MTKJ and Secretary, Department of Health (Social services)
[2017] AATA 2911
•15 December 2017
MTKJ and Secretary, Department of Health (Social services) [2017] AATA 2911 (15 December 2017)
Division:GENERAL DIVISION
File Number(s): 2017/3204
Re:MTKJ
APPLICANT
AndSecretary, Department of Health
RESPONDENT
DECISION
Tribunal:A G Melick AO SC, Deputy President
Date:15 December 2017
Date of written reasons: 18 January 2018
Place:Hobart
The decision under review is affirmed.
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A G Melick AO SC, Deputy President
SOCIAL SECURITY – aged care – residential care subsidy – assets test – loans from family trust – value of assets – decision under review affirmed
LEGISLATION
Aged Care Act 1997 (Cth) ss 44.21, 44.26A(1), 44.26C
Social Security Act 1991 (Cth) ss 11(1), 1122
Subsidy Principles 2014 (Cth)
CASES
Clayton and Secretary, Department of Family and Community Services [2003] AATA 1225
Gordon and Secretary, Department of Family and Community Services [2005] AATA 331
Moffatt and Secretary, Department of Family and Community Services [2003] AATA 1259
Re Boyd and Secretary, Department of Social Security [1994] AATA 580; (1995) 83 SSR 1221
Re Hughes and Secretary, Department of Social Security [1992] AATA 52; (1992) 25 ALD 754
Re Joyce and Repatriation Commission [1995] AATA 268
Re Riches and Secretary, Department of Social Security [1995] AATA 361
Re Wright and Secretary, Department of Social Security [1994] AATA 278; (1994) 782 SSR 1196
Unicomb and Secretary, Department of Social Security (1998) 82 FCR 96; 50 ALD 405
WRITTEN REASONS FOR ORAL DECISION
A G Melick AO SC, Deputy President
18 January 2018
BACKGROUND
These reasons relate to an application for review of a decision made on 2 May 2017 affirming an earlier decision dated 2 October 2014. This decision assessed a loan of $137,011 to a family trust (the trust) and of $25,000 to a company (the company) as ‘assets’ of the applicant for the purposes of determining his aged care contribution. The issue for the tribunal is whether these loans were correctly included in the applicant’s asset value for the purpose of assessing his residential care subsidy under the Aged Care Act 1997.
The applicant entered aged care in May 2014 and died in July 2016. When a person receiving benefits enters aged care, they are required to contribute to its cost if they have the means available to do so. The amount paid to the aged care provider is determined on the basis of that person’s income and assets. In this matter, the two loans mentioned above were included in the assessment of the applicant’s asset value.
I note that the company (to which the applicant loaned $25,000) was voluntarily deregistered on 7 March 2016 and a letter from the applicant’s daughter to the Department dated 22 February 2016 stated that the trust had been vested (and so had come to an end). The Department treated both loans as having been surrendered from 16 February 2016, after which they could not be taken into account for the purposes of income or asset value in relation to the relevant subsidy.
Although I have referred to the value of the loan to the trust as being $137,011, this amount was accepted by the Department upon re-assessment as having been $104,614 on the day the applicant entered aged care. I note that financial records suggest, and I accept, that this should actually have been $101,870. However, as I will explain in these reasons, the difference in these amounts has no practical effect on my decision.
This application was brought in the name of the applicant’s estate. A hearing was held on 15 December 2017 and the applicant was represented by his daughter, who appeared by videolink. The respondent’s representative appeared in person. I gave my decision orally at the conclusion of the hearing and give these reasons now as a result of a written request made on behalf of the applicant.
LEGISLATIVE FRAMEWORK
The relevant legislation is contained in and the Subsidy Principles 2014, the Social Security Act 1991 and the Aged Care Act 1997 (the Act).
Subsidy Principles 2014
These principles are made under s 96-1 of the Aged Care Act ‘in order to carry out or give effect’ to Parts 3.1, 3.2 and 3.3 of the same act. The Subsidy Principles 2014 came into effect on 1 July 2014 and replaced the Residential Care Subsidy Principles 1997. This was during the period in which the applicant resided in aged care.
The law relevant to this matter, namely the assessment of asset value, is regulated, in effect, by the Act and so I accept the respondent’s submission that there is no practical difference arising from which set of principles I apply to these facts.
Social Security Act 1991
Section 11(1) defines ‘assets’ to mean ‘property or money (including property or money outside Australia)’. Both the Federal Court and this Tribunal have accepted an interpretation of ‘asset’ which includes loans.
Neither ‘loan’ nor ‘lend’ are defined in the Social Security Act. However, s 1122 sets out how loans are to be included when calculating the value of a person’s assets:
Section 1122 Loans
If a person lends an amount after 27 October 1986, the value of the assets of the person for the purposes of this Act includes so much of that amount as remains unpaid but does not include any amount payable by way of interest under the loan.
I have applied this section here as no evidence was provided to indicate that the loans were made before 27 October 1986.
For completeness, I note the existence of legislative provisions which enable certain assets to be disregarded when calculating asset value, including, for example, s 1118. However, loans are not included in ‘disregarded assets’ and so s 1118 does not apply to the present matter. Similarly, s 1121 allows the value of an asset to be reduced by the value of any charge or encumbrance attaching to it but, as no evidence of such was provided to the tribunal, this does not apply.
Aged Care Act 1997
Section 44.21 of the Act sets out the requirements for calculating ‘care subsidy reduction’. This includes, inter alia, that the means tested amount for the care recipient be worked out in accordance with s 44-22. Section 44-22 states that the per day asset tested amount must be calculated in accordance with ss 44-26A.
The relevant subsections of s 44-26A were extracted by the respondent in its statement of facts, issues and contentions as follows:
Section 44-26A The value of a person's assets
1Subject 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.
…
4The value of a person's assets is taken to include the amount that the Secretary determines to be the amount:
(b)… 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. …
Section 44.26C states that if a person applies in the approved form and provides sufficient information, the respondent must determine the value of their assets in accordance with s 44-26A:
Section 44.26C Determination of value of person's assets
Making determinations
1The Secretary must determine the value, at the time specified in the determination, of a person's assets in accordance with section 44-26A, if the person:
(a)applies in the approved form for the determination; and
(b)gives the Secretary sufficient information to make the determination.
The time specified must be at or before the determination is made.
Note 1: Determinations are reviewable under Part 6.1.
Note 2: An application can be made under this section for the purposes of section 52J-5: see subsection 52J-5(3).
Giving notice of the determination
2Within 14 days after making the determination, the Secretary must give the person a copy of the determination.
When the determination is in force
3The determination is in force for the period specified in, or worked out under, the determination.
4However, the Secretary may by written instrument revoke the determination if he or she is satisfied that it is incorrect. The determination ceases to be in force on a day specified in the instrument (which may be before the instrument is made).
Note: Revocations of determinations are reviewable under Part 6.1.
5Within 14 days after revoking the determination, the Secretary must give written notice of the revocation and the day the determination ceases being in force to:
(a)the person; and
(b)if the Secretary is aware that the person has given an approved provider a copy of the determination--the approved provider.
6A determination made under subsection (1) is not a legislative instrument.
CONSIDERATION
Whether the transactions were ‘loans’ within the meaning of the relevant Acts
The applicant’s representative submitted that the loan to the trust was illusory because the trust had no assets and there was no likelihood of it obtaining the assets to repay the loan. Therefore, the loan should not be taken as an asset for the purpose of determining the applicant’s residential care subsidy.
In this matter, there is no dispute that the transactions were loans – they were characterised as such in the relevant documentation and admitted to be so by the applicant.
Whether the loans should be included in the value of the applicant’s assets
As I have stated above at paragraph 9, decisions of the Federal Court and this Tribunal make clear that loans are included in the meaning of ‘asset’ and so they form part of the total value of a person’s assets for the purposes of social security calculations. I refer particularly to Re Riches and Secretary, Department of Social Security [1995] AATA 361, Re Hughes and Secretary, Department of Social Security [1992] AATA 52 and Re Wright and Secretary, Department of Social Security [1994] AATA 278 (Wright). These cases support the respondent’s submission that the assessable value of a loan is its face value and not its realisable value.
The tribunal has previously rejected the argument that only the ‘real value’ of assets in a trust should be taken into account for the purposes of assessment (Re Joyce and Repatriation Commission [1995] AATA 268). In Moffatt and Secretary, Department of Family and Community Services [2003] AATA 1259 the tribunal considered that it was relevant that the loan had been recorded on the balance sheet as a liability. It concluded that the value of that loan was not to be reduced by a person’s liabilities and it was irrelevant that the loan was not repayable.
In Clayton and Secretary of the Department of Family and Community Services [2003] AATA 1225 it was argued that the relevant loan was, in effect, worthless. The tribunal rejected this and confirmed that the loan was to be valued at its face value. Referring to Wright and Re Boyd andSecretary, Department of Social Security [1994] AATA 580 (Boyd), the tribunal accepted that ‘[e]ven if a loan cannot be repaid, the unpaid amount still is to be treated as an asset’ and that this was so ‘even if this produces unjust results in some circumstances.’ The tribunal concluded that ‘… it is taken, for the purposes of the Act, that [the applicants] received a deemed return on those assets which affected their rate of pension.’
In Boyd, the tribunal considered the meaning and effect of s 1122 of the Act, and, at paragraphs 35 to 38, stated:
It was submitted that the actual implementation of section 1122 of the Act considered the possibility that some amounts are irrecoverable. The applicant’s advocate conceded that the guidelines contemplate a loan that is irrecoverable in total rather than partially, but nevertheless the section could still be read widely.
The applicant’s representative argued that the in light of the company’s continued losses, the applicant could not expect to recoup the total amount. …
In the respondent’s view, $126,170 was the amount remaining unpaid, and it was this sum therefore that represented the value of the loan.
In the view of the Tribunal, section 1122 is clear in its effect. The value of the loan is that amount that “remains unpaid”. There is no suggestion that those words may be interchanged with “remains recoverable”. The Guide to the Administration of the Social Security Act does not expressly provide for part of a loan to be deemed irrecoverable. In accordance with Hughes (supra), the Tribunal finds that the legislation, whilst capable of producing unjust results in some circumstances, nevertheless intended loans made after 27 October 1987 to be valued at face value [emphasis added]
A strict application of s 1122 has also been accepted in a number of other cases: see, for example, Unicomb v the Secretary, Department of Social Security (1998) 82 FCR 96 and Gordon and Secretary, Department of Family and Community Services [2005] AATA 331.
DECISION
The relevant legislation and the way in which it has been applied makes it clear that I must take the loans into account as an ‘asset’ of the applicant at the relevant time for the purposes of determining his residential care subsidy. The loans must be included until the Department considered them to have been ‘surrendered’ (namely, when the company was deregistered and the trust vested).
Noting the consideration of relevant case law at paragraphs 17 to 21, I cannot accept the applicant’s contention that the ‘illusory’ nature of the loan meant it should be disregarded when calculating aged care contributions and instead, I must affirm the decision under review.
Finally, I note two matters. First, that the Department accepts that as at 16 February 2016, the loan amounts are no longer relevant to the assessment of the applicant’s assets or income and, therefore, an appropriate adjustment may well be made for the period between 16 February 2016 and 26 July 2016 (the applicant’s representative contended that no such support payments had been made in this period). Further, I note that at the hearing, the respondent’s representative undertook to refer this matter to the Department for the purpose of contacting the applicant’s representative and exploring potential options.
I certify that the preceding 24 (twenty four) paragraphs are a true copy of the written reasons for the decision of A G Melick AO SC, Deputy President
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Associate
Dated: 18 January 2018
Date(s) of hearing: 15 December 2017 Advocate for the Applicant: By videolink Counsel for the Respondent: Mr B Sparkes Solicitors for the Respondent: Department of Human Services
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