Re Secretary, Department of Family and Community Services and Kulshrestha
[2003] AATA 227
•6 March 2003
CATCHWORDS –SOCIAL SECURITY – age pension – meaning of principal home – single building capable of division, and divided, into two separate living quarters - whether portion of building let to tenants part of the principal home – decision set aside.
Social Security Act 1991 ss. 11, 43, 44, 55, 1064, 1065 and 1118
Social Security Act 1947 s. 4
Income Tax Assessment Act 1997 s. 8-1
Income Assessment Act 1936 s. 51
Austudy Regulations rr. 13, 14 and 15-18
Re Stewart and Secretary, Department of Social Security (1987) 11 ALD 470
Re Bowden and Repatriation Commission (1992) 15 AAR 325
Re Di Primio and Secretary, Department of Social Security (1993) 31 ALD 233
Secretary, Department of Employment, Education, Training and Youth Affairs v Ovari (2000) 98 FCR 140
Re Hewitt and Secretary, Department of Family and Community Services (2002) 68 ALD 552
Re Ovari and Secretary, Department of Employment, Education, Training and Youth Affairs (AAT 11973, 23 June 1997)
DECISION AND REASONS FOR DECISION [2003] AATA 227
ADMINISTRATIVE APPEALS TRIBUNAL )
) S2002/253
GENERAL ADMINISTRATIVE DIVISION )
Re SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES
Applicant
AndDEVENDRA KULSHRESTHA
Respondent
DECISION
Tribunal: Miss S A Forgie (Deputy President)
Dr E Eriksen (Member)
Date: 6 March, 2003
Place: Adelaide
Decision:The Tribunal:
1.sets aside the decision of the Social Security Appeals Tribunal dated 21 June, 2001; and
2.substitutes a decision that, for the purposes of the Social Security Act 1991, the principal home of the respondent is 47 Braeside Avenue, Seacombe Heights, South Australia.
S A FORGIE
Deputy President
On 22 July, 2002, the applicant, the Secretary of the Department of Family and Community Services (“the Secretary”), applied for review of a decision of the Social Security Appeals Tribunal (“SSAT”) dated 21 June, 2002. In that decision, the SSAT set aside a decision of a delegate of the Secretary made on 12 February, 2002 and affirmed by an Authorised Review Officer on 12 April, 2002 to cancel the age pension paid to the respondent, Dr Kulshrestha and to recover a debt of $7,161.57 overpaid to him as age pension. It remitted the matter to the Secretary to recalculate Dr Kulshrestha’s entitlement to an age pension on the basis that his principal home included that portion of a property known as 47A Braeside Avenue, Seacombe Heights (“47A Braeside Avenue”) as well as 47 Braeside Avenue, Seacombe Heights (“47 Braeside Avenue”).
At the hearing, the Secretary was represented by Ms Pugsley, an advocate in Centrelink and Dr Kulshrestha by his solicitor, Mr Goldworthy. The documents lodged by the Secretary pursuant to s. 37 of the Administrative Appeals Tribunal Act 1975 (“T documents”) were admitted in evidence together with a hand drawn floor plan of the premises built on the property, a certificate of title of the property and a floor plan prepared by an architect.
THE ISSUE
The issue in this case is whether Dr Kulshrestha’s principal home is that part of the property which is numbered 47 Braeside Avenue or the whole of the property being 47 and 47A Braeside Avenue.
BACKGROUND
The parties agreed upon a number of facts forming the background to the issue that we must decide. In view of that and on the basis of the evidence, we have made the following findings of fact that we will set out in the following paragraphs.
Dr Kulshrestha, who was born on 6 July, 1935, is in receipt of an age pension under the Social Security Act 1991 (“the Act”) having recently retired from his position in the Mathematics Department at Flinders University. In 1980, Dr Kulshrestha built a house at 47 Braeside Avenue and he extended it in 1987. He built the house to “live and die in” as his father had done before him and extended it to accommodate his growing family. Until 1992, he and his wife, daughter, son, daughter in law and grand daughter lived in the house.
It is built on land that has an area of approximately 902 square metres and the area of the house is approximately 225 square metres. The house comprises three levels. On its lower level are a storage room and a shower with a toilet. Situated on its mid level, which we will describe as the ground floor as the house is built on a sloping block, are four bedrooms, an en suite bathroom, lounge, family room, kitchen, kitchenette, bathroom with a toilet, separate toilet and two laundries. On the top level is a master bedroom with en suite bathroom and a study. To one side of the house is a garage with a balcony above and to the other side is a garage.
One part of the house may be separated from the other by locking a door connecting the two laundries situated on the ground floor. One part, and that which comprises the house as originally built by Dr Kulshrestha, comprises a garage with a balcony above, four bedrooms (one of which has an en suite bathroom), study, family room, kitchen, laundry storage room and shower with toilet. It is numbered 47A Braeside Avenue and has its own driveway and letterbox. The other side of the house also has its own driveway and letter box. It is numbered 47 Braeside Avenue and comprises a kitchenette, laundry, lounge and a bedroom with an en suite bathroom.
As at 1 July, 2001, the value of the whole of Dr Kulshrestha’s property at Braeside Avenue was valued by the Australian Valuation Office (“AVO”) to be $240,000 and the value of 47 Braeside Avenue to be $115,000. The AVO was not asked to, and did not, ascribe a value to 47A Braeside Avenue but the Secretary appears to have accepted its value as the balance of the assessed value of the whole property less the value of 47 Braeside Avenue i.e. $125,000.
Dr Kulshrestha leased 47A Braeside Avenue from 1992 to 1995 and leased it again in July, 1999. It continues to be leased and the current lease expires in January, 2003. A residential tenancy agreement under the Residential Tenancies Act 1995 has been signed by both Dr Kulshrestha and the lessees and rent of $255 per week is paid to Dr Kulshrestha. All utilities apart from water are metered separately and charged separately. The tenants have exclusive use of the rooms situated in 47A Braeside Avenue and Dr Kulshrestha has exclusive use of the remainder situated in 47 Braeside Avenue.
THE LEGISLATIVE FRAMEWORK
The qualifications for an age pension are set out in s. 43 of the Act and there is no question that Dr Kulshrestha satisfies those qualifications. Qualification for an age pension and whether or not an age pension is payable are, however, two different things. Section 44 provides that an age pension is not payable to a person if the person’s age pension rate would be nil.
Section 55 of the Act specifies that a person’s age pension rate is worked out according to either Pension Rate Calculator A at the end of section 1064 (Part 3.2) or Pension Rate Calculator B at the end of section 1065 (Part 3.3) depending upon whether the person is not or is permanently blind.
In Dr Kulshrestha’s case, his age pension is calculated according to Pension Rate Calculator A at the end of section 1064 and so we shall have regard to that. It begins by stating that “The rate of pension is a daily rate. That rate is worked out by dividing the annual rate calculated according to this Rate Calculator by 364 (fortnightly rates are provided for information only).” (point 1064-A1) The method statement is set out in point 1064-A1. Using modules set out in Part 3.2, it requires a person’s maximum basic rate, pharmaceutical allowance and rent assistance to be calculated. When those three amounts are added together they are known as the maximum payment rate. From that amount may be deducted either an amount known as an income reduced rate or an amount known as an assets reduced rate. Modules are again used to calculate those two amounts. Once they have been calculated, each is taken away from the full amount of the maximum payment rate to get the income reduced rate and the assets reduced rate. The two figures are compared and the lower of the two reduced rates becomes the person’s provisional annual payment rate. If the two figures are the same, the income reduced rate becomes the provisional annual payment rate. The rate of pension is the difference between the provisional annual payment rate and any advance payment deduction plus any amount payable by way of remote area allowance.
Module G of Part 3.2 is used to calculate the assets reduced amount. The first step required by the module is to calculate the value of Dr Kulshrestha’s assets. The effect of s. 1118(1) is that, in calculating the value of his assets, there must be disregarded:
“… the value of any right or interest of the person in the person’s principal home that:
(i)is a right or interest that gives the person reasonable security of tenure in the home;
…” (s. 1118(1)(a)).
The expression “principal home” is defined in ss. 11(5) to (7) of the Act (s. 11(1)). Section 11(5) is expressed in inclusive terms:
“A reference in this Act to the principal home of a person includes a reference to:
(a)if the principal home is a dwelling-house—the private land adjacent to the dwelling-house to the extent that the private land, together with the area of the ground floor of the dwelling-house, does not exceed 2 hectares; or
(b)if the principal home is a flat or home unit—a garage or storeroom that is used primarily for private or domestic purposes in association with the flat or home unit.
Note: for private land see subsection (6).
Section 11(6) provides that a reference in s. 11 (5) to “private land adjacent to the dwelling-house” is a reference to land that is adjacent to the dwelling-house and that is used primarily for private or domestic purposes in association with that dwelling-house. Section 11(6A) is concerned with a situation in which a person has left his or her principal home to go into a care situation and that is not the case with Dr Kulshrestha. Section 11(7) is concerned with the situation in which a person is temporarily absence from a residence. Most of its provisions relate to the situation in which a person is in a care situation or a residential care situation and only s. 11(7)(a) may have any relevance:
“A residence of a person is to be taken to continue to be the person's principal home during:
(a)any period (not exceeding 12 months) during which the person is temporarily absent from the residence; …”
Finally, of relevance is s. 11(8), which provides:
“If a person has a right or interest in the person's principal home, the person is to be taken to have a right or interest that gives the person reasonable security of tenure in the home unless the Secretary is satisfied that the right or interest does not give the person reasonable security of tenure in the home.”
THE SUBMISSIONS
Ms Pugsley submitted that the question that we must determine is the purpose for which the property is used rather than the nature of the property itself. Relying on cases such as Re Stewart and Secretary, Department of Social Security (1987) 11 ALD 470 (Senior Member Hallowes, Mr Trinick and Mr Brewer, Members), Re Bowden and Repatriation Commission (1992) AAR 325 (Deputy President Blow) and the decision in Re Di Primio and Secretary, Department of Social Security (1993) 31 ALD 233 (Deputy President Forgie), Ms Pugsley submitted that it is possible to apportion a property between that used for a person’s principal home and that used for other purposes. She noted that Secretary, Department of Employment, Education, Training and Youth Affairs v Ovari (2000) 98 FCR 140 (O'Connor, Heerey and Finkelstein JJ) had been considered against a background that there was no evidence or finding that some physical part of the property was used exclusively for business purposes.
On behalf of Dr Kulshrestha, Mr Goldsworthy submitted that the reasoning in the Full Court’s judgement in Ovari, although concerned with the Austudy Regulations made under the Student Assistance Act 1973 (“Regulations”), is applicable in interpreting and applying the provisions of the Act. That reasoning was, he submitted, that r. 15 of the Regulations, which defined the expression “principal home” in inclusive terms, did not provide for apportionment of the principal home. There is no relevant distinction to be drawn between the provisions of the Act with which we are concerned and the Regulations. This was the view adopted by the Tribunal in Re Hewitt and Secretary, Department of Family and Community Services (2002) 68 ALD 552 (Ms Bell, Member) when it found that the Act did not provide for apportionment. He also pointed to the finding in both Ovari and Hewitt that the market value of the property was neither diminished nor increased by its partial use for income generating purposes.
CONSIDERATION
Although decided in the context of the Regulations and not of the Act, we will begin our consideration with the judgement of the Full Court in Secretary, Department of Employment, Education, Training and Youth Affairs v Ovari. Regulation 13 of the Regulations provided, in effect, that a student’s living allowance was affected by his or her assets. Assets were defined in r. 14 as any kind of property, whether in Australia or elsewhere, unless excluded by rr. 15 to 18. Regulation 15 provided that the student’s principal home was excluded from those assets. It continued:
“(1) The principal home includes:
(a)any land around the home used primarily for private and domestic purposes if the land and the ground floor of the home are 2 hectares or less; or
(b)a garage or storeroom of a flat or home unit that is used primarily for private or domestic purposes.
(2) Any right or interest in a person's principal home is not included in the person's assets.
(3) No account is taken of an amount from the sale of a person's principal home that he or she is likely to use within 12 months of the sale to buy another principal home.”
At the hearing before the Tribunal in Re Ovari and Secretary, Department of Employment, Education, Training and Youth Affairs (AAT 11973, 23 June 1997), it had found that:
“30. There is no dispute that the Monash property is used as the Óvári family residence and as the business premises of AGAZO International. The Department accepts that 53.33% of the value of the property should be regarded as a business asset, consistent with taxation acceptance of such an apportionment, and the Tribunal finds accordingly. The Monash property is a business asset in the sum of $109,326.50.”
The Full Court noted that the expression “principal home” had not been defined in the regulations and said that it “… could not be doubted that a suburban residence of the kind described was a home of the respondent’s family” (page 143). It added that the “… adjective ‘principal’ is directed to excluding holiday homes and the like …” but considered that there was no suggestion that the residence in question was a holiday home. Therefore, their Honours continued:
“… Provided the property in question is properly characterised as a principal home, the regulations do not provide for apportionment by reference to any non-domestic uses to which the home may be put. This is in contrast with the specific provision in s 51(1) of the Income Tax Assessment Act 1936 (Cth) where the words ‘to the extent to which’ have been held to authorise and require apportionment: Ronpibon Tin No Liability v Federal Commissioner of Taxation (1949) 78 CLR 47, 55, 58-59.” (page 143)
Their Honours then turned to the focus of the Regulations for the purposes of the case before them i.e. the value of the student’s assets and said:
“ The regulations are concerned with the value of assets. To the extent that a person or a person's family has assets, such assets can be turned into money and the person is less in need of taxpayer-funded financial support for study. The regulations fix an arbitrary limit under which a person may have assets and still receive support. Thus the focus is on value, that is to say the money equivalent of assets.
There was no evidence, nor did the AAT find, that the market value of the Monash property was increased or decreased by the fact that it was partly used for business purposes. Given the nature of the property, such a variation seems inherently unlikely. Nor was there any evidence or finding that some physical part of the property was exclusively used for business purposes.”
In beginning its consideration of apportionment with the words, “Provided the property in question is properly characterised as a principal home”, the Full Court made it clear that it is not appropriate to ask first whether a place is used for business purposes. Rather, the first question to ask is whether or not the place is the person’s principal home. Once it is decided that a place is a person’s principal home, there is no room to apportion any part that may be used for business purposes.
The Full Court did not explain the meaning of a “principal home”. Some assistance as to the meaning of the expression a “principal home” is available from the dictionary definitions. The word “home” has a number of meanings but, in the context in which it appears in the Act, it means:
“… 1. a house or other shelter that is the fixed residence of a person, a family, or a household. …” (The Macquarie Dictionary, 3rd edition, 1997)
The meanings ascribed to the word “principal” include “first or highest in rank, importance, value, etc; chief; foremost”.. Taken together, a person’s principal home is the place of residence that is his or her chief or first and foremost residence.
The expression has been the subject of consideration in other cases. Two of those cases were referred to in Di Primio in considering a definition of “principal home” in ss. 4(7) to (9) of the Social Security Act 1947 (“the 1947 Act”). That definition was drafted in similar terms to that appearing in ss. 11(5) to (7) of the Act and the Tribunal said:
“64. While the 1947 Act sets out what is included in the principal home if it is a dwelling place or a flat or home unit, it does not specify how a place is determined to be a person's principal home. That has, however, been considered in a number of decisions and judgements, some of which were briefly summarised in my reasons for decision in a case of Re Kirkman and Secretary, Department of Social Security (1990) 20 ALD 400 in the passage at 402:
‘Although not defined in the Act, the term has been considered by this Tribunal in Re Samek and Secretary, Department of Social Security (1988) 16 ALD 295 and Re Dickeson and Secretary, Department of Social Security (1989) 18 ALD 58. In Re Clark and Secretary, Department of Social Security (Mr McMahon (then Senior Member), 4 November, 1986, No.2968, unreported) it was said that: “A characteristic of a person's home is that he usually resides there. It is by no means necessary, however, that both go hand in hand.”
In support, he referred to the judgment of Wilcox J in Hafza v Director-General of Social Security (1985) 60 ALR 674; 8 ALN N58 at 680-1 when, in considering what is meant by “a person’s usual place of residence” said: “Physical presence and intention will coincide for most of the time. But few people are always at home ... The test is whether the person has ... a continuity of association with the place ... together with an intention to return to that place and an attitude that that place remains ‘home’”: see Norman v Norman (1969) 16 FLR 231 at 236.
Without setting them out, I note that similar views have been expressed by Lord Denning MR in Herbert v Byrne [1964] 1 All ER 802, by the Court of Appeal in Beck v Scholz [1953] 1 All ER 814 and the High Court of Australia in Koitaki Para Rubber Estates Ltd v FCT (1941) 64 CLR 241 at 249.’ (pages 248-249)
Having regard to the principles in the authorities and to the ordinary meaning of the expression, what is Dr Kulshrestha’s principal home? The place in which Dr Kulshrestha resides is 47 Braeside Avenue. It is the place where he cooks, eats, sleeps, washes himself and his clothes and generally lives. It is the place where he usually resides and it is the place that he regards as home.
47 Braeside Avenue is part of a larger building comprising both it and 47A Braeside Avenue. At one time, when he and his family lived together, he and they resided in the whole of the building. The whole of the building could then be regarded as his home. We are not satisfied that he has resided in the whole building at the relevant times. Indeed, we are satisfied on the basis of his evidence and of the plans that the building is capable of being divided into two residences but may also be used as one. On the basis of the tenancy agreement, we are satisfied that it has been divided into two and that his tenants have exclusive possession of 47A Braeside Avenue. Dr Kulshrestha is not entitled to enter that part of the building at will. He may only enter in accordance with the terms of the lease and in so far as the law permits him to do so. He may not carry out the activities of daily living in 47A Braeside Avenue or, indeed, any of them. In relation to 47A Braeside Avenue, Dr Kulshrestha is a landlord and his tenants, rather than Dr Kulshrestha, are the people for whom it is home. It is not Dr Kulshrestha’s home and, therefore, we are satisfied that it is not part of his principal home. We find that his principal home is limited to 47 Braeside Avenue and does not encompass the whole of the building.
Dr Kulshrestha is presumably gaining an income from 47A Braeside Avenue that would be assessable under the Income Tax Assessment Act 1997 (“1997 ITA Act”). He is entitled to deduct from it any losses and outgoings he incurs in gaining it and would do so under s. 8-1(1) of that legislation. It equates with s. 51(1) of its predecessor, the Income Assessment Act 1936 (“1936 ITA Act”), to which the Full Court referred in Ovari. Unlike the situation in Ovari, though, this is not a case in which we have apportioned a percentage or part of a building that is also Dr Kulshrestha’s principal home to another purpose, be it related to business or otherwise. We have found that only one part of the building can be regarded as his principal home.
In reaching this conclusion, we realise that we appear to be reaching a conclusion contrary to that reached by the Tribunal in Re Hewitt and Department of Family and Community Services. We are consistent in that we are both applying Ovari in disregarding any apportionment. Any apparent inconsistency is attributable to our findings of fact as to the boundaries of the principal home. The Tribunal in Re Hewitt found that the whole of the property was Ms Hewitt’s principal home but that she had let part of it. We are not finding that the whole of 47 and 47A Braeside Avenue is Dr Kulshrestha’s principal home but that he has let part of it in the way in which a person might let a room or two to a boarder in his or her home. On the contrary, we have found that only 47 Braeside Avenue, and so only part of the building, is his principal home. A similar finding was made by the Tribunal in Re Stewart and Secretary, Department of Social Security and in Re Bowden and Repatriation Commission. The difference in the findings of fact in each case leads to a different outcome under the Act.
For the reasons we have given, we:
1.set aside the decision of the Social Security Appeals Tribunal dated 21 June, 2001; and
2.substitute a decision that, for the purposes of the Social Security Act 1991, the principal home of the respondent is 47 Braeside Avenue, Seacombe Heights, South Australia.
I certify that the thirty preceding paragraphs are a true copy of the reasons for the decision herein of Miss S A Forgie (Deputy President) and
Dr E Eriksen (Member)
Signed: ...............................................................
P. Paczkowski Associate
Date of Hearing 3 December, 2002
Date of Decision 6 March, 2003
For the Applicant Ms A. Pugsley,
Departmental Advocate
Solicitor for the Respondent Mr C. Goldsworthy,
Welfare Rights Centre South Australia
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