Spasich and Secretary, Department of Family and Community Services

[2006] AATA 853

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2006] AATA 853

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No N2005/1508

GENERAL ADMINISTRATIVE DIVISION		)
Re		BLAGOJA SPASICH and VERA SPASICH

Applicants

And SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES

Respondent

DECISION

Tribunal Senior Member Hunt

Date6 October 2006

PlaceSydney

Decision The decision under review is affirmed.

[SGD]

Ms R. Hunt
  Senior Member

CATCHWORDS

SOCIAL SECURITY – age pension – value of assets – real estate - property valuation –value not reduced by unsecured loan - assets value limit for age pension exceeded – decision affirmed.

Social Security Act 1991 ss 4, 11, 1064, 1121A(1)

Re Evans and SDSS (1993) AAT 8710

Re Woodhouse and SDSS (1987) 12 ALD 474

REASONS FOR DECISION

6 October 2006 Senior Member Hunt          

SUMMARY

1.      Mr and Mrs Spasich are homeowners and live together in their jointly owned house. Mr Spasich also owns another house in his own right. He and his wife used to live in this house before they moved into the jointly owned house. Until 29 March 2005, Mr and Mrs Spasich received age pension payments. Centrelink cancelled their pensions after updating the value of their assets. Centrelink determined that the value of their combined assets in March 2005 exceeded $485,000, which was the threshold for receipt of the pension. The main asset affecting the couple’s entitlement was the second house owned by Mr Spasich. The tribunal has found that the value of the couple’s assets on 29 March 2005 did exceed $485,000 and the decision to cancel their pension on that date was correct. Full reasons are set out below.

ISSUE

2.      The question for the tribunal is whether the decision to cancel the age pension of Mr and Mrs Spasich was correct as at 29 March 2005. This involves assessment of the value of the couple’s combined assets at that date.

CONSIDERATION

3.      Mr Spasich represented himself and his wife at the hearing. Centrelink reviewed Mr and Mrs Spasich’s pension entitlement in March 2005. Centrelink records show the house in which the couple presently live was not included in the assets test for calculation of their pension entitlement. Mr Spasich’s other house was included. Mainly on the basis of the valuation of Mr Spasich’s former home by the Australian Valuation Office (AVO), Centrelink then cancelled Mr and Mrs Spasich’s age pensions. The Social Security Appeals Tribunal (SSAT) affirmed the Centrelink decision cancelling payment of the age pension to Mr and Mrs Spasich. Mr and Mrs Spasich then applied to the present tribunal for a review of the SSAT decision. Mr Spasich attended a hearing and gave oral evidence.

4.      To calculate the couple’s asset value, Centrelink also took into account their personal assets, owned separately or together, including a car, household furnishings, some shares, bank account savings and a term deposit. Centrelink assessed these personal items at a value of $22,888.00. Mr Spasich gave oral evidence that he doubted his furniture was worth anything. He further gave evidence that he had since sold his shares to pay insurance bills. He said his and his wife’s savings were temporary and changed all the time as they used the money to pay bills. His wife’s term deposit was for their funerals.

5.      Mr Spasich claimed that his sons had been supporting him and his wife for some time and were owed $50,000 as a result. He gave evidence that this debt was an unsecured loan and an amount that should be deducted from the value of the couple’s assets. To support this claim, Mr Spasich produced a number of bills to the tribunal after the hearing. He told me at the hearing that he did not usually keep bills and threw them out so he had no old records of the amounts his sons had paid for their parents. The bills Mr Spasich produced, apart from council rates for the two houses, were all issued in 2006, that is, after the date of the decision under review. However, I accept Mr Spasich’s evidence that he and his wife did have to rely on some form of financial assistance once their payments stopped in March 2005.

6.      Mr Spasich also gave oral evidence about his second house, which I refer to in these reasons as “the T property”. He told me he bought the land in 1970 and built a house on it himself in the early seventies, using contractors. He and his wife lived in the house with their children until his father died and left him the house in which they now live. His father’s house was more conveniently located than the T property so they had moved out of the T property. Mr Spasich said he rented out the T property for a while but tenants caused damage and left without paying rent so he decided not to rent it any more. It has been vacant since the last tenants left. Mr Spasich then put the property on the market.

7.      Mr Spasich agreed that a letter before the tribunal, from a real estate agent, saying he was offered $549,000 for the house in 2003, was correct. However, he gave further evidence to the effect that the buyer withdrew because of delay. Mr Spasich gave evidence to the effect that some delay in his accepting the price came about because of lack of agreement in his household. He claimed that in the years since, the value of the property had fallen. He would be prepared to accept considerably less then $549,000 now but had not received any recent offers. The house was still on the market and he would maybe now accept $400,000.

8.      Centrelink records show there was a ‘for sale’ sign outside the T property on 15 April 2005 and that it was then advertised for $559,000. Mr Spasich did not dispute this but said the price was reduced to $519,000 shortly afterwards. He thought someone had offered $350,000 at one stage but he had received no firm offer for that amount and no other offers.

9.       Centrelink accepted, at the time of the hearing, that the current value of the T property was $450,000 and that Mr and Mrs Spasich now qualified for a part pension on this basis. However, Centrelink argued that the house had a higher historical value. The present reduced value did not affect the calculation and determination of value made back on March 2005. From a roadside inspection, the Australian Valuation Office valued the T property at $530,000 on 29 March 2005 and later at $500,000, as entered in Centrelink records on 28 April 2005. On 5 April 2005, Mr Spasich had contacted Centrelink and said he had a valuation of $202,000. Consequently, Centrelink arranged another inspection and the property was re-valued.  The actual valuation by the AVO before the tribunal is dated 13 May 2005 and makes reference to 12 April 2005. The valuation sets out that the lower value was reached after a full external and internal inspection.

10.     Although Mr Spasich had a valuation of $202,000 for the property, this valuation is unsuitable for determining the value of the couple’s assets for social security purposes. The valuation of $202,000 was made by the Department of Lands for calculating the levy of local council rates. Valuations made by the Department of Lands are based on land value only and not improvements. As the social security valuations take into account the market value of property, Centrelink obtained a valuation from the Australian Valuation Office (AVO). From the valuation information before me concerning the T property around the time of the decision under review, the AVO’s lowest valuation was $490,000 as at 29 March 2005 as set out in a certificate dated 29 June 2006. Previously, it had been estimated at $500,000 on 12 April 2005. There is no valuation before me for 2005 below the $490,000 estimate for 29 March 2005. It is apparent that accurate valuation is complex due to continuing reductions in value in the last year or so.

11.     Centrelink officers had some reservations about the valuation as time went by and corresponded with an estate agent and the AVO in late 2005. A local estate agent wrote, in an undated letter to Centrelink, that following his conversation with a Centrelink officer, on 1 August 2005, he thought Mr Spasich would have to reduce the price to $465,000 and be prepared to accept offers around the mid $400,000s. In addition, as set out above, the AVO last valued the property at $450,000 on 29 June 2006 noting that the historical value on 29 March 2005 was $490,000.

12.     Mr Spasich agreed that he had allowed entry to the house in April 2005 for the valuer to make an inspection of the house and had discussed some of the attributes and disadvantages of the property as set out in the valuation report. The report mentioned that the T property had lost some of its former district and distant water views due to new development. The report further noted the brick construction, concrete tile roof, age of about 33 years, accommodation over 2 levels including a flatette, 2 downstairs bedrooms and 3 upstairs bedrooms and a double garage. The valuer found the house in fair to good condition internally but noted that it might need some upgrades soon to various rooms and fittings and to the floor covers. There was some external corrosion, rusting and cracking in the walls. Mr Spasich said he thought the house needed some work and added that his sons were not interested in buying it from him because they thought the repairs would be expensive.

13.     The AVO’s valuation and historical valuation of $490,000, made in June 2006, listed some recent sales of surrounding or nearby properties for comparison. On the whole, these properties sold for more than the value of Mr Spasich’s property but one house in the same street sold on 23 March 2005 for $308,000. The report noted this property had the same land area but the house was smaller with no visible car accommodation and was fibro clad as opposed to brick. Another house that sold for $460,000 in November 2004 was located in a street where it possibly had better views and it also had a pool and a garage. The more expensive house sales were of properties on larger blocks that had garages built under the roofs and had ocean views and other noteworthy features.

14.     Mr Spasich presented no independent value of the T property but pointed to the evidence that it had been on the market for several years and that no one had made an offer since the sale in 2003 fell through. He thought the T property was worth $400,000 but it was hard to say when no one made an offer.

15.     Further, Mr Spasich told the tribunal that he and his wife owed their sons $50,000 as at 29 March 2005 and this should be taken into account to reduce their assets as at 29 March 2005. Their sons had lent them the money because they could not pay their household bills. The debt to their sons was growing as they had lent Mr and Mrs Spasich money to live on and paid all their bills since the pension stopped and they had no income. The respondent argued this debt could not affect the calculation of asset value as it was not secured and had not formed part of the purchase price of the T property.

findings

16. Sections 4 (gives the definition of a couple) and 1064 of the Social Security Act 1991 (the Act) set out the way in which the rate of age pension is calculated. The age pension is subject to an income test and an asset test. The rate of payment is calculated under the two separate tests and the test that results in the lower (or nil) rate is the one that applies. In this case the asset test applies. Persons whose assets are over the threshold may still receive the age pension, but the rate of pension is progressively reduced as the value of the assets increases, until the rate is reduced to nil.

17. The assets test is dependent, in part, on whether a person is single or partnered and whether the person is a homeowner or a non-homeowner. A person is partnered if they are a member of a couple. Section 4(2)(a) of the Act defines a member of a couple as, among other things, a person who is:

legally married to another person and is not, in the Secretary’s opinion (formed as mentioned in subsection (3)), living separately and apart from the other person on a permanent or indefinite basis.

18.     The term homeowner is defined in subsection 11(4) of the Act as a person who has a right or interest in the place they occupy and that right or interest gives the person reasonable security of tenure.

19.     Mr and Mrs Spasich are homeowners and live in their jointly owned house. Mr Spasich also owns another property. For Mr and Mrs Spasich to continue to receive the pension as at 29 March 2005, the value of their combined assets must not have exceeded $485,000.  If the T property was worth $490,000 at that date, this clearly makes their combined asset value exceed the limit. On the other hand, if the property was worth today’s value as accepted by Centrelink, that is, $450,000, Mr and Mrs Spasich would have a part pension entitlement as at 29 March 2005.

20. There is no dispute that Mr and Mrs Spasich are married and living as husband and wife and that they own the property in which they live. As such the relevant requirements of sections 4 and 11(4) are satisfied. That means that the relevant assets value limit is determined by reference to Mr Spasich’s status as partners and homeowners. In such a situation, and at the relevant date of decision, the rate of pension was reduced to nil when the combined value of a person’s assets exceeded $485,000.

21.     The ‘Assets Threshold’ for a pensioner couple who are homeowners and associated tests furnished by the respondent are set out below:

Period	Lower Threshold	Upper Threshold
20 March 2005 to 30 June 2005	217,500	485,000
20 March 2006 to 30 June 2006	223,000	503,500
1 July 2006 to 19 September 2006	229,000	509,500

Pensions Assets Test

Rate reduces by $1.50 per $500 of assets in excess of the lower threshold.

Rate of pension is nil when the upper threshold is reached.

Sample rate calculations

If Mr Spasich’s T property was valued at $350,000 as at 29 March 2005, his rate of age pension after taking into account his other assets of $22,888 would be around $399 per fortnight.

If his T property was valued at $450,000 as at 29 March 2005, his rate of age pension after taking into account his other assets of $22,888 would be around $99 per fortnight.

22.     Mr and Mrs Spasich’s age pensions were re-granted from 19 April 2006 when the T property was re-valued at $450,000. Their rate of age pension was $31.60 each per fortnight. With the increase in the thresholds from 1 July 2006, their current rate of age pension is $41.35 per fortnight.

what was the value of the property in March 2005?

23.     Mr Spasich stated that he considered the correct value of the T property was around $450,000 in 2005 as it was in the following year.  The house had not been renovated and was less valuable than some of the properties to which it had been compared. The respondent submitted that the AVO historical valuation of $490,000 should be preferred. Mr Spasich has not presented any professional valuation to the tribunal and Centrelink made considerable efforts to investigate Mr Spasich’s claims. Not only did Centrelink obtain further valuations from the AVO but it made enquiries of Mr Spasich’s former selling agent. As set out above, the agent thought, on 1 August 2005, that Mr Spasich would have to reduce the price to $465,000 and be prepared to accept offers around the mid $400,000s.

24.     In ReWoodhouse and Secretary Department of Social Security (1987) 12 ALD 474, the tribunal considered the principles to be followed in the valuation of property for the purposes of the Social Security Act 1947 (Cth), the Act in force at that time. At paragraph 30, the tribunal said:

This Tribunal adopts the principles of valuation stated by the court in both Spencer's  case [Spencer v Commonwealth of Australia (1907) 5 CLR 418] and R v Brown, supra, [R v Brown (1867) 2 LRQB 630] as being appropriate in obtaining the market value of property for the purposes of the Act: see Re Reynolds, supra.  In particular, both cases are authority for the propositions that in assessing market value one must both ascertain the highest and best use of the property and assess the price that a desirous buyer would pay to a willing but not anxious seller to purchase the property (emphasis added).

25.     The AVO valuation is independent and took into account the highest and best use of the property, particularly its redevelopment potential, as well as supporting its assessment by reference to sales of comparable properties in the area. In comparison, the estate agent’s opinion is unsupported although he no doubt has suitable experience to support his written opinion. In addition, the agent’s opinion was proffered in August 2005, which is some 5 months after the March valuation. After considering the evidence available to me I prefer the $490,000 valuation of the AVO as it has occurred after a considerable review and exploration and accords with the demonstrated gradual fall in expectations of value. This gradual change is further supported by Mr Spasich’s own more hopeful price expectations on 15 April 2005 when the property was on the market for $549,000, and later reduced to $519,000.

26.     I find, therefore, that the AVO valuation of $490,000 reflects the market value of the T property in March 2005.  This means that the value of the Mr and Mrs Spasich’s combined assets exceeded the $485,000, which was the upper limit for the couple to be eligible for the receipt of an age pension.  Therefore, the couple was not eligible to receive an age pension in March 2005 and the decision to cancel the pension payments at that time is correct. I note that, even if the property were correctly valued at $450,000, which is accepted as the preset value, the combined assets would have been approximately $477,000 and their pension entitlement would still have been minimal. There is no evidence to suggest that the property was worth less than $450,000 in March 2005 even though Mr Spasich gave evidence that he would now, in 2006, accept less. This simply reflects hindsight and perceptions of a continuing fall in property values.

is there a charge or encumbrance over the assets?

27.     Mr Spasich argued that his and his wife’s assets value should be reduced by the amount of the advances made to them by their sons for living expenses. Mr Spasich gave evidence that the loan from their sons amounted to $50,000 in March 2005 and had continued to grow. He did not provide anything further to support this evidence. He did not call his sons or produce any documentation other than household bills mentioned above. I accept that these bills tend to support his contention that he and his wife incurred considerable living expenses which they would have had difficulty paying when they had no pension income. However, even if I accept that his sons stepped in and took care of these expenses, there is no evidence before me, apart from Mr Spasich’s claims, that these funds were provided by way of loan. Further, and more importantly, there is nothing to show that the alleged loan is secured by way of charge or encumbrance over the assets of Mr Spasich.   No charge or encumbrance has been notified in any way at the relevant time, back in March 2005. There is no mortgage or caveat over the real estate properties. There is no document acknowledging any loan from the couple’s sons or debt on the part of the couple, apart from Mr Spasich’s assertion after the pension was cancelled.

28.     Section 1121(1) of the Act governs when the value of assets may be reduced. It provides that, if there is a charge or encumbrance over a “particular asset”, the value of the asset may be reduced by the encumbrance.  The asset Mr Spasich argues should be affected by an encumbrance is the T property. The bills Mr Spasich has produced as evidence of his debt to his sons refer to both the jointly owned house and the T property. This means that, as well as lack of documentation or any supporting evidence of an encumbrance over the T property, the bills do not indicate why this property should bear such a burden rather than the jointly owned house. I further note that the debt has arisen well past the date of purchase of the T property and that the preferred policy of Centrelink is to take into account encumbrances and charges that arose in connection with the purchase. It follows that I cannot see any good reason to reduce the value of the couple’s assets.

DECISION

29.     The decision of the SSAT is affirmed.

I certify that the   preceding paragraphs are a true copy of the reasons for the decision herein of  

Signed:         .....................................................................................
  Rhonda Pietrini        Associate

Date/s of Hearing  22 August 2006
Date of Decision  6 October 2006        
Solicitor for the Applicant  N/A; Self-Represented Applicant
Representative for the Respondent          Susan Mantaring