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

[2020] AATA 1489

Szlasa and Secretary, Department of Social Services (Social services second review) [2020] AATA 1489 (26 May 2020)

Division:GENERAL DIVISION

File Number(s):      2019/6848, 2019/6849  

Re:Andrzej Szlasa

Dorothy Szlasa

APPLICANT

AndSecretary, Department of Social Services

RESPONDENT

DECISION

Tribunal:Deputy President Britten-Jones

Date:26 May 2020

Place:Adelaide

The decision of the Tribunal is to affirm the reviewable decisions.

...............[Sgnd].............................

Deputy President Britten-Jones

CATCHWORDS

SOCIAL SECURITY – claim for carer payment – claim for age pension – calculating the value of assets - whether the maximum asset limit is exceeded – where the principal place of residence is mortgaged for the purpose of acquiring investment properties – where the principal place of residence is disregarded in calculating the value of assets – whether the value of the assets should be reduced by the amount owing on the mortgage – interpretation of subsection 1121(3) of the Social Security Act 1991 – decisions under review affirmed

LEGISLATION

Social Security Act 1991, ss1118 and 1121

CASES

Pavilupillai and Secretary, Department of Employment and Workplace Relations [2007] AATA 1906

REASONS FOR DECISION

Deputy President Britten-Jones

26 May 2020

1. This case concerns the value of the assets of the applicants which are taken into account upon a claim for a carer payment by Mrs Szlasa and a claim for the age pension by Mr Szlasa.

2. The value of the assets of the applicants is not in dispute, nor is the fact that their principal residence is not to be taken into account when determining the value of their assets for the purpose of determining whether they exceed the maximum asset limit. The issue in contention relates to two mortgages over the principal residence, which were entered into at or around the time that the applicants purchased two investment properties. If the value of the agreed assets is reduced by the amount owing on the mortgages, then the applicants would not exceed the maximum asset limit with respect to the carer payment and the age pension.

3. I have considered the relevant legislation in the Social Security Act 1991 (the Act) and, for the reasons that follow, I find that the value of the applicants’ assets are not to be reduced by the amount owing on the mortgages because they are both secured over the principal residence of the applicants.

   Decisions under Review

4. The decisions under review are the decisions of the Administrative Appeals Tribunal (Social Services and Child Support Division) (AAT 1) dated 16 September 2019. These decisions affirmed earlier decisions of the Department of Human Services to reject a claim for:

   (a)carer payment lodged by Mrs Szlasa on 24 July 2018 due to her exceeding the maximum asset limit for the payment of carer payment; and

   (b)age pension lodged on behalf of Mr Szlasa on 26 October 2018 due to him exceeding the maximum asset limit for the payment of age pension.

   Legislation

5. The relevant legislation is ss 1118 and 1121 of the Act, which are set out below:

   1118 Certain assets to be disregarded in calculating the value of a person's assets

   (1)  In calculating the value of a person's assets for the purposes of this Act other than sections 198F to 198MA (inclusive), Division 1B of Part 3.10, Division 2 and sections 1133 and 1135A), disregard the following:

   …

   (b)if the person is a member of a couple--the value of any right or interest of the person in one residence that is the principal home of the person, of the person's partner or of both of them that is a right or interest that gives the person or the person's partner reasonable security of tenure in the home;

   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.

   …

   (3)  Subsection (1) does not apply to a charge or encumbrance over assets that are to be disregarded under section 1118.

6. The respondent has provided numerous cases from the Tribunal in support of their case. I mention only the case of Pavilupillai and Secretary, Department of Employment and Workplace Relations [2007] AATA 1906, which refers to other relevant cases. Those cases are consistent with the position that I have adopted.

   Evidence

7. Mrs Szlasa gave oral evidence and presented some written submissions.  Her husband suffered a stroke in 2017 and has been unwell so he did not give evidence.  Before the stroke, she had limited involvement with the couple’s financial affairs which were mainly handled by the husband.  The case proceeded primarily on the documents lodged under s 37 (the T documents) which were not in dispute.

   Consideration

8. It is not in dispute that the combined assets of the applicants in 2018 (excluding the value of the principal residence) were $974,356.  Those assets included commercial properties at Grenfell Street and Torrens Road.  Mrs Szlasa explained to the Tribunal that in order to borrow money to purchase those properties, the bank required mortgages over their principal residence.  The evidence does not disclose that there was a mortgage over the properties at Grenfell Street and Torrens Road. The total amount owed on the mortgages at the relevant time was approximately $700,000.  This equates to the value of the principal residence, which was given by Mr Szlasa as $700,000.[1]

   [1] T11 p 213.

9. It would appear that the interest on the mortgages has, for taxation purposes, been set off against the rental return from the commercial properties of the applicants, and it is the contention of the applicants that it would be inconsistent to not allow the amount owing on the mortgages to be offset against the assets of the applicants for the purpose of determining whether the maximum asset limit has been exceeded. It may well be that the interest on the debts can be offset against any revenue generated by the commercial assets, but the issue before the Tribunal requires consideration of the relevant provisions of the Act.

10. The applicants rely on s 1121(1), which has the effect that any charge over a particular asset reduces the value of the asset by the value of the charge. The applicants contended that the mortgage amounts of approximately $700,000 should accordingly reduce the value of their assets for the purpose of determining the maximum asset limit. However, s 1121(3) provides for an exception and says that subsection (1) does not apply to a charge over assets that are to be disregarded under s 1118. In this case, the asset that is to be disregarded under s 1118 is the principal place of residence being a property in Halifax Street.  The problem for the applicants is that s 1121(3) excludes from consideration the mortgages that are secured by the principal residence.  The amount owed on those mortgages of $700,000 cannot be used to reduce the value of the assets of the applicants for the purpose of determining the maximum asset limit.

11. I accept that this outcome is not immediately apparent from a reading of the legislation.  It is clear that s 1118 operates to exclude the value of the principal residence from the required calculation.  However, the operation of s 1121 is not so clear.  Subsection 1121(1) provides that if there is a charge over a particular asset of the person, the value of the asset is to be reduced by the value of that charge (when carrying out the required calculation).  Subsection 1121(3) provides that subsection (1) does not apply to a charge over assets that are to be disregarded under s 1118.  In this case, the only asset disregarded under s 1118 is the principal residence.  It follows that subsection 1121(1) does not apply to the mortgages over the principal residence.  This means   that the value of the ‘mortgaged’ asset (namely the principal residence), for the purposes of the required calculation, is not to be reduced by the value of the charge.  Two questions arise from that.

12. First is a question as to the value of the charge.  If the mortgaged property was only valued at $500,000 then it could be argued that the value of the mortgage is only $500,000 and not the $700,000 which is owing under the mortgage.  That is an issue that I do not need to consider on these facts because the principal residence happens to be valued at $700,000, which is the same amount as is owing under the mortgages.  In this case, it is clear that the value of the mortgage is $700,000.  That means that the value of the principal asset is not to be reduced by $700,000. 

13. Second, where, as in this case, the principal asset is already disregarded by operation of s 1118, it seems odd that s 1121(1) refers to reducing the value of that asset.  How does one reduce the value of an asset that is to be disregarded?  This odd outcome is compounded by subsection s 1121(3) which says, in effect, that subsection (1) does not apply to the mortgages over the principal asset which means that subsection (1) does not operate to reduce the value of the particular asset (the principal residence).  To overcome this oddity, s 1121(3) can be interpreted to require that where the principal asset is disregarded by operation of s 1118 then the value of the person’s assets (not just the mortgaged asset) is not to be reduced by the amount of the mortgages – in other words, disregard the mortgage amount.

14. It follows that because the mortgages of $700,000 are secured by the principal residence then, as the value of the principal residence is being disregarded, then so too should the value of the mortgages.  That is the clear intent of the legislation.  The legislation operates to exclude from the required calculation, first, the asset of the principal residence and, second, any liability associated with the principal place of residence.  It is not surprising that the legislation operates in this way because if the applicants, when carrying out the required calculation, are to get the benefit of not having to include the principal place of residence as an asset for the purpose of determining the maximum asset limit then the applicants should not retain the benefit of any corresponding loan secured by that asset. It does not matter, as is the case here, if the mortgage monies were used to purchase other assets which are then included (unfairly from the perspective of the applicants) in the required calculation. 

15. There is no dispute that the purpose of the loans was to acquire the commercial properties, but the loans were not entirely separate from the principal residence because of the mortgages.  If there had been no mortgage over the principal residence, then the exception in s 1121(3) would not have applied and the amount of the loans could have been used to offset the value of the assets.  However, the loans were not structured in that way and therefore the exception applies with respect to the applicants. 

16. I am satisfied that the value of the charge (namely the outstanding mortgage amount of $700,000) does not reduce the value of the applicants’ assets.  The respondent was correct to calculate the value of the applicants’ assets as $974,356.  Consequently, the maximum asset limit for both applicants was exceeded, and their claims were properly rejected.

    Decision of the Tribunal

17. The decision of the Tribunal is to affirm the reviewable decisions.

18.     I certify that the preceding seventeen [17] paragraphs are a true copy of the reasons for the decisions herein of Deputy President Britten-Jones.  

.........[Sgnd]..............................

Administrative Assistant Legal

Dated 26 May 2020   

Dates of hearing:  20 May 2020

Applicant’s Representative:  Self represented

Respondent’s Representative:  Mr C Visser, Australian Government Solicitor