Tattam and Secretary, Department of Health (Social services second review)
[2021] AATA 625
•24 March 2021
Tattam and Secretary, Department of Health (Social services second review) [2021] AATA 625 (24 March 2021)
Division:GENERAL DIVISION
File Number: 2020/1241
Re:Ada Tattam
APPLICANT
AndSecretary, Department of Health
RESPONDENT
DECISION
Tribunal:Senior Member P J Clauson AM
Date:24 March 2021
Place:Brisbane
The reviewable decision is affirmed.
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Senior Member P J Clauson AM
CATCHWORDS
SOCIAL SECURITY – aged care support – permanent residential aged care – financial hardship assistance – asset test – value of assets – whether finance loan is an unrealisable asset – where loan was granted for benefit of family – where loan used to support family property – decision affirmed
LEGISLATION
Aged Care Act 1997 (Cth)
Social Security Act 1991 (Cth)
Subsidy Principles 2014 (Cth)
CASES
Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 24 ALR 577
Greenhill and Secretary, Department of Family and Community Services [2006] AATA 176
Shi v Migration Agents Registration Authority (2008) 235 CLR 286
SECONDARY MATERIALS
Guide to Social Security Law, Department of Social Services, version 1.280.
REASONS FOR DECISION
Senior Member P J Clauson AM
24 March 2021
BACKGROUND
The Applicant has filed an application for review of a decision of the Department of Health (’Respondent’) to reject her claim for permanent residential aged care (’the Claim’). The Claim was signed on 13 May 2018.[1] The Applicant then further filed for a claim for financial hardship assistance which was signed on 5 June 2019.[2]
[1] Exhibit 1, T Documents, T7, page 89.
[2] Exhibit 1, T Documents, T13, page 161; T14, page 163.
The issues in this matter stem from the calculation of the value of the Applicant’s assets and determining whether they exceed the statutory cap for the purposes of this particular assistance.
The Claim was refused on the basis that the Applicant’s total realisable assets exceeded this cap. Central to this finding was that a $150,000 Vendor Finance Loan (‘the Loan’) that the Applicant gave to her son was a realisable asset within the meaning of the relevant law.[3] If the Loan is not a realisable asset, then it follows that the Applicant would qualify for the Claim. Therefore, the sole issue for the Tribunal to determine is whether the Loan is a realisable asset.
[3] Exhibit 1, T Documents, T14, page 163.
LEGISLATIVE FRAMEWORK
The legislation relevant to this matter is the Aged Care Act 1997 (Cth) (‘the Act’) along with the Aged Care Subsidy Principles 2014 (Cth) (‘the Subsidy Principles’),[4] a registered instrument under the Act. These can be read in conjunction with the Respondent’s policy found in the Social Security Guide (‘SS Guide’),[5] which, to the extent that there are no reasons to depart from it, should be followed.[6]
[4] Commonwealth of Australia, Subsidy Principles 2014, No F2020L01183, 1 October 2020.
[5] Guide to Social Security Law, Department of Social Services, version 1.280.
[6] Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634, 645 (Brennan J).
As a starting point, the Department sets asset value thresholds based on the consumer price index. At the time of the Claim, the relevant asset threshold that applied to the Applicant was $36,121.80. The inherent nature of the Claim means that the Applicant must be able to satisfy the Tribunal that she was below the asset threshold as at the date of claim. Therefore, any calculation of assets must be done with reference to this figure.[7]
[7] Shi v Migration Agents Registration Authority (2008) 235 CLR 286, 300 (Kirby J).
The relevant provisions of the Act are set out below:
44-26A the Value of a person’s assets
1Subject to this section, the value of a person’s assets for the purposes of section 44-22 is to be worked out in accordance with the Subsidy Principles…
[Note: section 44-22 provides a lengthy formula for determining a person’s means tested amount and income tested amount].
44-31 Determining Cases of Financial Hardship
1The Secretary may, in accordance with the Subsidy Principles, determine that the care recipient is eligible for a hardship supplement if the Secretary is satisfied that paying a daily amount of resident fees of more than the amount specified in the determination would cause the care recipient financial hardship.
2In deciding whether to make a determination under this section, and in determining the specified amount, the Secretary must have regard to the matters (if any) specified in the Subsidy Principles. The specified amount may be nil.
Those provisions refer, in turn, to the Principles, which relevantly state:
Subsidy Principle – s60 Eligibility for Hardship Supplement
1For subsection 44‑31(2) of the Act, this section sets out the matters the Secretary must have regard to in deciding whether to determine that a care recipient is eligible for a hardship supplement.
2The Secretary must not determine that a care recipient is eligible for a hardship supplement if:
(a)the care recipient’s means have not been assessed in accordance with the Act; or
(b)the value of the care recipient’s assets (worked out under section 44‑26A of the Act and section 47 of these principles) is more than 1.5 times the sum of the annual amount of the following (worked out under the Social Security Act):
(i) the basic age pension amount;
(ii) the pension supplement amount;
(iii) the clean energy supplement amount; or
(c)the care recipient has gifted:
(i) more than $10 000 in the previous 12 months; or
(ii) more than $30 000 in the previous 5 years.
…
3For paragraph (2)(b), in determining the value of the care recipient’s assets for this section, unrealisable assets are not to be included.
…
4In deciding whether to determine that a care recipient is eligible for a hardship supplement, the Secretary may have regard to the following matters:
(a)the care recipient’s total assessable income (worked out under section 44‑24 of the Act and section 41 of these principles);
(b)whether the amount of income available to the care recipient after expenditure on essential expenses is less than 15% of the basic age pension amount;
(c)the financial arrangements of the care recipient;
(d)the care recipient’s entitlement to income support:
(i) under the Social Security Act; or
(ii) under the Veterans’ Entitlements Act; or
(iii) from any other source;
(e)whether the care recipient has taken steps to obtain information about his or her entitlement to pension, benefit or other income support payments;
(f)whether the care recipient has access to financial assistance:
(i) under section 1129 of the Social Security Act (relating to access to financial hardship rules for pensions); or
(ii) under the pension loans scheme under Division 4 of Part 3.12 of the Social Security Act; or
(iii) from any other source;
(g)whether any income of the care recipient is income that he or she does not reasonably have access to;
(h)whether there is a charge on the care recipient’s income over which the payment of resident fees cannot practically take precedence;
(i)whether the care recipient is in Australia on a temporary basis;
(j)any other matters the Secretary considers relevant
The Subsidy Principles define an unrealisable asset by way of reference to sections 11(12) and 11(13) of the Social Security Act 1991 (Cth) (‘SS Act’).[8] Here, the text reads:
[8] Subsidy Principles 2014 (Cth), s 4.
12An asset of a person is an unrealisable asset if:
(a)the person cannot sell or realise the assets; and
(b)the person cannot use the asset as a security for borrowing.
13For the purposes of the application of this Act to social security pension (other than a pension PP (single)), an asset of a person is also an unrealisable asset if:
(a)the person could not reasonably be expected to sell or realise the asset; and
(b)the person could not reasonably be expected to use the asset as a security for borrowing.
Relevantly, section 1122 of the SS Act also provides:
1122If 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.
The Department provides further assistance in the how the Secretary generally understands the provisions of the Act and the SS Act. The SS Guide outlines circumstances in which it is unreasonable to sell or borrow against an asset, which include:[9]
The asset is a farm and a family member is working the farm to capacity and has been working the farm for at least 10 years (a slightly shorter period can be accepted if the family member has worked the property continuously since leaving school) and the farm is the main source of the family member’s livelihood (see explanation and example), or
The asset is a farm or some other business and there is a temporary but substantial reduction in income from the business due to factors outside the pensioner’s control, or
The asset is a house occupied by a near relative and the near relative has lived in the house for at least 10 years or the near relative has previously provided care for the pensioner in the house (which was formerly the pensioner’s home) or the near relative is a handicapped child of the pensioner and the pensioner is providing the house to promote the child’s independent living or the near relative has dependent children and the family income of the near relative does not exceed FTB income ceiling.
EXCEPTION: in the 2 situations above a period of less than 20 years is accepted if there are unforeseen circumstances, e.g. a couple purchase a farm and then one partner died. Accept that the surviving partner has a long-term attachment to the property even though they may not have lived there for 20 years.
[9] SS Guide, [4.6.7.50].
The Tribunal notes that this rule is guiding only but should be followed unless there is reason to depart from it.
ISSUE
The Tribunal is required to assess whether the Applicant’s realisable assets amount to more than $35,396.40.
EVIDENCE
Respondent’s Contentions
At the outset, the Respondent conceded the following assets were not realisable:[10]
(a)the Applicant’s share of 50% in her property located near the town of St George; and
(b)farming business assets with a value of $18,857.
[10] Exhibit 2, Respondent’s Statement of Facts, Issues and Contentions, [21].
The Respondent contends that the Loan settled between the Applicant to her son,
Mr Hector Tattam, on 18 September 2015 constitutes a realisable asset. The Loan in question constitutes part of a sale of land agreement to the following effect: [11]
Term – the principal sum [$300,000] shall be repaid as follows:
An amount of $150,000.00 shall be repaid in twelve (12) years from the date of settlement as set out in clause 27.1.1.2;
The balance of the principal sum shall be repaid by way of annual instalments of $16,666.66 per annum commencing three (3) years from the date of completion of this Contract…
[11] Exhibit 5, Contract of Sale between Applicant and Hector Tattam, [27.1.1].
The Applicant retained a 50% stake in this property, selling the other half to her son by way of the above quoted instrument. The Respondent contends that as the Loan is subject to a repayment schedule and secured by way of mortgage over the property in question, it is a realisable asset.
The Applicant’s Contentions
In her reply to the Respondent’s Statement of Facts, Issues and Contentions,[12] the Applicant contended that her liquid assets amounted to less than $10,000 and her realisable assets amount to less than $36,121.80. She asserts that the Loan is not a realisable asset because:
(a)the Loan relates to a family farming property;
(b)the Loan was initiated by a desire to keep a family farming property in the family;
(c)the intention of the Guide is to enable family to retain familial property, “especially where a family member is working the farm to capacity as their major source of income”; and
(d)the Loan cannot be converted into cash to pay the Applicant’s expenses.
[12] Exhibit 3, Applicant’s Submissions in Reply.
The Applicant further submits that as the property is jointly owned as not as tenancy in common, the Loan cannot be used as a security for borrowing due to the fact that the underlying asset (the property) cannot be entirely disposed of. She further observes that the contract for the sale of the land prevents the imposition of repayment terms more onerous than those imposed by the contract and that laxing repayment terms can be allowed at the Applicant’s discretion depending on “weather and market conditions”.[13] The thrust of the Applicant’s argument seems to be that the law firstly restrains the Applicant from accelerating the Loan repayment schedule and then secondly, the purpose of the legislation is not to compel the sale of the assets underpinning the Loan. Therefore, using a point in time analysis, the Loan is effectively unrealisable to the extent it cannot be used to cover the Applicant’s immediate living expenses.
[13] Exhibit 5, Contract of Sale Between Applicant and Hector Tattam, [27.1.3].
THE HEARING
A hearing in this matter was held on 7 October 2020. The Applicant was represented by
Ms Louise Cantwell and Mr Hector Tattam, both of whom provided evidence under affirmation, but the Applicant was excused by consent from appearing. The Respondent was represented by Ms Gehrke from Services Australia.The history of the creation of the mortgage over the property has its genesis in 2015 when the Applicant was the sole owner of the farm. She had come to the point where she had become so indebted to her bank that foreclosure proceedings over the property were imminent.
Mr Tattam purchased a half interest in the farm for the sum of $300,000.00. In order to finance the purchase, he took a vendor mortgage from the Applicant for $150,000.00 and obtained a further loan of $150,000.00 from the Queensland Rural and Industrial Development Authority (“QRIDA”). The purpose of the transaction was to pay off the Applicant’s personal debts of $250,000.00 and to stave off foreclosure by her bankers.
Mr Tattam has continued to work the farm.
The facts above are set out in a supplementary document forming part of the Applicant’s Review Application.[14] This document further outlines that the Applicant’s son could not have concluded the purchase of his half share of the property unless he could raise the balance of the purchase price from other sources, because QRIDA were unable to fund the full purchase price of $300,000.00.[15]
[14] Exhibit 1, T Documents, T1, pages 6-7.
[15] Ibid.
The statement also outlines the Applicant’s hope that Mr Tattam would never have to repay the vendor’s finance Loan of $150,000.00. It is clear that the Applicant did not want to make her son go into substantially more debt than she already had undertaken, because the farm could not support that amount of debt.[16] The facts, however, indicate that Mr Tattam has done exactly that in order to achieve the primary purpose of extracting the Applicant from her financial difficulties.
[16] Exhibit 1, T Documents, T1, page 6.
The Tribunal also notes that Mr Tattam has been repaying the loan to QRIDA since the loan from that organisation was established. The Applicant’s statement advises that the outstanding debt to QRIDA, as at 26 February 2020, stood at $115,000.00 but the estimated farm turnover for 2020 was in the vicinity of between $40,000.00 and $70,000.00 and that this estimate would not cover the farm’s expenses due to the severity of the drought at that time.[17] In addition, the statement asserted that the Applicant’s son and daughter-in-law
(Ms Cantwell) were seeking off-farm employment to help meet the costs of running the farm.[18]
[17] Ibid.
[18] Ibid.
Mr Tattam gave evidence to the Tribunal and confirmed that there was a contract for the sale of a half share in the property by the Applicant to him and that to effect completion of the sale, the Applicant had provided a vendor loan to him of $150,000.00 on or about
18 September 2015.[19] He also accepted that in Clause 27.1.1 of the Contract of Sale document evidencing that Loan, it was agreed that the term of the Loan was to be 12 years and that he would enjoy a three year holiday from any repayments of the Loan from the settlement date and then repayments would commence annually thereafter at an amount of $16,666.66. The first repayment was to be made in October 2018.
[19] Exhibit 2, Respondent’s Statement of Facts, Issues and Contentions, Annexure 3.
Mr Tattam also confirmed that this payment had not been met on the due date in
October 2018. It was confirmed by his wife, Ms Cantwell, that the repayments commenced in October 2019 and had continued to be paid since, but that as at 13 June 2019, the principle debt remained at $150,000.00.[20]
[20] Transcript of Proceedings, 9.
The Contract of Sale witnessing the transaction between the Applicant and her son for the sale of half the property notes at Clause 27.1.1 through to clause 27.1.7 the special arrangements for the mortgage to be put in place following settlement of the sale. These conditions, in addition to those discussed above, contained importantly, a clause at 27.1.3 of the Sale Agreement in the following terms:
27.1.3Variation of Agreement - the Seller shall have the right to extend the term of the Mortgage and vary the instalments depending on either weather or market conditions. Such variations shall be no more onerous than the conditions presently imposed by the Mortgage.[21]
[21] Exhibit 2, Respondent’s Statement of Facts, Issues and Contentions, Annexure 3.
There is before the Tribunal a Title Search dated 14 July 2020 in relation to the subject property which shows that the owners of the property are Ada Tattam and Hector Tattam who hold the property as tenants in common.[22] The search document also reveals that two mortgages are registered over the property. The first of these is to the QRAA on 27 October 2015 over the interests of both the Applicant and her son (the whole of both interests) and the second of these is to Ada Tattam on 17 November 2015 over the interest of Hector Tattam only.[23] This arrangement gives rise to a situation where the institutional lender has security over both the interests in the entire property of Ada and Hector on a joint and several basis and it appears that the Applicant is party to that mortgage as either a joint borrower or a guarantor so as to allow the share to be made subject to that mortgage.
[22] Exhibit 2, Respondent’s Statement of Facts, Issues and Contentions, Attachment 5.
[23] Exhibit 2, Respondent’s Statement of Facts, Issues and Contentions, Annexure 3.
[23] Exhibit 2, Annexure 5, page 27.
The second mortgage from the Applicant, over only the share of her son’s interest in the property, is rated second in priority to the institutional lender’s mortgage. It is obvious that the best interests of both the Applicant and her son are best served, therefore, by ensuring that the QRAA mortgage obligations are met as a commercial and legal necessity. The evidence before the Tribunal is that in the relevant period within which the Applicant seeks hardship assistance, the property was severely drought stricken to the extent that the Applicant’s son and his wife were seeking off-farm employment to subsidise the meeting of the farm’s overheads. It is clear to the Tribunal that the Applicant intended the mortgage to remain flexible to prevent causing her son financial hardship in tough farming conditions.
It is a unique document reflective of the financial rigour that Mr Tattam has had to undergo in order to meet the principle objectives of:
(a)preventing foreclosure by the Applicant’s banker financier over the farm to realise the Applicant’s debt of $250,000.00 to them; and
(b)keeping the farm in production to a sufficient extent, allowing it to pay its debts and to provide an income for himself.
The evidence of the Applicant in the material accompanying her application indicates that Mr Tattam is struggling financially as he and his wife were contemplating off-farm employment to help support the farm (and presumably themselves), but that notwithstanding this circumstance, they did not consider that the mortgage was a failed investment by the Applicant, but that it was an unrealisable asset.[24]
[24] Exhibit 3, Applicant’s Submissions in Reply, Appendix 2, Submissions dated 22 May 2020.
The Applicant’s contention is that the vendor mortgage to her son is unrealisable. She submits that the terms of the contract operate to restrict variation of the contract, except where such variation would not be made more onerous on her son. The Applicant’s contention running off this restriction is that this prevents the Applicant from selling or realising the asset by calling in the Loan before the term of 12 years is expired and she cannot use the asset by way of a security for borrowing.
It is difficult to see how such a conclusion can be drawn. The mortgage (as distinct from the property itself) is a financial asset of the Applicant. It is on foot and, subject to the unique conditions relating to variation in terms, is an asset that can, in theory, be bought and traded, as are other mortgages. Although the mortgage is over Hector’s share in the property and is second in priority to the QRIDA security document, there are no conditional restrictions that the Tribunal can see preventing the Applicant from using the vendor mortgage as security for a loan or other securitisation purpose. The unusual terms unique to it may well be a deterrent to a potential purchaser or lender. However, they do not act as a prohibition upon the Applicant attempting such commercial arrangements if she felt inclined to do so. It is the view of this Tribunal that for such prohibitions to be effective, they should have been enunciated in the original terms of the mortgage as agreed between the parties at the point in time at which the parties entered their contractual relations for the security over the Loan. The Tribunal has also considered the ongoing recognition by the Applicant and her son of the obligations and accommodations by them both as undertaken and exercised by them respectively since the Loan was generated.
Much of the Applicant’s contentions rested on the special status of the property as a farm, for which there is substantial protection afforded under the SS Guide. It is true that farming properties may well be an unrealisable asset if particular conditions are met. Nonetheless, the loan made to Mr Tattam must be considered as a separate asset than that of the farm itself. To conflate the two assets would be to ignore the application of section 1122 of the SS Act.
The evidence of Mr Tattam was that although the first repayment of $16,666.66 was due to be paid in October 2018, he was granted a moratorium on that payment until October 2019. According to Ms Cantwell, his wife, he had otherwise continued to make payments in accordance with the terms of the mortgage.
The Tribunal considers that this is evidence of the terms of the Loan being honoured by the borrower and is in itself indicative of the Loan being realised in favour of the Applicant.
Although the terms of the mortgage for the Loan being uniquely flexible and generous, it is a debt that still requires the borrower to meet his obligations in full within the 12-year term of the Loan. What arrangements for variations are to be made on the way through depends on the negotiations between the parties from time to time. Should the Applicant choose to suspend the obligation to pay some instalments or allow for a lump sum payout at the completion of the Loan period, she will have exercised options available to her under the security. Should a sale of the entire property be considered appropriate, it would be assumed by the Tribunal that, upon settlement, both mortgages would be paid out in the order of priority. Should the Applicant choose so to do, she would be at liberty to deal with the mortgage as she saw fit.
The fact remains that the mortgage is being honoured at this point in broad compliance with its terms and obligations, and thus falls within the concept of a realisable asset, being in general consideration, an asset capable of being converted into cash.
The Tribunal notes the Respondent’s contention that the Loan is neither irrecoverable, nor a failed financial investment within the terms outlined in the matter of Greenhill and Secretary, Department of Family and Community Services as the mortgage was not in a state of such dereliction so as to be deemed worthless.[25] This is a proposition with which the Applicant, in the Statement of Support dated 22 May 2020, agrees.[26]
[25] [2006] AATA 176.
[26] Exhibit 3, Applicant’s Submissions in Reply, Annexure 2.
The Loan may be unusual in its construction, which may be said to accommodate the unpredictable conditions of farming and to allow adjustments of its terms for such purpose. It is constructed to allow the QRIDA debt to be paid in priority when difficult conditions prevail. It is, however, still an ongoing realisable asset in the hands of the Applicant.
The Tribunal has decided that, notwithstanding the construction of the mortgage in its unconventional form, it is a realisable asset and accordingly, the Applicant’s assets exceed the asset threshold applicable to her circumstances. The decision under review has therefore to be affirmed as not to do so would, as contended by the Secretary, be contrary to the intent of the legislation.
It is essential also, that fairness and equity need to be maintained when considering questions of entitlement such as exist in this matter. It would be unfair for a decision-maker to differentiate their decision-making on the basis of the construction of one security document over another on the basis of the operative wording when both documents are serving the same end. Here, the wording in the mortgage provides flexibility for the lender over the course of the Loan. It does not, however, serve to render the mortgage any more unrealisable than a mortgage worded in more conventional terms over the same property for the same term. The purpose of the legislation must therefore be upheld in the interests of fairness to all Applicants in similar circumstances to that of the Applicant in this matter.
The decision is affirmed.
I certify that the preceding 42 (forty -two) paragraphs are a true copy of the reasons for the decision herein of Senior Member P J Clauson AM
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Associate
Dated: 24 March 2021
Date of hearing: 7 October 2020 Advocate for the Applicant: Mr Hector Tattam Solicitor for the Respondent: Ms Gillian Gehrke
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