Pierino Pontello and Secretary, Department of Education, Employment and Workplace Relations

[2012] AATA 622

[2012] AATA 622

Division	GENERAL ADMINISTRATIVE DIVISION
File Number(s)	2012/1571
Re	Pierino Pontello
APPLICANT
And	Secretary, Department of Education, Employment and Workplace Relations
RESPONDENT

DECISION

Tribunal	Senior Member J F Toohey
Date	13 August 2012
Place	Sydney

For the reasons given orally at the hearing on 13 August 2012, the Tribunal affirms the decision under review.

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

Senior Member J F Toohey

CATCHWORDS

SOCIAL SECURITY – newstart allowance – assets test – valuation by Australian Valuation Office – whether value of property could be offset by debts to sons – unsecured loan – no charge or encumbrance over property – as loans not used to purchase property, policy could not apply – decision under review affirmed

LEGISLATION

Social Security Act 1991 ss 611, 1068, 1118(1)

CASES

Henderson and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2008] AATA 468

Re Fawthrop and Repatriation Commission (1993) 19 AAR 290

SECONDARY MATERIALS

Department of Families, Housing, Community Services and Indigenous Affairs, Guide to Social Security Law, 2012

REASONS FOR DECISION

Senior Member J F Toohey

17 September 2012

BACKGROUND

1. Mr Pierino Pontello applied for newstart allowance in March 2011.  He applied again in August 2011.  Centrelink rejected both applications on the ground that the value of Mr Pontello’s assets exceeded the allowable limit.

2. These proceedings concern Mr Pontello’s second application.  On 20 March 2012, the Social Security Appeals Tribunal (SSAT) affirmed Centrelink’s decision to refuse his application.

3. At a hearing on 13 August 2012, I gave oral reasons for my determination that Mr Pontello did not satisfy the assets test and the decision under review should be affirmed.  Mr Pontello has asked for written reasons. These written reasons reflect those given orally at the hearing.

   THE NEWSTART ALLOWANCE ASSETS TEST

4. The rate at which a person is paid newstart allowance is determined according to the benefit rate calculator in s 1068 of the Social Security Act1991 (the Act).  Income and assets tests are applied.  The assets test is only applied if it produces a lower rate of payment than the income test.

5. If the value of a person’s assets exceeds the assets value limit that applies to them, they are not eligible for newstart allowance: s 611.

6. A person’s principal home is exempt from the assets test: s 1118(1).

7. The following matters are not in dispute:

   (i)Mr Pontello’s application for newstart allowance was subject to an assets test; and

   (ii)in August 2011, the assets limit that applied to him, as a single homeowner, was $186,750.

   MR PONTELLO’S ASSETS

8. In August 2011, Mr Pontello’s assets comprised:

   (i)his interest in a property at Emu Plains owned jointly with his son;

   (ii)his interest in a property at Cambridge Park owned jointly with his son;

   (iii)his interest in a property at Woolgoolga, in his name only;

   (iv)his interests in two businesses;

   (v)a small parcel of shares;

   (vi)a bank account with a minimal balance;

   (vii)two motor vehicles; and

   (viii)personal effects.

9. The Emu Plains, Cambridge Park and Woolgoolga properties were valued by the Australian Valuation Office (AVO) for the purposes of Mr Pontello’s newstart application at $440,000, $250,000 and $200,000 respectively.  Each is subject to a mortgage.  Taking into account Mr Pontello’s half interest in the Emu Plains and Cambridge Park properties, and the mortgages on each property, Centrelink assessed the combined value of his assets as $232,931.50.  As that was greater than the allowable limit, Centrelink determined that Mr Pontello was not eligible for newstart allowance.

   WHAT IS IN DISPUTE

10. Mr Pontello takes issue with Centrelink’s decision for two reasons:

    (i)he disputes the valuation of the properties; and

    (ii)he says the value of his assets should be reduced by $59,000, being the amount of debts he owes to his sons.

    The AVO valuation

11. Mr Pontello disagrees with the valuation of the properties reached by the AVO.  He says lower valuations, which were obtained for the purposes of the property settlement with his former wife, should be used because they took into account the maintenance that was needed on each property. 

12. The differences between the AVO valuations and those obtained for the property settlement were as follows:

Property	AVO valuation	Other valuation
Emu Plains	$440,000	$340,000
Cambridge Park	$250,000	$200,000
Woolgoolga	$200,000	$190,000

1. Mr Pontello has not provided evidence of the valuations obtained in the Family Court proceedings; the values set out above are based on his oral evidence.  Although he could not remember all of them precisely, I accept that the figures provided by Mr Pontello are close to the valuations obtained for the purposes of the property settlement.  However, it is not clear if they were accepted by the Family Court, or precisely how they were used, or even when they were made.  

2. If I were to accept Mr Pontello’s figures, it would make some small difference in that the combined value of his properties would come to just under the applicable assets limit.  However, as the Tribunal pointed out in Henderson and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2008] AATA 468, AVO valuations are prepared for Centrelink for the purpose of assessing a person’s entitlement to income maintenance payments by reference to the market value of their assets. That is not to say that an AVO valuation should necessarily be preferred to any other; it is reasonable to subject any valuation to scrutiny. However, given its purpose and that it assesses market value, there would need to be good reason to prefer another valuation, particularly where the other valuation is for a different purpose altogether.

3. I accept the valuation of the properties provided by the AVO.

   The money owing to Mr Pontello’s sons

4. The question then arises whether the debts which Mr Pontello owes to his sons can be taken into account in assessing the value of his assets.

5. Mr Pontello has two debts to his sons.  The first is for $50,000, an amount one of his sons lent him when he was going through the property settlement with his former wife.  The loan allowed Mr Pontello to pay legal fees and avoid the forced sale of his Woolgoolga property.  Mr Pontello and his son entered into a loan agreement for this amount.   

6. Clause 6.2 of the loan agreement provides that the lender may, at his discretion, lodge a caveat during the Payment Schedule period.  Mr Pontello confirmed in evidence before the Tribunal that no caveat has been lodged.  Further that, despite the written agreement, he is not repaying the debt to his son (because he cannot afford to do so).  

7. Following the hearing, Mr Pontello submitted to the Tribunal a statement to the effect that he and his son have a “verbal understanding” that, should he not repay the loan, the Cambridge Park property would be sold and the loan, including interest, would repaid from the proceeds.

8. Mr Pontello’s second debt is to his sons for $9,000, being the value of work done by them for him when he fell ill.  Perhaps not surprisingly, this debt is not documented, and nor is it secured in any way.

   Relevant legislation

9. Section 1121 provides that the value of an asset is reduced by the amount of any charge or encumbrance against it:

   If there is a charge or an encumbrance over a particular assert 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, is to be reduced by the value of that charge or encumbrance.

10. The Act does not define “charge” or “encumbrance”.  In ReFawthrop and Repatriation Commission (1993) 19 AAR 290, the Tribunal considered the meaning of both in the context of the application of the assets tests in an application for a service pension under the Veterans Entitlement Act 1976.  It said at [27]:

    [T]he word "charge" must also be given its narrower meaning to denote a liability, the performance of which is secured and the word "encumbrance" to mean a claim, lien or burden attached to a property.

11. In other words, both terms refer to a form of security for a liability.  A mortgage is a classic example.  Neither of Mr Pontello’s debts is secured by means of a charge or encumbrance over any of his property.  The extent of the charges and encumbrances are the mortgages which have been taken into account in calculating the value of his assets. 

12. The Guide to Social Security Law (the Guide), which provides guidance to decision-makers on the application of the social security law, offers an exception to s 1121.  It states at section 4.6.6.30:

    If a customer has an unsecured loan AND provides evidence that the loan was specifically obtained to purchase the asset, the outstanding amount of the loan IS deducted from the value of the asset.

13. The SSAT observed that this part of the Guide is at odds with the legislation and considered it was not bound to apply it.  I am not sure I agree.  However, it is not necessary finally to decide because neither loan in this case was specifically obtained to purchase an asset, meaning the policy cannot apply in any event. 

14. Mr Pontello told the Tribunal that he must repay his debts to his sons.  I accept that he takes his responsibility seriously.  However, the policy cannot apply to him because the loan of $50,000 was not for the purposes of purchasing an asset and so cannot be offset against the value of any asset. Moreover, the $9,000 in wages owing to both sons cannot be properly characterised as a loan; it is a debt on account of services provided.  It cannot be offset against the value of Mr Pontello’s assets.

    CONCLUSION

15. I accept the valuation provided by the AVO for Mr Pontello’s properties and as the $59,000 Mr Pontello owes to his sons cannot be properly characterised as a “charge” or “encumbrance”, the amount cannot be offset against the value of his properties under s 1121.  I am satisfied that the value of his assets has been calculated correctly and that their combined value exceeds the allowable limit for newstart allowance.

16. I affirm the decision under review.

I certify that the preceding 28 (twenty-eight) paragraphs are a true copy of the reasons for the decision herein of Senior Member J F Toohey.

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

Associate

Dated  17 September 2012

Date(s) of hearing	13 August 2012
Applicant	In person
Solicitors for the Respondent	Ms J Maclean, DHS Program, Litigation and Review Branch