Sekhon and Secretary, Department of Employment and Workplace Relations

[2007] AATA 1043

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2007] AATA 1043

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          N2006/801

GENERAL ADMINISTRATIVE DIVISION		)
Re		HARMINDER SEKHON

Applicant

And SECRETARY, DEPARTMENT OF EMPLOYMENT & WORKPLACE RELATIONS

Respondent

DECISION

Tribunal Ms N Isenberg, Senior Member

Date5 February 2007

PlaceSydney

Decision The Administrative Appeals Tribunal affirms the decision under review.

..……………[sgd]……………….

Ms N Isenberg, Senior Member

CATCHWORDS

SOCIAL SECURITY – cancellation of age pension – assets test – value of property – issue of whether property can be considered as an “unrealisable asset” – issue of reasonableness of Applicant’s selling or borrowing against asset - claim for consideration under the hardship rules – decision affirmed

Social Security Act 1991 sections 11(12), 11(13), 1118(1)(a), 1130(1)

Freeman v Secretary, Department of Social Security (1998) 15 ALD 671

Koitaki Para Rubber Estates Ltd v Federal Commissioner of Taxation (1941) 64 CLR 241

Re Dickeson and Secretary, Department of Social Security (1989) 18 ALD 58

REASONS FOR DECISION

5 February 2007 Ms N Isenberg, Senior Member

DECISION UNDER REVIEW

1.      On 24 May 2006 the Social Security Appeals Tribunal (“SSAT”) affirmed Centrelink’s decision to cancel Mrs Sekhon’s disability support pension (“DSP”) and reject her claim under the asset hardship provisions. On 3 July 2006 Mrs Sekhon appealed to this Tribunal.

BACKGROUND

2.      In May 2000 Mrs Sekhon used a lump sum compensation payment and the proceeds of sale of her former home in Baulkham Hills, to purchase a residential property at Gladesville (“Gladesville”) for $567,000. 

3.      The house was run down.  At most, Mrs Sekhon lived there very briefly – for a few weeks - and then lived with her son in Plumpton, as she still does. In an Income and Assets update Mrs Sekhon filled out in April 2005 she stated that she had left her home in 2000 and expected to return in 2006.

4.      On about 30 July 2001 Mrs Sekhon and her former husband borrowed $300,000 from the National Australia Bank and a further $80,000, using Gladesville as security.  The $80,000 appears to have been used to service the $300,000 loan.

5.      In a separate matter in 2002, Mrs Sekhon told the Administrative Appeals Tribunal that she arranged the previous year (2001) for R Bhindar and Company to do work at Gladesville "in a year or two".  In the current matter she told the SSAT that she had paid $300,000 to a company called Globetech (Mr Bhindar’s company), without a written contract, to undertake building work. 

6.      Mrs Sekhon was granted DSP with effect from 20 March 2004.  In September 2004 Centrelink asked her to provide information about Gladesville. On 20 March 2005, Mrs Sekhon estimated Gladesville to be worth $590,000.  She stated that she then owed $380,000 on it. 

7.      The Australian Valuation Office (“AVO”) valued Gladesville at $900,000 in a kerbside valuation.  As a result, on 23 May 2005 Mrs Sekhon’s DSP was cancelled with effect from 20 March 2004 on the basis that her assets exceeded the disqualifying limit.

8.      Mrs Sekhon disagreed with the AVO valuation.  She requested review by the authorised review officer (“ARO”) and claimed exemption under the hardship provisions.  She stated that the home is her primary residence but not fit for living in.  She said she could not sell it because she would not own her own home, she has no income or superannuation, is aged nearly 60 and is unwell.  She could not borrow, as she has no income.

9.      The AVO valuer inspected Gladesville and valued it at $1,000,000 as at 26 May 2005, setting out her conclusions in a detailed report which includes comparable sales information for the locality.

10.     Mrs Sekhon’s hardship claim was rejected on 22 August 2005, with the delegate noting that in 4 years she had not used the borrowed money to renovate or reconstruct, nor explained properly how the funds had been used.  That decision was affirmed on review and by the SSAT.

LEGISLATION

11.     Some benefits under Social Security Act 1991 (“the Act”) (including DSP) are not payable to those whose assets exceed a certain amount.  At the time of cancellation, the asset disqualifying limit was $431,250 for a single non-homeowner, like Mrs Sekhon.

12. When calculating the value of a person's assets for purposes of the Act, section 1118(1)(a) requires decision makers to disregard the value of any right or interest of the person in his or her principal home.

13.     In addition, under the so-called “hardship provisions” unrealisable assets are to be disregarded in working out the appropriate pension rate: subsection 1130(1). 

ISSUE BEFORE THE TRIBUNAL

14.     The issues for me to decide are:

·Is Gladesville Mrs Sekhon’s principal home?

·If not, is the value of Gladesville sufficient to preclude Mrs Sekhon from receipt of a pension?  This further involves consideration of:

-the value of Gladesville; and

-whether Mrs Sekhon’s circumstances warrant consideration of the property as an “unrealisable asset”.

EVIDENCE, CONSIDERATION OF ISSUES and FINDINGS

15.     I had before me documents lodged pursuant to section 37 of the Administrative Appeals Tribunals Act 1975 ("the T-documents") and the Secretary’s Statement of Facts and Contentions, which the Tribunal took into evidence

16.     In coming to the correct and preferable decision, I took into account all the evidence, submissions, case law and relevant legislation.

17.     In reviewing a decision cancelling a pension I am to confine myself to considering eligibility as at the date of cancellation (Freeman v Secretary, Department of Social Security (1988) 15 ALD 671). It is not for me to determine present entitlement. I am only considering whether the decision to cancel Mrs Sekhon’s pension, at the date from which it was cancelled, namely, 20 March 2004, was correct.

18.     Mrs Sekhon’s evidence was that to the main reason that she bought Gladesville was because it was close to public transport, unlike her previous home at Baulkham Hills.  She had only seen the house from the outside on the day of the auction so there was no time to look inside.

19.     She bought the house using the proceeds of sale of her Baulkham Hills home and her compensation money. 

20.     She said that she moved into the house taking with her only "an old bed".  That apparently was the only furniture.  She said that she stayed there a few weeks but the house was in very bad condition.  She was unable to use the bathroom because it was very small and dirty and this caused her to have panic attacks.  She moved back with her son in Plumpton, where she had been living following the sale of the Baulkham Hills home and immediately before the purchase.

21.     She said that the property had a tenant in it when she bought it but he was asked to leave because she wanted to live there.

22.     She said that she is unable to live alone because of her health and that she suffers migraines following which she may sometimes collapse. She also experiences panic attacks.  These health issues commenced a few years ago.

23.     Mrs Sekhon was shown a Centrelink file note dated 23 May 2005 where she was reported to have said that she had bought the house in 2000 and "has not lived there even for a day as the place/house was not liveable".  She denied that she had said that.

24.     Mrs Sekhon gave evidence that her son had suggested she get a loan with a view to renovating the house.  As a result she borrowed $300,000 from the National Australia Bank and another $80,000 to finance that loan.  She gave the whole of the $300,000 to the builder, KRK Globetech Pty Ltd (“Globetech”).  She produced a receipt from the builder dated 16 November 2001 which said "This is to be used for the construction of your residence at Gladesville".  No work was done other than to advise her that it was better to build a new house rather than renovate the existing premises.  Globetech then advised that as one of their architects had died and because of the peculiarity of the block she should engage an architect separately.

25.     Through her son she engaged an architect in September 2005 - Bartush Designer Homes Pty Ltd.  The design work has finished but the plan has not yet been submitted to council. 

26.     She and her son have asked for return of the $300,000 from Globetech, without success.  They have legal advice to the effect that it cannot be recovered.  Globetech, however, has offered to pay the mortgage and is doing so. 

27.     I turn now to examine the identified issues.

Is Gladesville Mrs Sekhon’s principal home?

28. What amounts to a principal home is not defined by the Act.

29.     Mrs Sekhon’s evidence was somewhat inconsistent.  She said she was unable to live alone because of her health.  The symptoms she described, however, had commenced before she moved to Gladesville where she proposed to live alone.  She also described the house as “unliveable” at that time but said that immediately before settlement, it had been tenanted, and the tenant would have stayed on had she not decided to move in herself.  She also said she had moved into the house, living there for a few weeks, but her evidence was that she had not owned any furniture other than “an old bed”.  In my view, it is unlikely she had lived and eaten there, if her only furniture was a bed.

30.     Mrs Sekhon said that she slept and ate at Gladesville for a few weeks after the purchase in May 2000.  However, on her evidence, she no longer lived there by about mid 2000.  Clearly, at 20 March 2004, the date from which her DSP was cancelled, it was not the place where Mrs Sekhon ate, slept and had her settled or usual abode (cf Koitaki Para Rubber Estates Ltd v Federal Commissioner of Taxation (1941) 64 CLR 241 at 249). In my view, it could not be said to be her principal home since about mid 2000, when she re-commenced residing with her son at Plumpton.

31.     I was assisted in coming to this view by being referred to Re Dickeson and Secretary, Department of Social Security (1989) 18 ALD 58 at 61 where the Tribunal concluded:

“In assessing the criteria of what constitutes a "home" a substantial degree of occupation is persuasive (Herbert v Byrne [1964] 1 All ER 882) whereas conversely occupation by occasional visiting is not (Beck v Scholz [1953] 1 All ER 814), and living away from the family home in other premises causes the family home to no longer be the principal home: Re Samek and Department of Social Security (1988) 16 ALD 295. A "home" is likely to be a place where persons ordinarily eat, morning and night, and where they sleep, and in the case of adults have the characteristics of permanency: Todd v Nichol [1957] SASR 72. It is a concept in nature and "it is the place where the centre of gravity of one's domestic life is to be found": Geothermal Energy NZ Ltd v Commissioner of Inland Revenue [1979] 2 NZLR 324. Where one chooses to live is relevant (Hyland v Hyland (1971) 18 FLR 461) and a reference to a "home" requires an affinity to its location and usage by the occupier: Inland Revenue Commissioners v Lysaght [1928] AC 234 and Koitaki Para Rubber Estates Ltd v FCT (1941) 64 CLR 241. A home need not be a structure of four walls and a roof, but may be constituted by a caravan (Helsham v Repatriation Commission (N85/492, No 2741)) or a campervan (Buchanan v Repatriation Commission, (V89/50, 14 July 1989)) or a yacht: Re Koitaki Para Rubber Estates Ltd, supra.”

32.     That is not to say Gladesville may not become Mrs Sekhon’s principal home at some later time.  For that to occur though she would need to adopt at least some of the indicia identified above.

33.     I do not accept that an intention now expressed, to build a new home at Gladesville, over 5 years since she vacated it, is sufficient to make it her principal home in 2004. 

What was the value of Gladesville?

34.     Mrs Sekhon purchased Gladesville in May 2000 for $567,000.  Five years later, on 20 May 2005, she estimated it to be worth $590,000.  At the hearing she said she had been told by a real estate agent that it could be sold now for about $800,000.  She said she did not think it had water views but would with an extra storey.

35.     An officer of the AVO inspected Gladesville and valued it at $1,000,000 as at 26 May 2005.  The valuer referred, in the detailed report, to comparable sales information for the locality.  There are presently limited water views, but excellent 180 degree water views would be available from a second storey.  The report noted that the valuation was based on the land value of the property, as the residence was in bad condition and unliveable.  It had broken windows, the bathroom and kitchen were in very poor and unusable states of repair and there were holes in wall linings and rotted gutters.   Mrs Sekhon was referred to the report and did not disagree with its observations, except to note that when she purchased the property it did not have broken windows.  She thought that in the 5 years since purchase it had been vandalised.  In addition, she said the only maintenance undertaken is occasional mowing, which her son arranges. 

36.     Other than her evidence as to what the real estate agent had told her, Mrs Sekhon provided no evidence of a valuation lower than the AVO's.

37.     In the circumstances, I prefer the AVO’s formal valuation as evidence of the value of the property at the relevant date to Mrs Sekhon’s understanding of the value and the hearsay evidence of what she had been told by an unidentified real estate agent.  The AVO valuation took into account land value only, local sales and the potential for second storey water views.

Do Mrs Sekhon’s circumstances warrant considering Gladesville an “unrealisable asset”?

38. Subsections 11(12) and 11(13) of the Act define the term “unrealisable asset” as follows:

“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.

11(13)For the purposes of the application of this Act to a social security pension (other than a pension PP (single)), an asset of a person is also an unrealisable asset if:

(a)the person could not reasonably be expected to sell or realise the asset; and

(b)the person could not reasonably be expected to use the asset as a security for borrowing.”

39.     She gave evidence that she had already committed $300,000 to the property because of the amount she had given to the builder.  She has not, it seems to me, fully pursued recovery of that money.  The present arrangement with the builder, that he pay the mortgage while making no apparent effort to progress the building work, is bizarre.

40.      She said she had also spent money on the plans - she told the SSAT that this was $5,500 - and for this reason she did not contemplate selling Gladesville: an asset valued at $1 million. 

41.     She reiterated that she liked the available public transport. 

42.     According to Centrelink, at that date of cancellation of DSP the balance of the larger loan was approximately $280,000 and the balance of the smaller loan was approximately $55,000.  Her equity in Gladesville would appear to be in the vicinity of $665,000.

43.     Mrs Sekhon could have retained the tenant from the time of settlement but chose not to.  That decision represents a loss of income from a tenant.  With the benefit of hindsight this may not have been a good decision.  If the tenant had remained in place it is also probably unlikely the property would have been vandalised as it appears to have been, due to neglect.

44.     For reasons which are unclear it is only now that the plans to re-build have been finalised, but they still have not yet been submitted to council. 

45.     The test of whether it is “reasonable” for Mrs Sekhon to sell or borrow against an asset is an objective one.  Any hardship experienced by Mrs Sekhon must be balanced against community expectations that those with assets use those assets to support themselves.

46.     I do not accept that the asset is unrealisable.  With equity of approximately $665,000 she would be readily able to buy another property in which to live.  It is not unreasonable to expect her to sell it so as to provide for herself.  Apart from some money Mrs Sekhon has borrowed from friends she has no debts apart from the mortgage.  She has no great living expenses as she lives with her son. 

47.     Mrs Sekhon's assets are well in excess of the asset disqualifying limit, which at the date her pension was cancelled, was $431,250 for a non-homeowner pensioner.

DECISION

48.     The Administrative Appeals Tribunal affirms the decision under review.

I certify that the 48 preceding paragraphs are a true copy of the reasons for the decision herein of Ms N Isenberg, Senior Member.  

Signed:   …………[Emily Gadsby]……….
  Associate

Date of Hearing  22 January 2007                
Date of Decision  5 February 2007      
Representative for the Applicant    Mrs H Sekhon, Self-represented   
Advocate for the Respondent        Mr J Kenny, Centrelink Legal Services