Saunders and Secretary, Department of Family and Community Services
[2002] AATA 1256
•6 December 2002
DECISION AND REASONS FOR DECISION [2002] AATA 1256
ADMINISTRATIVE APPEALS TRIBUNAL )
) No Q02/105
GENERAL ADMINISTRATIVE DIVISION )
Re IAN SAUNDERS and DOROTHY SAUNDERS
Applicants
And SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES COMCARE
Respondent
DECISION
Tribunal Mr R G Kenny, Member
Date6 December 2002
PlaceBrisbane
Decision The Tribunal affirms the decision under review.
....(Sgd) R G Kenny….
Member
CATCHWORDS
SOCIAL SECURITY – newstart allowance – partner allowance - assets test – whether loans to family trust should be treated as assets – valuation of loans – interest in deceased estate - relevance of hardship provisions – unrealisable assets
Social Security Act 1991 (Cth), ss 11, 611, 771, 1064, 1064G, 1118, 1122, 1129
Succession Act 1981 (Qld), ss 49, 52
Drake v Minister for Immigration and Ethnic Affairs (1979) 46 FLR 409
Minister for Immigration, Local Government and Ethnic Affairs v Roberts (1993) 41 FCR 82
Re Drake and Minister for Immigration and Ethnic Affairs (No. 2) (1979) 2 ALD 634
Re Dainty and Minister for Immigration and Ethnic Affairs (1987) 6 AAR 259
Re Hughes and Secretary, Department of Social Security (1992) 25 ALD 754
Re Ling and Secretary, Department of Family and Community Services [1999] AATA 797
Re Mendes and Secretary, Department of Family and Community Services [2000] AATA 22
Re Secretary, Department of Family and Community Servicesand Zangari (1998) 54 ALD 155
Re Trewin and Secretary, Department of Family and Community Services [2002] AATA 437
REASONS FOR DECISION
6 December 2002 Mr R G Kenny, Member
The Application
After returning to Australia from travel abroad, Ian Saunders, on 6 March 2001, lodged a claim for reinstatement of newstart allowance. His wife, Dorothy Saunders was in receipt of partner allowance. On 19 March 2001, they lodged a Customer Declaration Form (see T4 of exhibit 1), a Partner Details Form (T5), an Assets Details Form (T6), taxation returns (T7-8), a form relating to the private company Kennedy Roberts and Associates Pty Ltd (T9-10) and a form relating to the private trust Ian Saunders Family Trust (the family trust) (T11-12). Based on the information in those respective documents, a customer services officer with Centrelink advised Mr and Mrs Saunders by separate letters dated 4 April 2001 that their combined assets were valued at a level that exceeded the allowable asset limit. The officer, as a result, informed Mr Saunders (T17) that newstart allowance was not payable to him and Mrs Saunders (T19) that her partner allowance was cancelled from 3 March 2001.
Those decisions were affirmed on 18 July 2001 by an authorised review officer (T31) and, in turn on 14 January 2002, by the Social Security Appeals Tribunal (T2). On 5 February 2002, Mr and Mrs Saunders (the applicants) sought review of that decision by the Administrative Appeals Tribunal (the Tribunal) (T1).
Appearances
Mr Saunders attended the hearing on behalf of himself and his wife. They were not represented. Mr R McQuinlan appeared on behalf of the Secretary, Department of Family and Community Services (the respondent).
At the hearing, the documents prepared in accordance with section 37 of the Administrative Appeals Tribunal Act1975 were taken into evidence as Exhibit 1 (the T documents: T1-T36).
Issues and Legislation
Both newstart allowance and partner allowance are payable under the Social Security Act 1991 (the Act) and, in each case, the allowance will not be payable if the value of the assets of a claimant and his/her spouse exceed the limit set out in the relevant provision. For newstart allowance, this is sub-section 611(2) of the Act and, for partner allowance, it is sub-section 771HF(2) of the Act. It is not disputed in this case that Mr and Mrs Saunders are members of a couple and homeowners and that the relevant asset limit at the relevant time was $187,500.
The assets identified in the decision under review, and which are in issue in this matter, comprise loans that were made by Mr Saunders and Mrs Saunders to the family trust in the amounts of $84,218.82 and $44,106.71, respectively, as well as an interest of Mr Saunders in a deceased estate comprising a one-third share in three residential properties amounting to $178,318.50.
Provisions in the Act which are relevant in this matter read:
"11(1) In this Act, unless the contrary intention appears: …
asset means property or money (including property or money outside Australia).
…
11(12) An asset of a person is an unrealisable asset if:
(a)the person cannot sell or realise the asset; and
(b)the person cannot use the asset as a security for borrowing.
…
611(1) 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.
611(2) A person's assets value limit is worked out using the following table: work out which family situation applies to the person; the assets value limit is the corresponding amount in the "assets value limit" column.
612(2) If:
(a) a person is a member of a couple; and
(b) the person's partner is in receipt of:
(i) a social security or service pension; or
(ii) a social security benefit;
the value of:
(c) the person's assets is taken to be 50% of the sum of the value of the assets of the person and the value of the assets of the person's partner; and
(d) the person's assets of a particular kind are taken to be 50% of the sum of the value of the assets of that kind of the person and the value of the assets of that kind of the person's partner.
…
771HF(1) A partner allowance is not payable to a person if the value of the person's assets exceeds the person's assets value limit.
…
1118(1) In calculating the value of a person's assets for the purposes of this Act…, disregard the following:
(j) the value of any assets (other than a contingent, remainder or reversionary interest) to which the person is entitled from the estate of a deceased person but which has not been, and is not able to be, received;
…
1122 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.
…
1129(1) If:
(a)either:
(i) a social security pension is not payable to a person because of the application of an assets test; or
(ii) a person's social security pension rate is determined by the application of an assets test; and
(b)either:
(i) sections 1108 and 1109 (disposal of income) and 1124A, 1125, 1125A and 1126 (disposal of assets) do not apply to the person; or
(ii) the Secretary determines that the application of those sections to the person should, for the purposes of this section, be disregarded; and
(c)the person, or the person's partner, has an unrealisable asset; and
(d)the person lodges with the Department, in a form approved by the Secretary, a request that this section apply to the person; and
(e)the Secretary is satisfied that the person would suffer severe financial hardship if this section did not apply to the person;
the Secretary must determine that this section applies to the person."
The issues for the Tribunal are whether or not the loans by Mr Saunders and Mrs Saunders to the family trust are assets under the Act; whether the interest of Mr Saunders in the deceased estate constitute an asset under the Act; whether the assets value limit has been exceeded; and whether the value of any assets may be disregarded.
Applicants' Case
Mr Saunders said that he is the sole trustee of the family trust and that he and his wife and their three sons are the beneficiaries. He conceded that he and Mrs Saunders had made loans to the family trust when it was first established and that this was done many years ago for the purposes of advancing the interests of his family such as through the provision of educational opportunities for his children and to provide for him and his wife in their retirement years. However, he said that the current situation was that the family trust no longer had the capacity to repay the loans. He referred to the "assets" of the trust as including a tax loss and submitted that this should not be considered to have any real value. Also, whilst conceding that the family trust was the owner of various shares, he submitted that the value given to them in the trust documents did not reflect their realisable value. He said that the respondent was attempting to assess assets that do not exist and that the references in the taxation returns and trust accounts were really a book-keeping aberration. He said that the only way that the loans could be recovered would be if the family trust generated income in the future and he said that was not a likely outcome. In any event, he submitted that, if the family trust did make a profit, the treatment of the loans as assets now was the equivalent of placing a tax on future earnings and that this was an unfair outcome.
10. In relation to the residential property interests, Mr Saunders said that his aunt had died some ten years ago and had made provision in her will for him, his brother and his sister. He said that each of them became entitled to a one-third share of three residential properties, that one of these had been the family home of their mother who was now living in a care situation, that one was built adjacent to that home after a sub-division was completed and that the other was a house which had been purchased by the family some forty years before. He said that all premises were currently rented although they were in a dilapidated state of repair.
11. Mr Saunders said that he and his brother were the executors of his aunt's estate, the administration of which was complete except that the titles of the three properties had not been transferred to him and his siblings. He said that they had discussed the transfer of title but that nothing had been done because of the associated costs. He said that, by not completing the transfer, the estate had been required to pay land tax in the annual amount of $2,000 over the last few years but said that this was still more economical than having to pay the costs of transferring title. He said that the transfer would probably be completed in the near future.
12. Mr Saunders said that his mother retained a strong emotional tie to the house in which she had lived and the one adjacent to it and that the other house had been rented to the same people for over thirty years for a peppercorn rent. These were also factors in the decision not to transfer the property or to dispose of some or all of it although he conceded that his mother would not really be aware of any such transfers.
13. Mr Saunders said that in his profession as an engineer he had experienced many short-term positions which meant that he had not been able to develop a superannuation interest in the way that those in stable employment are able to do. He described the interest in the houses as the equivalent of a superannuation interest which would be available to him in the future and said that, for that reason, it was unfair for the respondent to take the value of his share into account as a current asset.
14. Mr Saunders referred to the inconsistency in the approach of Commonwealth departments to the treatment of assets and said that the Taxation Office did not treat him as having an interest the properties and submitted that the same approach should be adopted by the respondent.
15. Mr Saunders also submitted that the asset test for payability of social security benefits should be different for persons aged over 50 years because, typically, they had worked to accumulate assets and it was unfair that they should be required to utilise these instead of receiving income support. He said that the reality was that it was difficult for persons of that age to secure employment and to accumulate further assets.
Respondent's Case
16. In relation to the loans to the family trust, Mr McQuinlan submitted that these were within the terms of section 1122 of the Act and submitted that they should be included as assets for that reason and, whilst acknowledging the contention of Mr Saunders that the family trust may have had no capacity to repay the loan, nonetheless submitted that they should be given their full value as it is represented in the family trust balance sheet as at 30 June 2000.
17. In relation to the unrealisable nature of the loans, Mr McQuinlan submitted that this characterisation would only have relevance if a decision was made under section 1129 of the Act which relates to financial hardship and which allows for those types of assets to be disregarded. However, he also submitted that, in order for that to be done, an application in a prescribed form had to be made specifically seeking a decision in relation to financial hardship. He submitted that this had not been done by the applicants. He also referred to a statement attributed to the applicant in a record of conversation with an assessing officer on 10 May 2001 (see T23) where, in response to whether or not the loans could be repaid, Mr Saunders replied that this what he was living on that time.
18. In relation to the interest in the estate, Mr McQuinlan referred to section 4.6.5.80 of the Guide to Social Security Law (the Guide). He said that this appropriately allows for a period of twelve months during which time an undistributed interest in a deceased estate will be disregarded but, after which time, the property is to be included, especially where the person who is being considered has contributed to any delay in the distribution taking place. He submitted that the period of ten years was too long for the executors of the estate to wait before completing the distribution of the property interests in circumstances where there were really no barriers to that procedure being carried out. He submitted that Mr Saunders was a co-executor of the estate and had a degree of control over its activities as evidenced by the relevant rate notices for the properties being sent to his address.
19. He submitted that it was not relevant that the Taxation Office treated assets in a manner different from that of the respondent because the purpose of the legislation governing the operation of those entities was different. In relation to the respondent, he said that it was charged with the responsibility of administering the Act which was concerned with providing income support to those who might otherwise be unable to maintain themselves and also that the asset tests were designed to ensure that the recipients were correctly identified.
20. Mr McQuinlan referred to section 1118(1)(j) of the Act which enables certain assets from the estate of a deceased person to be disregarded where the assets had not been received. He submitted that the provision did not extend to assets which were able to be received and said that this was the case with the interests of Mr Saunders because of his role as an executor of the estate.
Consideration
The Loans
21. In relation to the loans by the applicants to the family trust, section 1122 of the Act provides that, for amounts lent by a person after 27 October 1986, so much of a loan as remains unpaid to the person must be included as an asset for the purposes of the Act. It is not disputed by the applicants and I am satisfied that the loans were made after the date given in that provision and that they are listed in the the family trust balance sheet as current liabilities of $84,218.82 to Mr Saunders and $44,106.71 to Mrs Saunders, respectively (see T12 at 157). I am also satisfied that those are the amounts that remain unpaid to the applicants and that, therefore, they are embraced by the terms of section 1112 of the Act.
22. Mr Saunders submitted that this was not a fair approach because the family trust had no capacity to repay the loans. That raises two matters for consideration: the appropriate method of valuing the loans and the role of the provisions relating to unrealisable assets.
23. In respect of the first matter, the practice of adopting the full face value of the laon has applied since 27 October 1986 when the Act was amended: see Re Ling and Secretary, Department of Family and Community Services [1999] AATA 797; Re Mendes and Secretary, Department of Family and Community Services [2000] AATA 22; Re Hughes and Secretary, Department of Social Security (1992) 25 ALD 754 and Re Trewin and Secretary, Department of Family and Community Services [2002] AATA 437.
24. In respect of the second matter, the term "unrealisable asset" is defined in sub-section 11(12) of the Act as set out above and it may well be the case that the loans to the applicants fall within that category. However, even if that were the case, such a finding would have no relevance to the application of the assets test when assessing the value of assets. In the circumstances of this case, the only occasion when the notion of an unrealisable asset would be relevant is if the financial hardship provisions in section 1129 of the Act were invoked. In a case such as this, that provision has application where the relevant allowance, newstart or partner, is not payable because of the application of the assets test and a request has been lodged in the approved form for the financial hardship provisions to be applied. This means that the notion of an unrealisable asset is only relevant after the value of the applicant's assets has been determined. Also, a specific request must be lodged and that has not been done by the applicants.
25. It follows that the loans which total $128,325.53 are to be taken into account as assets for the purposes of the assets test under the Act.
Interest in the Estate
26. In relation to the beneficial interest of Mr Saunders in the estate of his aunt, it is not disputed that the one-third share of Mr Saunders is valued at $178,318.50. I am satisfied that this is the correct valuation.
27. The definition of "asset" in sub-section 11(1) of the Act is broad enough to embrace the interest of Mr Saunders in the deceased estate of his aunt: see Re Secretary, Department of Family and Community Services and Zangari (1998) 54 ALD 155. However, it may be disregarded if section 1118(1)(f) of the Act (see above) is applicable to it. The interest will be disregarded if it is not received or not able to be received. Given that the executors of the estate have not distributed the property, it has not been received by Mr Saunders and so the issue is whether it is able to be received by him.
28. In evidence were extracts from the Guide published by the applicant. The Guide provides assistance to those who administer the Act. The Tribunal, whilst not bound to apply policy guidelines of the kind referred to in the Guide (see Drake v Minister for Immigration and Ethnic Affairs (1979) 46 FLR 409) may do so and, indeed, will usually apply the guidelines unless there are cogent reasons in a particular case for not doing so: see Re Drake and Minister for Immigration and Ethnic Affairs (No. 2) (1979) 2 ALD 634 at 639-645; Re Dainty and Minister for Immigration and Ethnic Affairs (1987) 6 AAR 259 at 267; and Minister for Immigration, Local Government and Ethnic Affairs v Roberts (1993) 41 FCR 82 at 86. In this case, there is no material before the Tribunal to indicate that the Guide should not be applied.
29. Section 4.6.5.80 of the Guide, in so far as relevant, reads:
"4.6.5.80 Assessing Interests in a Deceased Estate
Summary
This topic discusses:
the provisions for assessing deceased estates;
when a customer is able to receive their interest in an estate;
…
General provisions
A customer's interest (1.1.I.185) in a deceased estate is an assessable asset (1.1.A.290), BUT it is EXEMPT
until it is:
received; OR
able to be received.
If a customer notifies FaCS that they have an interest in a deceased estate a delegate should obtain the following information:
the extent and nature of the interest, AND
the expected distribution date.
Act reference: SSAct section 1118(1) Certain assets to be disregarded in calculating the value of a person's assets
Receiving interest
As it can take some time to finalise an estate it is generally accepted that a customer will be unable to receive their interest in a deceased estate for up to 12 months after the death of the testator. If the estate is finalised earlier than this the interest is assessed from the date it is received or able to be received.
If the estate has NOT been distributed 12 months after the death of the testator, the facts of the case should be considered to determine:what is preventing the estate being finalised, AND whether the reasons are within the customer's control.
If a customer has contributed to the delay, the interest is regarded as being available.
Example 1: If the customer is NOT the executor AND the executor has discretionary power to distribute the estate, the customer has no control over the delay. Accept that the customer has NOT contributed to the delay and that the interest is NOT able to be received.
Example 2: If estate debts are yet to be paid accept that the interest is NOT able to be received."
30. The evidence is that the executors of the will are Mr Saunders and his brother and that administration of the will is complete with the exception of the distribution of the three items of real estate. That distribution depends on the actions of both executors who are obliged to exercise their powers jointly: see sub-section 49(5) of the Succession Act 1981 (Qld). The evidence of Mr Saunders is that it was the cost associated with the transfer of title that has been responsible for the delay in finalising the transfer of title, although in the proceedings at the Social Security Appeals Tribunal and in a written submission to the Tribunal the reason given was that Mr Saunders and his brother and sister were reluctant to dispose of the property while their mother was still alive. Of course, the transferring of the property to the three beneficiaries as tenants in common would enable them to retain the property out of respect for their mother and still achieve the result of bringing to an end the role of Mr Saunders and his brother as executors.
31. It is interesting in this context to note the terms of section 52(1)(d) of the Succession Act 1981 (Qld) which casts a duty on the personal representative "to distribute the estate of the deceased, subject to the administration thereof, as soon as may be": see discussion in Lee's Manual of Queensland Succession Law by WA Lee and AA Preece (5th edition Law Book Company) at 110. Clearly, the delay of ten years in this case does not give effect to that requirement. In light of that statutory obligation, I am satisfied that the time-frame referred to in the Guide should be adopted and applied in this case. The estate has not been distributed within the twelve months nominated in the Guide and there has been some contribution by Mr Saunders to that result. It follows that his beneficial interest in the estate of his aunt is one which, on the application of the Guide, is able to be received by him. It follows that it may not be disregarded and must be taken into account as an asset. The value of that interest is $178,318.50.
Determination
32. I have noted the contentions of Mr Saunders in relation to the differing approaches to the treatment of assets by the Taxation Office and by the respondent. However, any such differences are not relevant to this matter which must be determined in accordance with the provisions of the Act.
33. When the loans by Mr Saunders and Mrs Saunders to the family trust and the interest of Mr Saunders in the estate of his aunt are taken into account as assets for the purposes of the assets test under the Act, the asset limit is in excess of the threshold which would enable newstart allowance and partner allowance, respectively, to be paid to Mr and Mrs Saunders.
Decision
34. The Tribunal affirms the decision under review.
I certify that the preceding 34 paragraphs are a true copy of the reasons for the decision herein of Mr R G Kenny, Member
Signed: .................................................................................
AssociateDate of Hearing 9 October 2002
Date of Decision 6 December 2002The Applicant Appeared in Person
Solicitor for Respondent Mr R McQuinlan, Departmental Advocate
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