Simpson and Secretary, Department of Social Services (Social services second review)

[2021] AATA 3506

Simpson and Secretary, Department of Social Services (Social services second review) [2021] AATA 3506 (30 September 2021)

Division:GENERAL DIVISION

File Number(s):      2020/3290

Re:Gary Simpson

APPLICANT

AndSecretary, Department of Social Services

RESPONDENT

DECISION

Tribunal:Senior Member A Poljak

Date:30 September 2021

Place:Sydney

The decision under review is affirmed.

..................................[sgd]......................................

Senior Member A Poljak

CATCHWORDS

SOCIAL SECURITY – cancellation of age pension – assets test – valuation of property – net market value test applied – four valuations provided – whether the applicant had sold his share of the property to his son – whether common intention constructive trust existed – decision under review affirmed

LEGISLATION

Social Security Act 1991 (Cth) ss 11, 11A, 55, 1064, 1118

CASES

Davies and Secretary, Department of Social Services [2015] AATA 819

Follone and Secretary, Department of Social Security [1987] AATA 99

Kirkovski v Secretary, Department of Family and Community Services [2004] FCA 790

Nosek and Secretary, Department of Social Services [2016] AATA 199

Re Drake v Minister for Immigration and Ethnic Affairs (No 2) [1979] AATA 179

Secretary, Department of Social Security and Langton [1993] AATA 315

SECONDARY MATERIALS

Social Security Guide

REASONS FOR DECISION

Senior Member A Poljak

30 September 2021

1. Mr Simpson, the applicant, applied for and was granted age pension from 5 October 2018.

2. The applicant has been married to Mrs Anne Simpson since 29 November 1970. For the purposes of social security law, the applicant was assessed as a member of a couple: subsection 11(2) of the Social Security Act 1991 (Cth) (the Act).  At all relevant times, the applicant’s principal place of residence was at Kings Langley NSW 2147 (Principal property). In determining the applicant’s eligibility for the age pension, the applicant and his wife’s assets were assessed which included income streams, investment properties and savings in bank accounts (assets test).

3. On 28 December 2018, a review of the applicant’s real estate was performed by Services Australia (the Agency). A valuation was received for a property owned by the applicant and his wife at Maraylya NSW (Maraylya property) which resulted in the cancellation of the applicant’s age pension (cancellation decision).

4. On 8 May 2019, the cancellation decision was referred to an authorised review officer (ARO) for review.

5. A search of the New South Wales Land Registry Services reveals that the applicant and his wife transferred their share of the Maraylya property on 22 November 2019 to their son Justin Simpson.

6. The applicant re-applied for and was granted age pension on 25 November 2019. When completing the application, the Maraylya property and an investment property in Bella Vista (Bella Vista property) were not included in the Income and Assets form. The Agency did not take into consideration whether the applicant had deprived himself of an asset at that time.

7. On 13 March 2020, an ARO reviewed and affirmed the cancellation decision. The ARO accepted a valuation prepared by LMW Statutory Services dated 27 December 2018 (2018 Valuation) and found that the value of the applicant’s assets exceeded the maximum threshold level for the age pension of $848,000.

8. On 16 March 2020, the applicant’s age pension was reduced on the basis that the applicant and his wife had not received adequate financial consideration for the transfer of the Maraylya and Bella Vista properties. It was found that the applicant and his wife gifted their son Justin $350,000.

9. On 8 May 2020, the Social Services and Child Support Division of the Administrative Appeals Tribunal (SSCSD) affirmed the decision of the ARO to cancel the applicant’s age pension from 28 December 2018 due to the value of his and his wife’s assets. This is the decision under review in these proceedings.

   Issues

10. The issue to be decided in these proceedings is whether the applicant’s age pension was correctly cancelled on 28 December 2018. Determining this issue requires consideration of the value of the applicant’s and his wife’s assets.

11. The issue in contention is the valuation of the property at Maraylya. The applicant has not disputed the values assigned to his other assets that are subject to the assets test.

    Relevant Legislative Provisions

12. Section 55 of the Act states that a person’s rate of age pension is calculated using the Pension Rate Calculator A at the end of section 1064 of the Act. Section 1064-A1 of the Act provides a Method Statement for working out a person’s maximum payment rate and step 11 requires that a person be paid the lower of the income reduced and the asset reduced rate.

13. The assets test applied to the applicant. Module G in section 1064-G1 of the Act, details how to work out the effect of a person’s assets on the person’s maximum payment rate.

14. Under paragraph 1118(1)(a) of the Act, the applicant’s principal home, as defined by section 11A of the Act, is exempt from the asset test.

    Valuation of Maraylya

15. There is no statutory provision in the Act specifying any general method for valuation of assets. The test applied by the Tribunal is normally the net market value approach based on comparable sales and the “best use” to which the asset could be put: Nosek and Secretary, Department of Social Services [2016] AATA 199 at [20]. This approach was endorsed by the Federal Court in Kirkovski v Secretary, Department of Family and Community Services [2004] FCA 790 at [17].

16. The Social Security Guide at Instruction 4.6.6.10 and 1.1.M.40, provides:

    Assets are generally assessed at their net market value…The net market value is the amount a person would expect to receive if they sold the asset on the open market, less any valid debts or encumbrances…

    The market value is the point at which a willing purchaser and a willing, but NOT anxious vendor, would reach agreement.

17. Although policy is not binding it will ordinarily be followed unless there is a cogent reason not to do so; see Re Drake v Minister for Immigration and Ethnic Affairs (No 2) [1979] AATA 179.

18. The 2018 Valuation was completed by Mr Hagivassilis, an AAPI Certified Practising Valuer and an appropriately qualified valuer. He valued the Maraylya property on 27 December 2018 and conducted an on-site valuation on 11 January 2019. Mr Hagivassilis valued the Maraylya property at $1,800,000.00.

19. In Secretary, Department of Social Security and Langton [1993] AATA 315, the Tribunal reviewed the authorities on valuation and commented that the essence of those authorities is encapsulated in the definition of market value adopted by the International Assets Valuations Standards Committee:

    Market value is the estimated amount for which an asset should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing, wherein the parties had each acted knowledgably, prudently and without compulsion.

20. This was the definition of market value expressly adopted by Mr Hagivassilis in the 2018 Valuation. This is the correct method of determining the value of Maraylya for social security purposes. In addition, the Tribunal has also endorsed the comparison of sales methodology; see Davies and Secretary, Department of Social Services [2015] AATA 819 at [13]. The sales comparison method was the principal valuation method used in the 2018 Valuation.

21. Mr Hagivassilis noted in the 2018 Valuation that Maraylya was a flood prone area and correctly took into account that the Maraylya property had a detached second dwelling on site. He noted that the second dwelling was rented out, but it did not have council approval, as such, the building was treated as a studio or storage for the purposes of the 2018 Valuation.

22. The applicant disputes the 2018 Valuation and has filed three independent valuation reports in support of his application. The valuation reports provided by the applicant were prepared for stamp duty and mortgage purposes. They include:

    ·JLL (JLL Valuation) dated 17 February 2017, indicating a valuation of $1,100,000 for 2.05 hectares of land at Maraylya; a double storey brick, hardiplank and colourbond residence providing four-bedroom, three-bathroom accommodation, and with a “three bay barn-style shed”. The report notes “limited recent sales of similar styled properties within the Maraylya locality”; and as such, analysed sales evidence from the surrounding localities taking into consideration the overall level of improvements, locational factors, aspect/views afforded and land areas of recorded sales and overall presentation in order to determine the market value of the subject property.

    ·LMW (LMW Valuation) dated 12 June 2019, indicating a valuation of $1,375,000 for 2.05 hectares of land at Maraylya; a two-level detached brick veneer, four-bedroom three-bathroom residence. Internal access to a secondary dwelling was not permitted upon inspection. It was noted that a secondary dwelling was pending approval and therefore was not assessed in the valuation, but should approval be granted, a revaluation was recommended. Once the secondary dwelling was completed overall, a rental amount of approximately $750 per week would be achievable. The report noted limited direct comparable sales.

    ·Acumentis (Acumentis Valuation) dated 3 April 2020, indicating a valuation of $1,525,000 for 2.05 hectares of land at Maraylya, a two-level detached brick veneer, four-bedroom three-bathroom residence. The second dwelling is described as “self-contained accommodation” and assessed only as “storage” pending council approval.

23. At hearing, the applicant’s son explained that the Maraylya property was flood prone and two thirds of land could not be used. He stated that in 2015, the property was for sale but did not reach the asking price of $950,000.00.

24. Mr Hagivassilis has subsequently prepared an Acumentis report dated 1 September 2020 (A1 report) and a Supplementary Acumentis report dated 23 September 2020 (A2 report).

25. In completing the A1 report, Mr Hagivassilis was provided further documents, including a floor plan of the second dwelling of the Maraylya property, the JLL Valuation, the LMW Valuation and Acumentis Valuation. 

26. Mr Hagivassilis confirmed at hearing that having regard to the number of living areas identified in the site plan of the studio, it did not affect the valuation. 

27. In the A1 Report, Mr Hagivassilis noted that the JLL Valuation was carried out 22 months preceding the 2018 Valuation and the date of age pension cancellation. He stated that the JLL Valuation relied upon a sale of a property at 85 Maraylya identified as transacting in March 2016, for $1,525,000, however, the same property was re-sold in July 2017 for $2,000,000 as an open market transaction. He said this analysis had been conducted to reflect the growth in the market. He noted that the dwelling was renovated post sale in March 2016 (works assessed at $175,000.00).  During the period between the JLL Valuation and 2018 Valuation, analysis of the local sales showed a strong growth in the market “due to a strong economy, low unemployment, low interest rates with the finance sector having more generous credit availability, volumes of stock also supported by foreign investment”.

28. Regarding the market conditions relevant to the LMW Valuation, Mr Hagivassilis said:

    “The property market in the first two quarters of 2019 was affected by the State and federal elections. The property market was influenced by a level of uncertainty through policies proposed by the major political parties. The major campaign policies relating to Capital gains Tax and Negative Gearing affected demand. During the first half of 2019 the Banking Royal commission triggered lenders to apply tighter lending regulations which did not influence the property market in 2018.”

29. Sales evidence within the Acumentis Valuation incorporated a date range post the relevant age pension cancellation date. Regarding market conditions relevant to the Acumentis Valuation, Mr Hagivassilis noted:

    “The Valuation has been conducted at a date where outbreak of the Novel Coronavirus (COVID-19), was declared by the World Health Organisation as a “Global Pandemic” on 11 March 2020. This has impacted global financial markets. The valuation is therefore reported on the basis of “material valuation uncertainty”...”

30. In the A1 Report, Mr Hagivassilis explained the market conditions at the time of the 2018 Valuation. He said:

    “The sales evidence represents a strong 2018 market period. The sales analysed comprising comparable improved 2ha lifestyle lots, with adjustments made in respect salient flood affectation attributes of the land, which override the area along with points of difference relating to location and improvements.

    The Valuer Generals 1/7/2018 report released in 2019 identified that the rural market in the Sydney West region stated “Overall, rural land values in the South West region had moderate increases of 9.4%. Increases in the local government areas”

    The property market during 2018 was subject to strong market demand, stimulated by steady economic conditions, low interest rates, low unemployment, credit accessibility supported by lending policies which were less stringent than currently applied by banks.

    …”

31. In summary, Mr Hagivassilis said:

    -“…

    -All valuations have been conducted at different dates, with varied market conditions contributing to the variation in values. Sales evidence comparison and the range of sale prices consistent with values adopted. Values in the location post the Services Australia Valuation Date of 27 December 2018, reflected a diminishing market environment.

    -The fluctuation in values during the valuation dates is supported by the NSW Valuer Generals Valuation program under the Valuation of Land Act 1916, as follows:

32.     Base Date	Land Value
1 July 2019	33.     $593,000
1 July 2018	34.     $1,010,000
1 July 2017	35.     $1,010,000
1 July 2016	$791,000
36.     1 July 2015	$700,000

-Analysis of sales and re-sales noted in the reports identify the change in values over the periods which the valuations have been conducted

-The condition and improvements of the property as at each date of valuation had been either subject to renovation works and/or additions further made e.g. 2020 swimming pool, thus a variation in value would be attributed.

-…”

1. Both the LMW Valuation and Acumentis Valuation did not take into account the second dwelling in their respective assessments as council approval for this structure was pending. LMW settled the valuation stating, “should approval be granted to this building, we recommend that a revaluation be completed”.

2. The A2 Report addresses numerous concerns raised by the applicant. Mr Hagivassilis provided further information about the NSW Valuer Generals unimproved land value, and his reasons for valuing the land at $1,200,000. In summary, the 2018 Valuation applied the Direct Comparison Approach, with all sales within seven months of date of valuation. He said that the change in land value from the 2018 Valuation to the land values in reports conducted in June 2019 and April 2020 was “contributed to market movement between the periods”. Mr Hagivassilis stated that “the Valuer Generals Assessments are not conducted on the same basis, with analysis on a mass appraisal basis, with the Act requiring varied adjustments to determine market value as opposed to a Market Value Assessment.”

3. Mr Hagivassilis further explained the comparison process and market evidence used in the 2018 Valuation. He summarised as followed:

   “The sales evidence analysed, have been adjusted for difference in land characteristics, location differences, planning provisions, improvements and condition of improvements when comparing these sales against the subject property to form an opinion of value. The environmental issues, flooding and bush fire risk, along with other attributes of sales have been taken into consideration in assessing the value of the property.”

4. The applicant contends that following the 2018 Valuation, Maraylya was renovated and improved yet it was valued less in the subsequent two valuations (LMW and Acumentis Valuations). Mr Hagivassilis provided a detailed analysis in the A2 Report and summarised as followed:

   “Concerns based on the comparison of valuation figures of two report, with wide-ranging Valuation dates should be assessed independently of each other. Different market inputs and relevant sales are taken into consideration by a valuer to form an opinion of value. In this instance the 2018 Valuation was not influenced with the same market inputs or extraordinary conditions that a valuation in April 2020 was conducted. The early stages of COVID 19 and unknown market volatility impacts, may have seen valuers during these periods take a prudent and conservative approach for mortgage purposes, given no sales had transpired to support the influence of the pandemic.”

5. At the date of the cancellation decision, the most contemporaneous valuation of the Maraylya property was that conducted by Mr Hagivassilis in the 2018 Valuation. Unfortunately for the applicant, he did not obtain another comparable contemporaneous valuation. This was despite being notified by Centrelink in a letter dated 28 December 2018 that his age pension was cancelled due to the 2018 Valuation. Centrelink records also show that the applicant was advised of the same during a telephone conversation with Centrelink on that date. This appears to be particularly significant in this matter as the land values fluctuated significantly between 2017 and 2019. This is reflected in the comparable sales, the NSW Valuer Generals Statutory Land Values, and the Rates and Charges Notice from Hawkesbury City Council dated 23 January 2019.

6. For all the above reasons, I prefer the 2018 Valuation over the LMW Valuation, Acumentis Valuation and JLL Valuation.

   Ownership of Maraylya

7. The applicant contends that he and his wife sold their 50% share of Maraylya to their son and daughter-in-law on 1 January 2015. At hearing, it was reiterated that the Maraylya property was owned by the applicant’s son. The applicant’s son took over the loan and expenses associated with the property in 2015 as the costs were too high for the applicant.

8. There is, however, insufficient evidence to show that a sale occurred in January 2015. In a statutory declaration dated 14 December 2018, the applicant declared:

   “After failing to sell our property, [Maraylya] on two occasions in 2014, we sell our 50% share in that property to our son, Justin Simpson, who holds the other 50% share, for $440,000 (AUD) on January 1^st 2015.

   From this point Justin will take over our interest commitments to NAB and be liable for our portion of the loan on [Maraylya]…

   Any liability or cost or defect from the property is now his responsibility. We forfeit any rent or capital gain from 1^st January 2015. In exchange we will transfer the names officially when and if the stamp duty implications are not so excessive and unaffordable, as it seems unnecessary at this point to do so.”

9. The language used in the statutory declaration suggests that the applicant sought to retrospectively create a legal fiction, rather than record an arrangement that actually occurred in January 2015.

10. The title transfer of the Maraylya property to the applicant’s son did not occur until November 2019.

11. As such, the question appears to be whether a common intention constructive trust was created in respect of the property whereby the applicant and his wife held their interest in the property on trust for their son and daughter-in-law pending the legal transfer of that interest. The Guide provides at 4.12.3.51:

    A common intention constructive trust is created to enforce a promise and/or a gift. The following elements need to be demonstrated to establish the existence of a common intention constructive trust:

    -there must have been a common intention between the legal owner of the property and the beneficiary, regarding the beneficiary's beneficial ownership of the property,

    -this common intention is to be inferred as a fact from the words or conduct of the parties,

    -the beneficiary must be able to show that they have acted to their detriment on the basis of the common intention as to the beneficial ownership of the property, and

    -it must be a fraud on the beneficiary for the legal owner to assert that the beneficiary did not have the beneficial interest in the property.

1. The evidence before the SSCSD was that the applicant’s son and daughter-in-law lived in the primary dwelling on the Maraylya property. They did not pay rent to live there. Further, the son received rent in respect of a studio that was also on the property. In that context, it was found to be unremarkable that an arrangement was reached whereby the son would pay the interest on the loans that were secured against the property, and also forward what appears to be a portion of the rental income that was payable in respect of the secondary dwelling.

2. In these proceedings, the applicant has provided receipts related to improvements at Maraylya. However, the bulk of the receipts/invoices are for dates after the cancellation (28 December 2018) and many are for dates after the transfer of Maraylya to the applicant’s son (22 November 2019).

3. In Follone and Secretary, Department of Social Security [1987] AATA 99 the Tribunal cautioned against elevating the status of family understandings or domestic arrangements in interpreting the assets test legislation. The Tribunal noted:

   Administration of the assets test legislation is an extraordinarily complex and difficult task. It is important for all who might be subject to its application, that the assets test be administered fairly. It can only be administered fairly by the respondent where clear evidence is submitted, by those who would seek to avoid or reduce its application, that property or money which has all the appearance of being in their hands has in fact legitimately passed to someone else.

   It is possible, in the context of family life, to elevate all kinds of understandings and expectations between family members into agreements which might be claimed legitimately to have divested pension recipients of whole or part of their assets. If, through the Tribunal's interpretation of the assets test legislation, it were made possible to allow such expectations and understandings to be so elevated, the respondent would be in an impossible position in its attempts to dispute the legitimacy of dispositions of assets, as part of its duty to ensure fair and equal application of the assets test formula to all who might fall within it.

4. I am not convinced that the evidence demonstrates the existence of a common intention constructive trust as the elements necessary to establish a constructive trust were not satisfied at any relevant time. While there may have been expectations and understandings in relation to Maraylya, they were not more than expectations and understandings typically part and parcel of family relationships and are distinguishable from a trust.

5. The evidence is insufficient to demonstrate that the applicant’s son acted to his detriment on the basis of a common intention so as to gain a beneficial interest in the property from the time of the purported sale in January 2015. The applicant and his wife continued to legally and beneficially own their 50% interest in the Maraylya property as at 28 December 2018.

   Decision

6. The 2018 Valuation is the appropriate valuation of the Maraylya property for the assessment of the applicant’s age pension entitlement under the social security law, at the time of review. As the applicant’s assets exceeded the threshold to receive any age pension, the decision to cancel the applicant’s age pension from 28 December 2018 was correct.

7. The decision under review is affirmed.

I certify that the preceding 49 (forty-nine) paragraphs are a true copy of the reasons for the decision herein of Senior Member A Poljak

................................[sgd]........................................

Associate

Dated: 30 September 2021

Date of hearing:	3 March 2021
Applicant:	Self-represented
Solicitors for the Respondent:	Ms B Erak, Services Australia