Tabain and Secretary, Department of Employment and Workplace Relations

[2006] AATA 616

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2006] AATA 616

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No T2005/180

GENERAL ADMINISTRATIVE  DIVISION		)
Re		GEOFFREY ALEXANDER TABAIN

Applicant

And SECRETARY, DEPARTMENT OF EMPLOYMENT AND WORKPLACE RELATIONS

Respondent

DECISION

Tribunal Ms A F Cunningham (Senior Member)

Date11 July 2006

PlaceHobart

Decision The Tribunal affirms the decision under review and dismisses the appeal.

[Sgd A F Cunningham]

Senior Member

CATCHWORDS

disability support pension - asset and income tests, valuation of shares, whether borrowing costs could be offset against full value of shares - whether interest payments are an allowable deduction in assessing income - deemed income - appeal dismissed

Social Security Act 1991

Repatriation Commission and Harrison (1997) 956 FCA (17 September 1997)

Port and SDFCS (2011) AATA 229

Cowling and Secretary, Department of Social Security (1986) 12 ALD 169

Melbourne and SDSS (1988) 20 FCR 496

Re Eimberts and Repatriation Commission (1998) 16 ALD 19

REASONS FOR DECISION

11 July 2006 Ms A F Cunningham (Senior Member)   

1.      Geoff Tabain has appealed a decision made by the Social Security Appeals Tribunal on 25 November 2005 which determined that the gross value of his share holdings should be taken into account in assessing his entitlement to Disability Support Pension under both the pension income and assets test during the period May to June 2005.  Mr Tabain had taken out a loan to purchase his share holdings and contends that the amount of the loan and the borrowing costs should be offset against the value of the shares and any income derived from the share holdings in the assessment of his pension entitlement. 

2.      Mr Tabain informed the Tribunal that he had received advice from a Centrelink officer prior to the purchase of his share holdings that because he was borrowing the full purchase price, his pension would not be affected.  I advised Mr Tabain that I am obliged to determine the issue of his pension entitlement in accordance with the relevant legislative provisions regardless of what advice he may have been given as to the affect of his share purchase from a Centrelink officer.  Mr Tabain has pursued the issue of compensation arising from his claim of incorrect advice in another forum.

3.      The issues for determination in this appeal are as follows:

Firstly, whether the full value of Mr Tabain’s share portfolio is to be assessed       or whether the value should be offset against the loan taken out to purchase     the shares.

Secondly, whether the shares should be deemed to earn income at their full         value at the rate of 3% up to $31,000 and 5% for the balance.

Thirdly, whether the interest payments on the loan are an allowable            deduction.

4.      The following facts were not in dispute and the Tribunal finds accordingly.

1.    Mr Tabain has been in receipt of disability support pension since 1990.

2.    Mr Tabain purchased a portfolio of shares with a loan which was secured against his home.  He advised Centrelink of his share purchase on or around 31 May 2005.

3.    On 31 May 2005 a Centrelink officer decided that income should be deemed on the value of Mr Tabain’s shares, being $92,200.00 and reduced his DSP by $28.00 each fortnight.

4.    The Centrelink officer’s decision was affirmed on 21 June 2005.   An Authorised Review Officer (ARO) reviewed and affirmed the decision. 

5.    The Social Security Appeals Tribunal varied the decision under review by determining that the gross value of Mr Tabain’s share holding was to be taken into account in assessing his entitlement to DSP under both the pension income and asset test during the period May to June 2005.

Asset Valuation

5.      The relevant legislation is the Social Security Act 1991 (the Act). The amount of disability support pension payable is calculated pursuant to the provisions of Part 3.2 – Pension Rate Calculator A and in particular the provisions of s1064. The method of calculating the rate is contained in Module A which is the Overall Rate Calculation Process. Module G sets out the process for determining the effect of a person’s assets on their maximum payment rate. Step 1 requires a calculation of the value of the persons assets. Under section 11(1) “asset” means property or money (including property or money outside Australia).

6.      The term “property” is not defined in the Act.  The Courts and the Tribunal have adopted a broad approach to the meaning of the term.  In Melbourne and SDSS (1988) 20 FCR 496 Northrop J found that moneys belonging to the applicant invested in a common fund in the name of the Senior Master of the Supreme Court still had the character of ‘property’ which includes both physical things and proprietary rights. In Eimberts and Repatriation Commission (1988) 16 ALD 19 the Tribunal said that:

“It is clear that Parliament intended property to be considered in its most comprehensive sense to include real and personal property.  By itself, property must be taken to include all debts, shares and other things of a personal nature as well as the rights normally associated with ownership of such things”.

7.      The Tribunal in Re Cowling and Secretary, Department of Social Security (1986) 12 ALD 169 had no hesitation in concluding that the applicants’ shares constituted property within the meaning of the Social Security Act. In its assessment of an entitlement to the age pension, the Tribunal in Re Cowling and SDSS rejected an argument that the applicants’ shares should be valued at their nominal or face value rather than their market value.  The Tribunal stated that to do otherwise would produce great anomalies within the Act which does not distinguish between real or personal property.  In the Tribunal’s view all property should be treated in the same way for the purposes of valuations.  The Tribunal commented that it would be a nonsense for land to be valued at its purchase price or its unimproved value or at its value at the time when it first came into the hands of the pensioner.

8.        In Repatriation Commission and Harrison (1997) FCA 956 the respondent had argued that a nil value should be attributed to his shares for if they were sold on a winding-up basis, they would receive nothing because of the debts owed to the company. The Federal Court however stated that “... s41-Fl is concerned with the value of the shares and not with the ultimate financial effect which would result, as a practical matter, if the value of the shares were realised by the respondent”.

9.        The Tribunal was also referred to the relevant provisions in the Social Security Guide for valuation of assets.   At 4.6.6.10 it is stated:

“Valuing assets

Assets are generally assessed at their net marked value (1.1.M.35).  The net market value is the amount you would expect to receive if you sold the asset on the open market, less any valid debts or encumbrances (1.1.E.105).

If the asset is owned with another person, the asset value for a customer is determined using their proportion of their interest (1.1.1.185) in the asset”.

10.      The only provision in the Act allowing for the reduction in an asset’s value is section 1121(1) which states.   

“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), it to be reduced by the value of that charge or encumbrance”.

Sub-section (3) however states that:

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

Those principle assets include a person’s principal home.

11.     The shares owned by Mr Tabain were not subject to a charge or encumbrance as the loan taken out to purchase the shares was secured over Mr Tabain’s home.  The effect of the provisions of subsection 1121(3) and section 1118 is that the loan cannot be deducted from the value of the shares as it is secured over Mr Tabain’s principle home.

12.      For these reasons the Tribunal affirms the decision of the Social Security Appeals Tribunal which determined that the amount of the loan cannot be offset against the value of the shares because firstly the loan was not unsecured and secondly because the offsetting mechanism does not apply to a charge or encumbrance over a person’s principle home.  Accordingly the gross value of Mr Tabain’s shares should be assessed for the period of time that he owned them for the purposes of assessing his correct rate of DSP.

Assessment of Deemed Income  on the Shares

13.      The provisions of section 1077 of the Act relate to deemed income from financial assets for members of pensioner couples.   A “financial asset” is defined in section 9(1) as including a financial investment.  A “financial investment” means:  (a) available money;  or  (b) deposit money;  or (c) a managed investment; or (d)          a listed security;  or (e)       a loan that has not been repaid in full;  or (f) an unlisted public security;  or (g) gold, silver or platinum or bullion;  or (h)    an asset-tested income stream (short term).  A “listed security” means a share in a company or another security listed on a stock exchange. 

14       The evidence before the Tribunal was that Mr Tabain’s shares are all comprised of shares of companies that are listed on the Australian Stock Exchange and therefore constitute financial investments within the meaning of the Act.

15.      Section 1077(1), in conjunction with sections 108(1) and 108(2) which relate to deeming thresholds, has the affect of deeming income on financial assets owned by one or both members of a couple at the deeming rate determined by the Minister.  The Tribunal accepts the rates as advised for 2005 being 3% for below the threshold rate and 5% above the threshold rate.

16.      The question is whether any deduction should be allowed for the interest costs incurred on the loan to purchase the shares.

17.      The provisions of section 1121(1) state that where there is a charge or encumbrance over a particular asset the value of the asset for the purposes of calculating the value of the persons 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.  As outlined above, Mr Tabain’s shares were not subject to a charge or encumbrance and further this provision states that it does not apply to Division 1B of Part 3.10 which are the income deeming provisions in the Act.   There is no other provision in the Act which will allow any reduction against the deemed income from the shares by way of interest set-off as sought by Mr Tabain. 

18.      The Tribunal was referred to the decision in Port and SDFCS (2001) AATA 229 which concerned the implementation of the provisions of section 1075 “Permissible Reductions of Business Income”. In that case the Tribunal affirmed a decision to deem income from Mr Port’s share investments without allowing a deduction for borrowing costs for the purpose of the income test for Newstart Allowance. The applicant was engaged in the business of buying and selling shares but Deputy President Estcourt determined that the provisions of section 1075(2) did not permit his income to be reduced by the expenses incurred for the purposes of assessing his ordinary income.

19.      The relevant sections of the Guide to the Social Security Law were tendered in evidence.  They support the decision that Mr Tabain’s share portfolio should be assessed at its face value for the purposes of the assets test and that a deemed income should be assessed on the full value of the share portfolio without any reductions.

20.      Mr Tabain has been unable to point to any relevant legislative provisions which would allow a reduction of the full value of his share portfolio for the amount of his borrowings or the interest costs incurred.  For the above reasons, the Tribunal affirms the decision under review and dismisses the appeal.

I certify that the 20 preceding paragraphs are a true copy of the reasons for the decision herein of Ms A F Cunningham (Senior Member)

Signed:  R Hunt (Administrative Assistant)

Date/s of Hearing  22 June 2006
Date of Decision  11 July 2006
Counsel for the Applicant         Applicant appeared on his own behalf
Counsel for the Respondent     Mr Brian Sparkes
Solicitor for the Respondent     Centrelink Legal Services