Ronald Reid and Secretary, Dept of Families, Housing, Community Services and Indigenous Affairs

[2012] AATA 432

[2012] AATA 432

Division	GENERAL ADMINISTRATIVE DIVISION
File Number(s)	2012/1333
Re	Ronald Reid
APPLICANT
And	Secretary, Dept of Families, Housing, Community Services and Indigenous Affairs
RESPONDENT

DECISION

Tribunal	Senior Member Bernard J McCabe
Date	10 July 2012
Place	Brisbane (Heard in Mackay)

The decision under review is affirmed.

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Senior Member Bernard J McCabe

CATCHWORDS

AGE PENSION – assets test –  financial product generating a fixed income – exempt income stream – allowable commutation of an asset – financial service provider refuses to commute asset without secretary's approval of commutation – commutation intended to realise a hardship amount – discretion exercised in limited circumstances – definition of unavoidable expenditure – decision under review affirmed.

LEGISLATION

Social Security Act 1991

REASONS FOR DECISION

Senior Member Bernard J McCabe

1. Mr Ronald Reid has been receiving the Age Pension since 2002. In 2007, he invested in a financial product that generated a fixed income stream. He subsequently loaned an amount to his niece and her husband in an unrelated transaction. That relationship has broken down. Mr Reid wants to cash out (“commute”) his investment in the fixed income financial asset so he can fund the litigation he has commenced to recover the loan monies from his relatives. But there is a problem: if he commutes the asset, the entire value of the asset will be counted in the assessment of his assets and income. (The legislation currently allows a discount to be applied so that only half of the value is counted in an attempt to encourage people to invest in this kind of product.)  That may affect his entitlement to a pension. Worse still, the Secretary will be required to revisit the assessments made of the applicant’s assets from 2007 and count the entire value of the financial asset in those years. Mr Reid may end up with a debt to Centrelink that would have to be repaid.

2. The Secretary may decide the commutation of the asset was an allowable commutation – but only in certain circumstances. If the Secretary – or the Tribunal upon review – decides that is appropriate, the debt which arises following the reassessment is effectively waived. Section 9A of the Social Security Act 1991 sets out the circumstances in which that power can be exercised. The Secretary says he cannot be satisfied of the matters referred to in s 9A(7) so he cannot exercise the discretion in Mr Reid’s favour.

3. Mr Reid has asked the Tribunal to reconsider the decision. He adds that he plans to commute the asset in any event, but he has encountered a further difficulty: he has been told the financial services provider has refused to commute the asset unless the Secretary determines there will be an allowable commutation.

   THE LEGISLATION

4. Section 9A of the Act explains when an income stream (ie, a return on financial investment like the one is question here) will be regarded as an assets test exempt income stream. If an income stream satisfies the definition, the value of the asset is discounted in the assets’ test which is applied in order to calculate a person’s entitlement to a particular rate of pension. The commutation of that asset will be an allowable commutation – which permits the applicant to avoid the recalculation of the value of his assets – if the commutation was intended to realise a hardship amount. That last expression is defined in s 9A(7):

   "hardship amount" , in relation to a person, means an amount determined by the Secretary for the purposes of this definition if:

   (a)  the person applies in writing to the Secretary to be allowed to commute the whole or part of an income stream because of extreme financial hardship; and

   (b)  the Secretary is satisfied that:

   (i)  the person's circumstances are exceptional and could not be reasonably foreseen at the time the person purchased the income stream; and

   (ii)  the person has insufficient liquid assets or other assets (excluding the person's principal home) that could be realised to avoid the extreme financial hardship; and

   (iii)  that amount is required to meet unavoidable expenditure.

   "unavoidable expenditure" , in relation to a person, means one or more of the following:

   (a)  essential medical expenses of the person, or the person's partner, to the extent that the expenses are not covered by health insurance or other contracts or arrangements;

   (b)  the cost of:

   (i)  replacing the person's principal home; or

   (ii)  essential repairs to the person's principal home;

   to the extent that the cost of the replacement or repairs is not covered by an insurance policy;

   (c)  expenditure to buy replacement essential household goods because of the loss of those goods to the extent that the cost of replacement is not covered by an insurance policy.

5. The definition is drawn narrowly so that an individual will only be able to obtain an exercise of the discretion in limited circumstances. There are good policy reasons for that: it is meant to be difficult to get at this money. I think the applicant’s circumstances do not fit within the definition in a number of respects, but I will mention only one: the applicant is not seeking to realise the funds in order to make an unavoidable expenditure. He is seeking to recover the funds to undertake risky litigation. Litigating to recover funds that have been advanced to another person – even if the applicant proposes using the recovered funds to invest in a new home – is not an activity which the section contemplates. It is at least one step removed from the cost of replacing the applicant’s home.

6. I do not think there is any basis for concluding this would be an allowable commutation. Having said that, I am unaware of any reason why the financial services’ provider would resist commuting the income stream without a determination from the Secretary.

   CONCLUSION

7. The decision under review is affirmed.

I certify that the preceding 7 (seven) paragraphs are a true copy of the reasons for the decision herein of Senior Member Bernard J McCabe.

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Associate

Dated  10 July 2012

Date(s) of hearing	29 May 2012
Advocate for the Applicant	Mr Metcalf
Solicitors for the Respondent	Mr Hamilton