Searle and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs
[2012] AATA 855
•5 December 2012
[2012] AATA 855
Division GENERAL ADMINISTRATIVE DIVISION File Number
2012/3773
Re
HELEN SEARLE
APPLICANT
And
SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS
RESPONDENT
DECISION
Tribunal Mr R G Kenny, Senior Member
Date 5 December 2012 Place Brisbane The Tribunal affirms the decision under review.
.......................[Sgd].................................................
Mr R G Kenny, Senior Member
CATCHWORDS
SOCIAL SECURITY – Pensions, benefits and allowances – Age pension – Reduced rate of pension – Loans made to children – Deemed income from loans – Decision under review affirmed
LEGISLATION
Social Security Act 1991 (Cth) ss 8, 9, 11, 55, 1076, 1081, 1082, 1118, 1121, 1122
CASES
Fischer v Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2010] FCA 441
Gorton and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2012] AATA 127
Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634Re Gordon and Secretary, Department of Family and Community Services [2005] AATA 331
SECONDARY MATERIALS
Guide to Social Security Law
REASONS FOR DECISION
Mr R G Kenny, Senior Member
5 December 2012
BACKGROUND
Helen Searle was in receipt of the age pension in accordance with the Social Security Act1991 (the Act) when, on 29 March 2012, Centrelink reduced her rate of payment because of the effect of loans made by her to each of her two children. That decision was affirmed by an authorised review officer on 18 May 2012 and, on 16 July 2012, by the Social Security Appeals Tribunal.
ISSUES, LEGISLATION AND SUBMISSIONS
Ms Searle is a non-partnered home-owner and the rate of her age pension was calculated under the rate calculator A at the end of s 1064 of the Act [1] on the basis of her income. It is not in dispute that she lent amounts totalling $50,000 to each of her two children. This was done over a few years both before and after she retired from work in 2009. The loans were sourced by a line of credit secured against Ms Searle’s principal place of residence which is an exempt asset under the Act.[2] Her two children pay the interest on the loans by making payments directly into Ms Searle’s bank account. Centrelink determined that Ms Searle’s loans were assets under the Act[3] and that the deeming provisions relating to income from those assets were applicable to her.[4]
[1] See s 55 of the Act.
[2] See ss 11, 11A, and 1118(1) of the Act.
[3] See s 1122 of the Act.
[4] The deeming provisions in relation to loans were introduced on 1 July 1996: see the Guide to Social Security Law at 4.4.1.10 and the Social Security and Veterans’ Affairs Legislation Amendment Act 1995, Act No 1 of 1996.
Under s 1122 of the Act, if a person lends an amount of money, the value of a person’s assets includes so much of that amount as remains unpaid but does not include any amount payable by way of interest under the loan. Under s 9(1) of the Act, a financial asset is a financial investment which is defined to include a loan that has not been repaid in full. Under s 1076(2) of the Act, a person who has financial assets is taken to receive ordinary income on those assets. Under s 8(1) of the Act, income means an income amount earned, derived or received by the person for the person’s own use or benefit and ordinary income means income that is not maintenance income or an exempt lump sum. Under s 1072 of the Act, a reference to ordinary income is a reference to the person’s “gross ordinary income from all sources for the period calculated without any reduction”. The method to be used in calculating the amount of ordinary income that the person is deemed to have received is set out in s 1076(3)-(4) of the Act which incorporate ss 1081 and 1082 of the Act.
The background to the deeming provisions under the Act is set out in the Guide to Social Security Law (the Guide) which provides assistance to those who administer the Act. While not bound to apply policy instructions of the kind referred to in the Guide, the guidelines are usually applied unless, unlike the situation here, there are cogent reasons in a particular case for not doing so.[5] The Guide, at s 4.4.1.10, reads:
Background to deeming
The deeming rules are a central part of the social security income test. They are used to assess income from financial investments for social security and Veterans' Affairs pension/allowance purposes. Deeming assumes that financial investments are earning a certain rate of income, regardless of the amount of income they are actually earning. If income support recipients earn more than these rates, the extra income is not assessed.
The deeming rates reflect the returns available in the market to pensioners for a range of financial investments. By treating all financial investments in the same way the deeming rules encourage people to choose investments on their merit rather than on the effect the investment income may have on the person's pension entitlement.
To calculate the income assessed, deeming rates are applied to the total market value of an income support recipient's financial investments. The actual returns from the income support recipient's investments, whether in the form of capital growth, dividends or interest, are not used for income assessment, even if the investment returns are above the deeming rates.
[5] See Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634 at 639-645.
In Ms Searle’s case, the deeming provisions were applied and the deemed income from her loans was treated as part of her ordinary income.[6] The effect of this was that the rate of her pension was reduced. Whether or not that process was appropriate is the issue for consideration.
[6] For comment on the deemed rate, see Gorton and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2012] AATA 127.
For the respondent, Ms Brooke Carruthers submitted that the Act had been correctly applied. Ms Searle submitted that the scheme of the Act in relation to deeming should be considered in light of economic circumstances that applied when the scheme was introduced. She submitted that, back then, advances like those that she made to her children were made, in the main, by cash settlements and not, as in her case, through borrowings against her home. She submitted that there had been no advantage to her in advancing the monies as she did and that it was unfair for the deeming provisions to be applied to her.
CONSIDERATION
I am satisfied that the loans made by Ms Searle to her children comprise a financial investment and, therefore, financial assets as defined above. I am also satisfied that they have not been repaid in full and that Ms Searle’s assets include so much of the loans that remain unpaid without regard to any amount payable by way of interest under the loan[7]. Ms Searle is taken to receive ordinary income on those assets which includes ordinary income from all sources for the period calculated without any reduction. That is the basis upon which Ms Searle’s loans were assessed by Centrelink and I am satisfied that the amount of ordinary income that she was deemed to have received was correctly calculated by Centrelink under s 1076(3)-(4) of the Act. That mode of calculation was not challenged by Ms Searle.
[7] See Re Gordon and Secretary, Department of Family and Community Services [2005] AATA 331.
I have noted Ms Searle’s contention that the economic circumstances applicable when the deeming provisions were introduced should provide the basis for applying the deeming provisions of the Act. However, that approach is not consistent with the unambiguous terms of the Act. I have also noted that, in some cases, the value of an asset may be reduced by the value of a charge or encumbrance secured over it.[8] While the line of credit in this case has such potential effect as an encumbrance, the relevant asset is Ms Searle’s residence which is an exempt asset under the Act[9] and, in any event, played no part in Centrelink’s assessment in relation to the loans.
[8] See s 1121 of the Act and Fischer v Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2010] FCA 441.
[9] See note 2 above.
DECISION
The decision is affirmed.
I certify that the preceding 9 (nine) paragraphs are a true copy of the reasons for the decision herein of Mr R G Kenny, Senior Member.
.....................[Sgd]...................................................
Associate
Dated 5 December 2012
Date of hearing 30 November 2012 Applicant By Telephone Solicitor for the Respondent Ms Brooke Carruthers
0
3
0