Mikhail and Secretary, Department of Employment and Workplace Relations

[2006] AATA 382

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2006] AATA 382

ADMINISTRATIVE APPEALS TRIBUNAL      )

)Nos:    N2005/1405

N2005/1406

GENERAL ADMINISTRATIVE  DIVISION		)
Re		NAIM MIKHAIL AND SUSAN MIKHAIL

Applicant

And SECRETARY, DEPARTMENT OF EMPLOYMENT AND WORKPLACE RELATIONS

Respondent

DECISION

Tribunal  Ms N Bell, Senior Member

Date 2 May 2006

Place Sydney

Decision  The decision under review is affirmed.

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

Ms N Bell
  Senior Member  

SOCIAL SECURITY – Assets – Deemed Value of Investments – Unsecured Loan – Can an Unsecured Loan be Treated as a Charge or Encumbrance – Is Relevant Loan Secured by or Attached to the Investment Properties - Was Loan Specifically Obtained in Order to Purchase Investment Properties – Decision Under Review Affirmed

Social Security Act 1991 (CTH)

Re Fawthrop and Repatriation Commission (1994) 36 ALD 140

REASONS FOR DECISION

2 May 2006 Ms N Bell, Senior Member

1.      Mr and Mrs Mikhail receive aged pension and disability support pension, respectively.  In addition to their principal home (owned by Mr Mikhail), they own 2 investment properties, jointly purchased with their daughter Jacqueline in the late 1990s.  One of the properties was financed with a secured loan from Citibank and the other with a secured loan from the St George Bank.

2.      After being retrenched from his job in 2003 and applying his redundancy payment to the discharge of the mortgage on his principal residence, Mr Mikhail was unable to meet his and his wife’s shares of the mortgage payments on the investment properties.  After investigating other options, including selling the properties, he made arrangements with his daughter to lend him $3,000.00 per month to allow him to meet the monthly mortgage repayments of approximately $2,250.00 and to meet living expenses.  Mr Mikhail informed Centrelink of this arrangement and provided statutory declarations by him and by his daughter as evidence of their agreement.  The declarations state that Mr Mikhail will repay the amount borrowed from his daughter on the sale of the properties.

3.      Mr Mikhail asked Centrelink to offset the debt to his daughter against the value of his and his wife’s shares of the properties so as to reduce the value of their assets and increase the rates of their aged pension and disability support pension.  Centrelink refused to reduce the value of Mr & Mrs Mikhail’s assets on this basis.

ISSUE

4.      The facts of this application are as summarised above and are not in dispute.

5. Section 1121(1) of the Social Security Act 1991 (“the Act”) provides that the value of an asset is to be reduced by the value of any charge or encumbrance. The words “charge” and “encumbrance” are not defined in the Act. In Re Fawthrop and Repatriation Commission (1994) 36 ALD 140 Deputy President Forgie held that a “charge” is a liability that is secured and an “encumbrance” is a claim, lien or burden attached to a property. The Guide to the Social Security Law, at paragraph 4.6.6.3, says that if an unsecured loan can be shown to have been specifically obtained to purchase an asset, then the outstanding amount of the loan may be deducted from the value of the asset.

6. The Guide ameliorates, to some extent, Deputy President Forgie’s interpretation of section 1121(1). Given the absence of a definition of “charge” and “encumbrance” in the Act, the provisions of the Guide are consistent with the Act.

7.      The issue for consideration is therefore whether the loan from Mr Mikhail’s daughter is secured by or attached to the investment properties and, if not, whether it was specifically obtained in order to purchase the properties.

CONSIDERATION

8.      The loan from Mr & Mrs Mikhail’s daughter is not secured by either of the properties owned by them.  An intention, as shown by the statutory declarations, to repay the loan amount on the sale of the properties, does not make the properties security for the loan.

9.      Nor was the loan specifically made for the purpose of the purchase of the properties.  They were, in fact, purchased some years prior to the loan being made.  In addition, not all of the loan monies are applied to the payment of the mortgages on the properties.

10.     It follows that the loan, on the basis of Re Fawthrop and Repatriation Commission (1994) and on the basis of paragraph 4.6.6.3 of the Guide, may not be taken into account to reduce the value of Mr & Mrs Mikhail’s assets and thereby raise the rate of their pensions.

11.     I note that Mr Mikhail has recently found a tenant for one of the properties, which had been vacant for some time, and that this has alleviated his difficulties to some extent.

DECISION

12.     The decision under review is affirmed.

I certify that the 12 preceding paragraphs are a true copy of the reasons for the decision herein of Ms N Bell, Senior Member.

Signed:         ...........[Linda Blue]..................................
  Associate

Date of Hearing  24 February 2006
Date of Decision  2 May 2006
Solicitor for the Respondent     Centrelink Legal Services