officer (Ms Perna) in the letter dated 14 February 2017.  I note that the Review Officer made two assessments.  She determined that from 28 April 2016 the applicant’s assessable assets included “Entry Contribution from retirement village” of $440,000.  When the applicant’s Daughter on 13 July 2016 had advised the Department of Human Services that a refundable deposit of $545,000 had been paid to the Facility on 30 May 2016, this amount was included in a further determination of assessable assets on 30 May 2016.  During cross-examination, the Review Officer also indicated that on 30 May 2016 the amount of the “Entry Contribution from retirement village” should have been increased from $440,000 to $450,000. 

28. In giving her oral evidence by telephone at the hearing on 15 December 2017, Ms Perna was again referred to the $440,000 entry contribution and she agreed that that sum should be $450,000.  She then confirmed that the entry contribution of $440,000, increased to $450,000, was the sum that would be returned to the applicant when she exited the Retirement Village and sold the Unit.  When Ms Moran asked her if she had characterised the amount as an entry contribution from a retirement village, she said she had.  However, when asked whether that was the same thing as a refundable accommodation deposit, she said it was not.  She was asked what the difference was, and she said:

    “Well, a refundable deposit is the amount that a person pays or is required to pay depending on their means when they enter an actual aged care facility.  The entry contribution for retirement villages is a completely different arrangement that they have with that retirement village when they enter in to that particular village.  So they are two very distinct payments that need to be made to two very distinct organisations.”

1. She was asked again by Ms Moran to explain the difference between the entry contribution from the retirement village and the refundable accommodation deposit.  To this, Ms Perna said:

   “Well, one is the entry contribution, this 440 - $450,000 that was paid – that is the money that the applicant is entitled to get back when she sells her unit back to the retirement village, in very simple layman’s terms. That’s her share of the capital that that unit has grown in since she’s been in there, it’s effectively hers to come back. That’s what she gets. With the refundable deposit, the nursing home can charge an amount to go into it and under the – under the Aged Care Act that is considered to be an asset so that is assessed under the Aged Care Act where a refundable deposit that a customer, if they’ve got the means to do so, has to pay that lump sum amount to secure their bed in that facility. So they’re two very distinct payments, one to one organisation and one to another organisation.”

2. When Ms Moran asked whether, in a practical sense, a sum of money is treated as an entry contribution or as a refundable accommodation deposit for the purpose of an aged care fee asset assessment, are they treated the same?  Ms Perna confirmed that they are both to be treated and included in the assessment to their full value.  It is clear from her oral evidence that the applicant’s assets have been correctly assessed for aged care fee purposes and that the sum of $450,000 should be considered as the entry contribution from the Retirement Village which would be returned to the applicant when she exited the village and sold the Unit.  It is clear that the refundable accommodation deposit is the sum of $545,000 that the applicant was required to pay when she entered the Facility.

   Should the value of the applicant’s assets be reduced by the value of a loan of $395,000?

3. In relation to the Loan, the Daughter explained that it had been made to the applicant by her brother, the applicant’s son, and his wife.  The Daughter asserted that security for the Loan was the Unit, such that the Loan would be (and had been) repaid when the Unit was sold.  There was no charge or encumbrance provided as security and there was no mortgage granted in respect of the Loan.  Ms Moran referred to the decision of Senior Member Handley in Smith and Secretary, Department of Family and Community Services, where in [30] the Senior Member said:

   “…The words ‘charge or encumbrance’ are not defined in the Act.  In the Tribunal’s view , however, it is clear … that the words ‘charge’ and ‘encumbrance’ refer to a form of security which specifically attaches to an asset.  By contrast, a guarantee or indemnity is a promise or undertaking to honour the performance of an obligation, a form of security which does not specifically attach to an asset… [3]

   [3] [1999] AATA 267.

4. Ms Moran also referred to the more recent decision in Stojanovski and Secretary, Department of Social Services,[4] where Senior Member Isenberg followed the decision in Smith.  In my view, applying the Tribunal decisions in Smith (supra) and Stojanovski (supra) the words “charge” and “encumbrance” refer to a form of security which is granted by a person and specifically attaches to an asset.  As there was no security that could be said to attach to the Unit by merely the emails exchanged between the Daughter (acting for the applicant) and her brother and his wife, I am satisfied that there was no mortgage or encumbrance in relation to the Loan which can be specifically attached to the Unit.  As also pointed out by Ms Moran, in Instruction 1.1.E.108 in the Guide to Social Security Law, the usual types of encumbrances include:

   ·a registered mortgage,

   ·a bank overdraft secured by lodgement of title deeds,

   ·a solicitor's lien for costs and fees,

   ·a banker's lien for money advanced

   [4] [2017] AATA 1283.

   CONCLUSION

5. On the basis of all of the material before me, I am satisfied that the applicant’s assets have been correctly assessed for aged care fee purposes in accordance with the legislation set out in paragraph 7 of these reasons.  And specifically, it follows that the sum of $450,000 is an entry contribution for a retirement village and should be considered as the value of the applicant’s principal place of residence.  For the reasons I have outlined, the Loan was not, and did not involve, a mortgage or encumbrance.  It was not a form of security which specifically attaches to an asset, being the Unit of the applicant.

   DECISION

6. The Tribunal affirms the decision under review.

I certify that the preceding 34 (thirty -four) paragraphs are a true copy of the reasons for the decision herein of Senior Member R W Dunne

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Administrative Assistant

Dated: 23 February 2018

Date(s) of hearing:	15 December 2017
Advocate for the Applicant:	The Daughter
Advocate for the Respondent:	Ms E Moran
Solicitors for the Respondent:	Sparke Helmore Lawyers