SMITH and SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS
[2011] AATA 517
•27 July 2011
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2011] AATA 517
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2010/1362
GENERAL ADMINISTRATIVE DIVISION ) Re GRAHAM SMITH Applicant
And
SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS
Respondent
DECISION
Tribunal Senior Member S E Frost Date27 July 2011
PlaceSydney
Decision The decision under review is affirmed. ......................[sgd]........................
S E Frost
Senior Member
CATCHWORDS
SOCIAL SECURITY – value of assets – whether value of asset reduced in assessment of assets – whether charge or encumbrance over asset – whether asset offset by liabilities – whether person is a primary producer – decision under review affirmed.
Social Security Act 1991 ss 1122, 1121 and 1121A
Boyd and Secretary, Department of Social Security (1994) 36 ALD 331
Fawthrop and Repatriation Commission (1993) 36 ALD 140
Hughes and Secretary, Department of Social Security (1992) 25 ALD 754
Ling and Secretary, Department of Family and Community Services [1999] AATA 797
Mendes and Secretary, Department of Family and Community Services [2000] AATA 22
Repatriation Commission v Harrison [1997] FCA 956
Saunders and Secretary, Department of Family and Community Services (2002) 72 ALD 264
Trewin and Secretary, Department of Family and Community Services (2002) 69 ALD 774
Wright and Secretary, Department of Social Security [1994] AATA 278
Farm Help Re-establishment Grant Scheme 1997 Pt 3
REASONS FOR DECISION
27 July 2011 Senior Member S E Frost Introduction
1. Graham Smith ceased being a primary producer in late 2006 or early 2007. He became eligible for financial assistance under a scheme called the Farm Help Re-establishment Grant Scheme 1997 (the Scheme) and made a claim for financial assistance. Centrelink was required to assess his assets. In that assessment Centrelink included, as an asset, a loan Mr Smith had made. It was also determined that the value of this asset was the amount of the loan that was unpaid. This had the result of reducing the level of assistance Mr Smith received under the Scheme. Mr Smith was dissatisfied with the outcome and he has applied to the Tribunal for a review of Centrelink’s decision.
2. I considered as a preliminary issue in this matter, at the parties’ request, whether the money loaned by Mr Smith should have been included in Centrelink’s assessment of his assets for the purpose of determining the amount of financial assistance he should receive under the Scheme. I determined that the loan must be included (see Smith and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2011] AATA 244).
The Issue
3. It is now necessary to decide the remaining issue – whether there is any reduction in the value of Mr Smith’s assets with reference to the loan.
The relevant law
4. Section 1122 of the Social Security Act 1991 (the Act) is the provision that causes the value of the loan that is outstanding to be included in Mr Smith’s assets. It reads as follows:
1122 Loans
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.
(Original emphasis.)
5. There are two provisions under the Act which might allow for a reduction in the value of Mr Smith’s assets:
1121 Effect of charge or encumbrance on value of assets
(1) If there is a charge or encumbrance over a particular asset of the person, the value of the asset, for the purposes of calculating the value of the person‘s assets for the purposes of this Act (other than Division 1B of Part 3.10), is to be reduced by the value of that charge or encumbrance.
Note: this section does not apply to an asset to which section 1121A (primary production assets) applies.
…
1121A Effect of certain liabilities on value of assets used in primary production
(1) For the purposes of working out the value of a person‘s assets under this Act, if:
(a) the person is:
(i) a primary producer; or
(ii) a family member of a primary producer; and
(b) the person has assets (including real property) that are, in the Secretary‘s opinion, used for the purposes of carrying on that primary production; and
(c) the person also has liabilities that are, in the Secretary‘s opinion, related to the carrying on of the primary production;
then:
(d) section 1121 does not apply in relation to the assets referred to in paragraph (b); and
(e) those assets are taken to be a single asset (in this section called the primary production asset); and
(f) the value of that single asset is worked out under subsection (2).
Note: for family member see subsection 23(1).
(2) The value of a person‘s primary production asset is worked out in the following way:
Method statement
Step 1.
Add together the value of the assets referred to in paragraph (1)(b): the result is called the unencumbered value.
Step 2.
Add together the value of the liabilities referred to in paragraph (1)(c): the result is called the total liability.
Step 3.
Take the total liability away from the unencumbered value: the result is the value of the person‘s primary production asset.
(3) If the result under Step 3 of the Method statement is less than nil, the value of the primary production asset is taken to be nil.
(Original emphasis.)
Can the value of the asset be reduced?
6. Mr Smith submits, as a fundamental proposition, that the value of the loan should not be taken to be the amount outstanding, because the loan is essentially a valueless asset; it should instead be valued commercially.
7. To accept that submission would be to disregard the plain words of s 1122, which mandate that the value of Mr Smith’s assets includes “so much of [the amount of the loan] as remains unpaid …”. As has been emphasised by the Tribunal in cases such as Hughes and Secretary, Department of Social Security (1992) 25 ALD 754; Boyd and Secretary, Department of Social Security (1994) 36 ALD 331; Wright and Secretary, Department of Social Security [1994] AATA 278; Saunders and Secretary, Department of Family and Community Services (2002) 72 ALD 264; Ling and Secretary, Department of Family and Community Services [1999] AATA 797; Mendes and Secretary, Department of Family and Community Services [2000] AATA 22; and Trewin and Secretary, Department of Family and Community Services (2002) 69 ALD 774, there is no room in this context for an analysis of whether the amount is actually recoverable from the borrower.
8. Next it is submitted that the asset must be offset by liabilities. However, it is quite plain that when assessing assets under the Act there is no requirement that all liabilities must be deducted or balanced – s 1122 of the Act does not contemplate a reduction on this basis nor does any other provision in the Act. In Repatriation Commission v Harrison [1997] FCA 956 Tamberlin J, when dealing with the analogous assets test in the Veterans’ Entitlement Act 1986, said that the assets test was not necessarily concerned with ascertaining the net value of a person's assets and concluded “that the valuation of particular assets is to be made and a total value determined without taking into account liabilities”. The same position applies with respect to s 1122.
9. Mr Smith has also submitted that because he made the loan in his personal capacity to himself in his capacity as trustee of a trust, the value of the loan must be offset by balancing the corresponding liability that he has in his capacity as trustee. In the absence of a provision ameliorating the strict application of s 1122 of the Act this argument cannot succeed.
10. The only reductions that might be available in determining the value of Mr Smith’s assets are those available under ss 1121 and 1121A of the Act.
Section 1121 – Is there a charge or encumbrance over the asset?
11. The terms “charge” and “encumbrance” are not defined in the Act. The Tribunal in Fawthrop and Repatriation Commission (1993) 36 ALD 140 determined, when examining a legislative provision analogous to s 1121 of the Act, that the word “charge” means a liability which is secured and “encumbrance” means a lien, claim or burden attaching to property
12. None of Mr Smith’s submissions identify a charge or encumbrance over the loan, which is the asset in question, that might be deducted from the value of the loan.
13. There was no charge or encumbrance associated with the loan and there can be no reduction in its value on that basis.
Does s 1121A have the effect of reducing the value of the asset?
14. At the time of assessment of Mr Smith’s assets he had ceased to be a primary producer. Indeed, it is a precondition of the receipt of a grant under the Scheme that a person must no longer be a farm owner or operator.
15. It is that very status, as a person who has ceased to be a primary producer, that prevents s 1121A from applying to Mr Smith because, at the time of assessment of his assets, it is not the case that he “is a primary producer” (s 1121A(1)(a)(i)). It follows that the Method statement in s 1121A(2) cannot be used to calculate the value of Mr Smith’s assets.
Conclusion
16. The value of Mr Smith’s assets for the purpose of assessment under the Scheme must include the amount of the loan that remained outstanding. No reduction in the value of that loan is available under the Act. The decision under review is affirmed.
I certify that the 16 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member S E Frost
Signed .............................[sgd].......................................
Nicholas Olson, AssociateDates of Hearing 24 February 2011 and 25 March 2011
Date Final Submissions Received 31 May 2011
Date of Decision 27 July 2011
Appearance for the Applicant Mr D Brough, WHKAppearance for the Respondent Ms H Schuster and Ms J MacLean, Centrelink Legal Services
1