Pavilupillai and Secretary, Department of Employment and Workplace Relations

[2007] AATA 1906

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2007] AATA 1906

ADMINISTRATIVE APPEALS TRIBUNAL      )

)           N° 2007/2226

GENERAL ADMINISTRATIVE  DIVISION		)
Re		MARY PAVILUPILLAI

Applicant

And

SECRETARY,
DEPARTMENT OF EMPLOYMENT

AND WORKPLACE RELATIONS

Respondent

DECISION

Tribunal Dr Gordon Hughes, Member

Date31 October 2007

PlaceMelbourne

Decision The Tribunal affirms the decision under review.

(sgd) G. Hughes

Member

CATCHWORDS

Newstart allowance – value of assets – whether encumbrance over principal home reduces value of investment property

Social Security Act 1991 sections 611, 1118, 1121

Social Security (Administration) Act 1999 section 13(1)

Re Achkar and Secretary to the Department of Families and Community Services [2001] AATA 684

Re Berry  and Secretary, Department of Social Security (AAT 10378, 28 August 1995)

Re Morales and Secretary, Department of Family and Community Services [2004] AATA 669

Re Secretary Department of Family and Community Services and Levenda and Another (2002) 71 ALD 210

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

Re Worner and Secretary, Department of Employment and Workplace Relations [2006] AATA 560

REASONS FOR DECISION

31 October 2007 Dr Gordon Hughes, Member

1.This matter was heard by the Tribunal on 27 August 2007.  The Applicant was represented by her husband.  The Respondent was represented by Mr Pike, an advocate from Centrelink Legal Services. Centrelink is the service delivery agency for the Secretary to the Department of Employment and Workplace Relations.

2.The Applicant is seeking a review of a decision by the Social Security Appeals Tribunal (SSAT) dated 1 May 2007.  The SSAT had affirmed a decision made by a Centrelink authorised review officer on 5 March 2007 to reject the Applicant's claim for newstart allowance.  This decision was made on the grounds that the Applicant’s combined assets exceeded the assets value limit as set out in the relevant legislation.

3.The issue of specific contention was whether the value of a mortgage against the Applicant's residence, which had been taken out in order to finance the purchase of an investment property, could be deducted from the value of the Applicant's assets when determining whether those assets exceeded the assets value limit.

Background

4.The Applicant purchased an investment property at 173 Gower Street, Preston (Gower Street), on 19 March 2005 for $270,000.  The purchase was financed in part by a loan from the Commonwealth Bank of Australia of $120,000.  The loan was secured over equity in the principal home of the Applicant and her husband, at 28 Watson Street, Preston (Watson Street).

5.On 7 December 2006 the Applicant notified Centrelink of an intention to claim newstart allowance (Centrelink would have taken that date to be the date of application, had she qualified).

6.On 12 February 2007 Centrelink advised the Applicant that her application for newstart allowance was rejected because the value of her assets and her partner's assets were above the allowable limit.

7.On 5 March 2007 a Centrelink authorised review officer advised the Applicant of the decision to affirm the rejection of the claim for newstart allowance.  The SSAT affirmed this decision on 1 May 2007.

8.The parties did not dispute that the Applicant's initial claim for newstart allowance was deemed to have been lodged on 7 December 2006 in accordance with section 13(1) of the Social Security (Administration) Act 1999.  Nor did the parties dispute that the mortgage secured over the Applicant's principal residence at Watson Street was, as at 7 December 2006, approximately $103,577.

9.Furthermore, the parties did not dispute the fact that a newstart allowance would not be payable, by virtue of section 611(1) of the Social Security Act 1991 (the Act), if the value of the Applicant's assets was more than the assets value limit.

10.The issue in dispute was whether the value of the Applicant's assets exceeded the assets value limit, being in this case $229,000.

Relevant legislation

11.The relevant legislation is sections 611, 1118 and 1121 of the Social Security Act 1991.

12.Section 611(1) of the Act provides:

A newstart allowance is not payable to a person if the value of the person's assets is more than the person's assets value limit.

13.The assets value limit is the maximum level of assets which (subject to certain exceptions) a person may own if they are to claim  newstart allowance.

14.Under the Assets Value Limit Table set out in section 611(2) of the Act, the assets value limit applicable to the Applicant, being a person falling within the category Partnered (partner getting neither pension nor allowance), was $229,000.

15.Section 1118(1) states, in part:

In calculating the value of a person's assets for the purposes of this Act … disregard the following:

…

(b)if the person is a member of a couple – the value of any right or interest of the person in one residence that is the principal home of the person, of the person's partner or of both of them that is a right or interest that gives the person or the person's partner reasonable security of tenure in the home;

…

16.Section 1121 of the Act states, in part:

(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.

…

(3)Subsection (1) does not apply to a charge or encumbrance over assets that are to be disregarded under section 1118.

Decision

17.The Tribunal was required to decide whether the mortgage over the principal residence at Watson Street could be applied to reduce the value of the property at Gower Street.

18.The wording of the legislation is unambiguous in this regard – a charge over a person's principal home is not to be deducted when calculating the value of a person's assets.

19.The Tribunal has previously considered sections 1118 and 1121 of the Act and reached a similar conclusion.

20.In Re Berry and Secretary, Department of Social Security (AAT 10378, 28 August 1995), the Tribunal stated:

10.     … the only realistic and workable interpretation that [the Tribunal] can give to section 1121(3) is that its effect is to ensure that, once the disregarded asset is removed from the asset listing, any charge or encumbrance on such as asset is not available for off-set against the value of non-disregarded assets.

11.     … the legislation makes no allowance for the situation where a disregarded asset provides the security for a loan of money which is used for a purpose which has absolutely no connection with that disregarded asset. …

21.In Re Achkar and Secretary to the Department of Families and Community Services [2001] AATA 684 the Tribunal cited Berry with approval and stated:

12.      … whilst section 1121(1) allows that in general the value of an encumbrance can be set off against a specific asset, section 1121(3) has the effect that if a asset, disregarded under section 1118 (here, the principal home) is used to secure a loan, it cannot be used to reduce the value of assets overall.

22.In Re Secretary Department of Family and Community Services and Levenda and Another (2002) 71 ALD 210 at 215 the Tribunal stated:

24.      The wording of ss 1121(3) and 1118 of the Act is clear in its exclusion of a person's principal residence from any deduction of an encumbrance from the value of an asset under s 1121(1).  In this case, under the loan agreement the mortgage was over the principal residence, so the tribunal … finds that the value of the mortgage cannot be subtracted from the value of the property. …

23.Berry was also followed in Re Morales and Secretary, Department of Family and Community Services [2004] AATA 669. The Tribunal stated:

14.      It seems clear, having regard to the reasoning as set out in the decision of Berry that, as the applicant's home is a disregarded asset, the value of any debt is not offset. Accordingly, the debt on the home cannot be offset against the assets. In those circumstances, the Tribunal is satisfied that section 1121 does not operate in this case to reduce the value of the applicant's assets.

24.Similarly, in Re Worner and Secretary, Department of Employment and Workplace Relations [2006] AATA 560, the Tribunal stated:

36. … the Respondent submitted that the statutory requirements about the value of the principal home is to be disregarded [see s1118(3)]. Likewise, it was submitted that any charge over that asset cannot be offset against the loan [s1121(3)]. The respondent submitted that the statutory authorities are to be read strictly. It was argued that even though an unfairness may appear to result from recognition of the asset (the loan or mortgage) but non-recognition of the liability (due to it not being over the same property as the loaned monies), that is the law as it has been prescribed by the Parliament [Re Berry v. Secretary Department of Social Security (1995) AAT 10378, 28 August 1995].

37.      I accept that submission as being the correct position of the law.  Therefore, the true financial position of "net assets" of the applicant cannot be taken into account for the purposes of assessing eligibility for parenting payment.

25.The Tribunal followed Berry in Re Smith and Secretary, Department of Family and Community Services [1999] AATA 267 observing that while the outcome was not fair for the Applicant …in that case, the wording of s 1121 permits no other conclusion.

26.In the circumstances, the Tribunal concludes that the mortgage over the Applicant's principal residence cannot be taken into account when determining the value of the property at Gower Street.  The legislation is unequivocal in this regard, and the Tribunal's conclusion in this case is consistent with previous determinations of the Tribunal in like circumstances.  Therefore, the only issue remaining is the question of whether the Applicant's assets (apart from the principal home) exceeded $229,000.

27.The parties presented to the Tribunal a number of different valuations of Gower Street, and a number of different approaches to valuations.  The lowest valuation was an estimate of $237,000, provided by the Applicant on 4 January 2007 when she completed a Centrelink Mod R Real estate details form.  The highest estimate was a valuation by the Australian Valuation Office on 13 February 2007 of $360,000.  The Tribunal notes that the latter valuation took place two months after the date upon which the newstart application was lodged by the Applicant.  It is unlikely that the actual value of the property would have increased substantially during such a short period.  The Tribunal is inclined to accept the independent and expert valuation by the Australian Valuation Office as being more accurate, and further considers it unlikely that the value of the property would, as contended by the Applicant, have significantly reduced in value over a period in excess of 12 months.

28.It should be noted that the Applicant owns other assets of relatively minor value in addition to Gower Street.  It is unnecessary to place a value on these for the purposes of this decision.  Indeed, it is not necessary for the Tribunal to be precise in its valuation of the property at Gower Street because it was not contested that the value exceeded $229,000.

29.For the above reasons, the Tribunal affirms the decision under review.

I certify that the twenty-nine [29] preceding paragraphs are a true copy of the reasons for the decision of:

Dr G. Hughes, Member

(sgd) Mara Putnis

Clerk

Date of hearing:  28 August 2007

Date of decision:  31 October 2007

Advocate for applicant:                 Mr A. Pavilupillai

Advocate for respondent:            Mr M. Pike, Centrelink