Mitchell and Secretary, Department of Social Services (Social services second review)
[2016] AATA 1036
•16 December 2016
Mitchell and Secretary, Department of Social Services (Social services second review) [2016] AATA 1036 (16 December 2016)
Division
GENERAL DIVISION
File Number
2015/4484
Re
Pauline Mitchell
APPLICANT
And
Secretary, Department of Social Services
RESPONDENT
Decision
Tribunal Deputy President J W Constance
Date 16 December 2016 Place Sydney 1. The reviewable decision of the Social Services and Child Support Division made 3 August 2015 is set aside.
2. In substitution it is decided that the decision made 15 October 2014 rejecting Ms Mitchell’s application for an age pension is set aside.
3. The matter is remitted to the Secretary, Department of Social Services, to be reconsidered in accordance with these reasons for decision.
..............[sgd]..........................................................
J W Constance
Deputy PresidentCatchwords
SOCIAL SECURITY – age pension – calculation of entitlement – means testing – assets to be taken into account when calculating pension entitlement – disposal of assets – encumbrances on assets – effect of bankruptcy on calculation of pension – decision set aside and remitted
Legislation
Bankruptcy Act 1966 (Cth) ss 5, 58
Social Security Act 1991 (Cth) ss 1126AA, 126AB, 1121
Uniform Civil Procedure Rules 2005 (NSW) r 25.11
Cases
Kirkman and Department of Social Security [1990] AATA 66
Wallace v Love (1922) 31 CLR 156
REASONS FOR DECISION
Deputy President J W Constance
16 December 2016
introduction
Ms Mitchell has applied for the age pension. Initially her application was rejected and she requested this Tribunal to review the decision. On review the Social Services and Child Support Division remitted the matter to the Secretary for reconsideration in accordance with directions given at the time. Ms Mitchell was then granted a pension at a reduced rate.
On 27 August 2015 Ms Mitchell applied to the General Division of the Tribunal to review the decision of the Social Services and Child Support Division.
As the age pension is means tested, the issues for consideration relate to the assets of Ms Mitchell which are properly to be taken into account in calculating her pension entitlement and whether there are any encumbrances of those assets which should be taken into account.
For the reasons which follow, the decision under review will be set aside and the matter will be remitted to the Secretary to reconsider Ms Mitchell’s application for the pension in accordance with findings which I will set out in these reasons.
facts
The facts set out in paragraphs 8 to 18 which follow are agreed between the parties; I am satisfied that the agreement is appropriate and in accordance with the documents before me.
The agreed facts are set out in the Statement of Facts and Contentions dated 3 December 2015 and filed on behalf of the Secretary. The reference to documents with the prefix “T” and “ST” are a reference to documents contained in exhibit R1.
The reference to “the Kangy Angy property” is a reference to a property which is Ms Mitchell’s principal home. The property at Wentworth Falls was previously owned by Ms Mitchell. She transferred the property to her daughter in 2013.
The Applicant is aged 83 and was in receipt of social security payments from 1968 until 24 May 2011. She is also known to the Department as “Pauline Crowhurst”.
On 5 August 2014, this Tribunal affirmed a decision made by the former Social Security Appeals Tribunal to raise a debt totalling $514 156.01, with an additional amount to be recalculated by the Department.
On recalculation, it was determined that the Applicant had a further debt of $157 208.82, bringing the Applicant’s total debt to $671 364.83 (ST2, p571).
On 3 September 2014 the Supreme Court of New South Wales made an order restricting the Applicant from diminishing the value of her ‘Australian assets’ below $514 156.01, subject to the order (T21, p144-147). The order was to have effect up to and including the return day of 15 September 2014 (T21, p144).
On 12 September 2014 the Applicant contacted the Department about her intention to claim age pension (T27, p181-182).
On 24 September 2014, she lodged her claim for age pension, accompanied by an Income and Assets statement and bank statements. (T62, p456; T28, p183-203). She then lodged a further claim with additional documentation on 25 September 2015 (T20, p204-257).
On 17 October 2014, the Department rejected the Applicant’s claim for age pension (using the name of Crowhurst) due to the value of her assets (T30, p258-259).
On October 2014, the Applicant requested review of this decision (T31, p260).
On 25 February 2015, a department Authorised Review Officer decided to affirm the decision to reject the Applicant’s claim for age pension (T51, p313-316).
On 8 May 2015, a mortgage in favour of the Commonwealth was registered against the Kangy Angy Property (T54, p343) pursuant to an agreement between the Applicant and the Respondent dated 30 April 2015 (T53, p319-342). The mortgage was to secure Applicant’s repayment of the debt of $514 156.01 (T21, p145).
On 3 August 2015 the Social Services and Child Support Division of the Administrative Appeals Tribunal set aside the decision to reject the Applicant’s claim for age pension and remitted back to the Department in accordance with the following directions (T2, p3):
(a)At the date of her claim for age pension, the Applicant’s principal home was the Kangy Angy Property;
(b)If not already available, a valuation is to be obtained for the Property at Wentworth Falls for the date it was disposed of by the Applicant;
(c)The difference between the amount of the property valuation and $343 247.70 is taken to be a loan from the Applicant to her daughter and the amount of the loan is an asset attributable to the Applicant.
Ms Mitchell was declared bankrupt on 6 August 2015.
Legislation
The relevant legislation is the Social Security Act 1991 (Cth).
Disposal of assets in income year – individuals
Section 1126AA(2) of the Act provides:
(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;
(b)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.
Disposal of assets in 5 year period – individuals
Section 1126AB provides:
Disposal to which section applies
(1) This section also 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:
(a)the sum of the amount of the relevant disposal and the amounts of any previous disposals of assets made during the rolling period by the person;
less
(b)the sum of any amounts included in the value of the person's assets during the rolling period under section 1126AA, 1126AC or 1126AD or any previous application or applications of this section;
exceeds $30,000, 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:
(c)an amount equal to the excess;
(d)the amount of the relevant disposal.
Previous joint disposals
(3) If, during the rolling period but before the time of the relevant disposal, the person was a member of a couple who jointly disposed of an asset, the reference in paragraph (2)(a) to the amounts of any previous disposals of assets made during the rolling period by the person includes a reference to one-half of the amount of the joint disposal.
Rolling period
(4) For the purposes of this section, the rolling period is the period comprising the income year in which the relevant disposal took place and such (if any) of the 4 previous income years as occurred after 30 June 2002.
Effect of charge or encumbrance on value of assets
Section 1121(1) provides:
(1) If there is a charge or encumbrance over a particular asset of the person, the value of the asset, for the purposes of calculating the value of the person’s assets for the purposes of this Act (other than Division 1B of Part 3.10), is to be reduced by the value of that charge or encumbrance.
issues for determination
The following issues arise for determination.
1What are the assets of Ms Mitchell that should be taken into account in calculating her pension entitlement?
2Should the value of Ms Mitchell’s assets be reduced by the amount referred to in the order of the Supreme Court for the purpose of determining her pension entitlement?
3What is the effect of Ms Mitchell being declared bankrupt?
consideration
Issue 1: What are the assets of Ms Mitchell that should be taken into account in calculating her pension entitlement?
The Secretary argues that the following assets should be taken into account:
(a)part of the sum of $17,000 disposed of by Ms Mitchell in 2011 $7000
(b)part of the sum of $17,000 disposed of by Ms Mitchell in 2012 $7000
(c)part of the sum of $17,000 disposed of by Ms Mitchell in 2013 $7000
(d)the amount disposed of by Ms Mitchell in 2013 $100,000
(e)household contents $5000
(f)savings account – Commonwealth Bank $5
(g)savings account – St George Bank $12
(h)loan arising from the transfer of the Wentworth Falls property $116,753
(i)amount disposed of on transfer of the Wentworth Falls property $190,200
Three amounts of $17,000 disposed of during 2011-2013 ((a)-(b) above)
In her application for the pension Ms Mitchell disclosed that she had given away these amounts of cash in each of the years referred to.[1]
[1] Exhibit R1 p.229
Ms Mitchell does not dispute that the sum of $7000 from each of these disposals should be included in the calculation of her assets for the purposes of this application. In accordance with section 1126AA of the Act the first $10,000 in each case is not to be included.
The amount of $100,000 disposed of in 2013 ((d) above)
Ms Mitchell also disclosed that she gave $100,000 to her daughter in 2013.[2] She does not dispute that this sum is to be included in her assets for the purposes of this application.
[2] Exhibit R1 p.229.
Household contents and savings accounts ((e)-(g) above)
Ms Mitchell agrees that these items are properly included in her assets.
Loan arising from the transfer of the Wentworth Falls property ((h) above)
In 2013 Ms Mitchell sold a residential property at Wentworth Falls to her daughter for $430,000.[3] Settlement took place on 18 July 2013.[4] The purchaser paid $343,247 on settlement.[5] However, the trust account statement provided by the Solicitors for Ms Mitchell[6] discloses that Ms Mitchell paid $30,200 of these proceeds to her daughter within three weeks of settlement. In the absence of evidence from Ms Mitchell to explain these payments I am satisfied that they should be deducted from the amount received by Ms Mitchell for the transfer of the property. On this basis the consideration received was $313,047.
[3] Exhibit A2 p.2.
[4] Exhibit R1 p.255.
[5] Exhibit A2, p.2. This figure included an amount necessary to discharge the mortgage on the property. Ms Mitchell received $171,291.19: exhibit R1 p.255.
[6] Exhibit R1 p.255.
Based on the figures set out in the preceding paragraph, the Secretary argues that $116,953, being the difference between the sale price and the amount received on settlement ($430,000 minus $313.047), was a loan from Ms Mitchell to her daughter. This is not disputed by Ms Mitchell.
The sum of $190,000 claimed by the Secretary to have been disposed of by Ms Mitchell arising from the transfer of the Wentworth Falls property
The market value of the Wentworth Falls property at the time it was transferred to the daughter was $620,000.[7]
[7] Exhibit R1 p.70.
The consideration for the transfer received by Ms Mitchell was:
Net funds received on settlement $313,047
Loan to daughter $116,953
Total $430,000.
It was argued on behalf of the Secretary that $190,000, being the difference between the market value of the property ($620,000) and the consideration received by Ms Mitchell ($430,000) was an asset disposed of by her in the transaction and therefore must be included as an asset in accordance with sections 1126AA and 1126AB of the Act.
On the other hand, Counsel for Ms Mitchell argued that the difference of $190,000 should also be characterised as a loan by Ms Mitchell to her daughter. I do not accept that this is a proper characterisation of the transaction.
Ms Mitchell did not give evidence in this application nor did her daughter, despite my having given Counsel the opportunity to call additional evidence late in the proceedings if he wished to do so. I adjourned the hearing to allow him to consider the state of the evidence and to seek further instructions from Ms Mitchell.
There is absolutely no evidence to suggest that Ms Mitchell and her daughter intended that the daughter would provide any further consideration for the sale in addition to that provided on settlement. In the absence of such evidence I can only conclude that Ms Mitchell sold the property to her daughter for less than its market value at the time. In accordance with section 1126AA of the Act this is a disposal which is to be included in Ms Mitchell’s assets for the purpose of determining the amount (if any) of pension payable.
Issue 2: Should the value of Ms Mitchell’s assets be reduced by the amount referred to in the order of the Supreme Court for the purpose of determining her entitlement to payment of an age pension?
The order of the Supreme Court
The order of the Supreme Court made 3 September 2014 and directed to Ms Mitchell, reads, in part:
6.
(a)You must not remove from Australia or in any way dispose of, deal with or diminish the value of any of your assets in Australia (‘Australian assets’) up to the unencumbered value of AUD $514,156.01 (‘the Relevant Amount’).
(b)If the unencumbered value of your Australian assets exceeds the Relevant Amount, you may remove any of those assets from Australia or dispose of or deal with them or diminish their value, so long as the total unencumbered value of your Australian assets still exceeds the Relevant Amount.
7. For the purposes of this order;
(1)your assets include:
(a)all your assets, whether or not they are in your name and whether they are solely or co-owned;
(b)any asset which you have the power, directly or indirectly, to dispose of or deal with as if it were your own (you are to be regarded as having such power if a third party holds or controls the asset in accordance with your direct or indirect instructions); and
(c)the following assets in particular:
(i) the property known as … Kangy Angy in the State of New South Wales, or, if it has been sold, the net proceeds of the sale; and
(ii) any money in accounts held in the name of Pauline Mitchell and/or Pauline Crowhurst and/or Pauline Henning or any in any other accounts held on your behalf in any financial institution.
(2)The value of your assets is the value of the interest you have individually in your assets.
…
10. This order does not prohibit you from:
(a)Paying up to $564.60 per week on your ordinary living expenses;
(b)Paying up to $10,000.00 on your reasonable legal expenses;
(c)Dealing with or disposing of any of your assets in the ordinary and proper course of your business, including paying business expenses bona fide and properly incurred; and
(d)In relation to matters not falling within (a), (b) or (c), dealing with or disposing of any of your assets in discharging obligations bona fide and properly incurred under a contract entered into before this order was made, provided that before doing so you give the applicant, if possible, at least two working days written notice of the particulars of the obligation.[8]
[8] Exhibit R1 p.145.
The judgement of the Supreme Court
On 8 October 2014 judgement was entered in favour of the Secretary in the sum of $516,771.01 against Ms Mitchell in the Supreme Court.[9]
[9] Exhibit A3.
Section 1121 of the Social Security Act
The relevant provisions of section 1121 of the Act provide:
(1)If there is a charge or encumbrance over a particular asset of the person, the value of the asset, for the purposes of calculating the value of the person’s assets for the purposes of this Act (other than Division 1B of Part 3.10), is to be reduced by the value of that charge or encumbrance.
(2)Subsection (1) does not apply to a charge or encumbrance over an asset of a person to the extent that:
(a)the charge or encumbrance is a collateral security; or
(b)the charge or encumbrance was given for the benefit of a person other than the person or the person’s partner.
(4)If:
(a)there is a charge or encumbrance over assets; and
(b)the charge does not arise under section 1138; and
(c)the assets consist of assets whose value is to be disregarded under section 1118 and other assets;
the amount to be deducted under subsection (1) is:
The argument on behalf of Ms Mitchell
It was argued on behalf of Ms Mitchell that, for the purposes of this application, the value of her assets is to be reduced by the sum of $514,156.01, being the amount referred to in the order of the Supreme Court.
I was referred to the following passage in the judgement of the High Court of Australia in Wallace v Love:
The word ‘encumbrances’, in its ordinary connotation, means that a person or estate is burdened with debts, obligations or responsibilities.[10]
[10] (1922) 31 CLR 156 at 164.
Initially it was put that the “freezing order” comes within this definition. However it was later put that the combination of the freezing order and the default judgement entered against Ms Mitchell amounted to an encumbrance of her assets for the purposes of the Act.
Discussion
Although the words “charge” and “encumbrance” may have broad meanings in certain circumstances, in this instance they must be interpreted in the context of the Act in which they appear. Section 1121 refers to a charge or encumbrance over “an asset” or “assets”; it does not refer to a burden imposed on an individual.
The power of the NSW Supreme Court to issue a ‘freezing order’ is contained in rule 25.11 of Uniform Civil Procedure Rules 2005 (NSW). It provides as follows:
(1)The court may make an order (a “freezing order”) upon or without notice to a respondent, for the purpose of preventing the frustration or inhibition of the court’s process by seeking to meet a danger that a judgment or prospective judgment of the court will be wholly or partly unsatisfied.
(2)A freezing order may be an order restraining a respondent from removing any assets located in or outside Australia or from disposing of, dealing with, or diminishing the value of, those assets.
The order of the Supreme Court was an order directed to Ms Mitchell personally, ordering her not to remove, or diminish the value of, assets in Australia, up to the specified value. It was not directed at any specific asset. Ms Mitchell remained at liberty to deal with any asset she wished so long as the required value of her remaining assets was maintained.
I do not agree that the entry of the default judgement against Ms Mitchell somehow combined with the freezing order to create an encumbrance within the meaning of the Act. As was the case with the freezing order, the judgement was against Ms Mitchell personally; it was not directed at any particular asset or assets. A court judgement may be the basis for the imposition of a charge or encumbrance being made against property, as was done by the registration of mortgage over the Kangy Angy land.
For these reasons I do not accept the argument put on behalf of Ms Mitchell. Section 1121 of the Act does not require or permit the value of Ms Mitchell’s assets to be reduced by the sum referred to in the order of the Supreme Court.
The conclusion I have reached is consistent with the decision of the Tribunal in Re Kirkman and Department of Social Security[11] in which it was considered whether a caveat lodged over a property should be recognized as reducing the value of the Applicant’s assets on the basis that it was a charge or an encumbrance. In that matter the Tribunal concluded:
This then is the essential difference between a charge or an encumbrance and a caveat. A caveat is simply a protective device allowing the caveator an opportunity to take other action to establish his interest. It does not of itself create a "right to payment" (see paragraph 12 above) in the sense of a charge or a claim or demand in the sense of an encumbrance (see paragraphs 13-15 above) but merely holds the status quo as it were while the caveator takes, expeditiously, other steps to protect his interests.
…
I am satisfied that the caveats are not a charge or encumbrance within the meaning of sub-paragraph 4(1)(b) and, therefore, that the value of the house and the unit cannot be reduced by virtue of them.[12]
[11] [1990] AATA 66.
[12] Para [19] – [21]
Issue 3: What was the effect of Ms Mitchell being declared bankrupt?
Upon her becoming bankrupt on 6 August 2015 Ms Mitchell’s property vested in the Trustee.[13]
[13] Bankruptcy Act 1966 (Cth) section 58.
Section 5 of the Bankruptcy Act defines “property” as follows:
property means real or personal property of every description, whether situated in Australia or elsewhere, and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incidental to any such real or personal property.
The property which vested in the trustee does not include the notional assets determined for the purposes of the Social Security Act. These are:
·$21,000 disposed of in 2011 – 2013;
·$100,000 disposed of in 2013;
·$190,200 disposed of on the transfer of the Wentworth Falls property.
I agree with the contention of the Secretary that the assets which did vest in the Trustee are:
·the loan arising from the transfer of the Wentworth Falls property;
·the savings accounts.
It is not in dispute that from the date of vesting, assets vested in the trustee are not assets to be taken into account in determining Ms Mitchell’s pension entitlement.
conclusion
The reviewable decision of the Social Services and Child Support Division made 3 August 2015 will be set aside.
In substitution it will be decided that the decision made 15 October 2014 rejecting Ms Mitchell’s application for an age pension will be set aside.
The matter will be remitted to the Secretary, Department of Social Services, to be reconsidered in accordance with these reasons for decision.
I certify that the preceding 57 (fifty -seven) paragraphs are a true copy of the reasons for the decision herein of Deputy President J W Constance. ..............[sgd]..........................................................
Associate
Dated 16 December 2016
Dates of hearing 12 May 2016, 18 July 2016 Date final submissions received 18 July 2016 Solicitors for the Applicant Mr S Hodges; Stephen Hodges Solicitor Solicitors for the Respondent Ms H Schuster; Department of Human Services
Key Legal Topics
Areas of Law
-
Administrative Law
-
Statutory Interpretation
Legal Concepts
-
Judicial Review
-
Jurisdiction
-
Procedural Fairness
-
Statutory Construction
-
Remedies
-
Appeal
1
1
0