Taylor and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs

[2009] AATA 852

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2009] AATA 852

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2009/0813

GENERAL ADMINISTRATIVE  DIVISION		)
Re		RON TAYLOR

Applicant

And SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS

Respondent

DECISION

Tribunal Mr B H Pascoe, Senior Member

Date5 November 2009

PlaceMelbourne

Decision The Tribunal affirms the decision under review.

(sgd) B H Pascoe

Senior Member

SOCIAL SECURITY - money lent to son - loan irrecoverable - asset includes amount unpaid - no basis for disregarding as irrecoverable

Social Security Act 1991 ss 1084, 1122, 1129

Social Security and Veterans’ Affairs (Miscellaneous Amendments) Act 1986

Social Security Act 1947 s 6AA(11)

REASONS FOR DECISION

5 November 2009 Mr B H Pascoe, Senior Member  

1.      This is an application to review a decision of the Social Security Appeals Tribunal (SSAT) of 11 August 2008 which affirmed a prior decision of the respondent to include as an asset of the applicant a loan of $236,000.00 and apply the income test deeming rules.

2.      At the hearing, the applicant, Mr R Taylor, was unrepresented.  The respondent was represented by Mr A Carson, a legal services officer with Centrelink.

3.      The facts in this matter were not in dispute and are set out in detail in the decision of the SSAT.  Briefly they can be stated as Mr Taylor advanced by way of loan the sum of $266,000.00 to his son and daughter in law under a loan agreement of 27 September 2004.  The funds were used in the acquisition of a hotel business and lease.  The business failed and the lease was surrendered on 2 October 2007 for a consideration of $35,000.00.  The evidence of Mr Taylor which was accepted by the SSAT and this Tribunal was that the whole of the $35,000.00 was used to pay creditors of the business.  The son and daughter in law have separated and the son now works part time and still has some remaining creditors.  Between September 2004 and May 2007, Mr Taylor had reduced the loan to $236,000.00 by three gifts of $10,000.00.

4.      The SSAT and this Tribunal accepted the evidence of Mr Taylor that the loan is irrecoverable and it is most unlikely that the son or daughter in law will ever be in a position to make any payments at all.  Mr Taylor has a current income of approximately $10,000.00 per annum of which $5,000.00 will cease by July 2010.  His sole remaining assets are 2000 shares in Telstra Corporation Ltd currently valued at approximately $6,300.00 and a whole of life insurance policy which will pay $20,000.00 on maturity and with a current surrender value of approximately $14,000.00.

5. The major difficulty for Mr Taylor is section 1122 of the Social Security Act 1991 (the Act) which provides:

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.

This provision was originally inserted in 1986 as sub-section 6AA(11) of the then Act and then adopted as section 1122 in the 1991 Act. In the Explanatory Memorandum to the 1986 amendment it was simply stated that This rule would simplify the valuation of such an asset, and avoid the need to obtain an actuarial assessment of value.  Prior to October 1986 it was possible to value a loan below its face value either on an actuarial assessment or having regard to the likely recovery amount. Several decisions of this Tribunal since 1986 have reinforced the view that section 1122 requires the face value of any loan to be included as an asset with no consideration of recoverability.

6. It was said for the respondent that, for the loan to cease being an asset, Mr Taylor would need to take legal action against his son and petition for bankruptcy. It was said that the loan would then cease to exist. Not unnaturally, Mr Taylor is opposed to initiating such a course of action against his own son and, in addition, incur legal expenses which he can ill afford in relation to a loan which is clearly irrecoverable. It might be said that a straight reading of section 1122 could indicate that any such action would not produce the result sought. In its plain words the section requires the unpaid amount of any money lent to be included as an asset whether or not the lender has any legal right to seek repayment. Nowhere does the section refer to a loan or to an amount being an asset as such.

7. The only sections of the Act which would allow the loan to be disregarded are sections 1084 and 1129. Section 1084 allows the Minister to determine that a specified financial investment which is an unrealisable asset for the purposes of section 1129 is not to be regarded as a financial asset for the purposes of the income deeming rules. At the suggestion of the SSAT, Mr Taylor applied to the Minister but was unsuccessful. Section 1129 allows an asset to be disregarded for the purposes of the asset test if that asset is unrealisable and the person would suffer severe financial hardship if it is not disregarded. The person must lodge an application in an approved form for this section to apply.

8. The Guide to Social Security Law (the Guide) defines severe financial hardship as having a total income of less than the applicable pension or benefit payment, readily available funds of less than $6,000.00 and the person cannot be reasonably expected to sell or borrow against assets to improve their financial position. While it is clear that the financial position of Mr Taylor is very difficult and the Guide is simply that, a guide not the law, it is necessary for him to lodge a formal request for section 1129 to apply before it can be properly considered. It is noted that section 1129 applies when a person is assessed under the asset test and is not necessarily applicable where it is the income test which is applied where section 1084 can apply only if the Minister so decides. Such a decision is not subject to appeal.

9. There is no doubt in the mind of this Tribunal that the apparent attempt at simplification of the law by section 1122 of the Act produces a decidedly unfair result for Mr Taylor. The so-called asset has little or no value and is incapable of generating an income. Nevertheless the effect of that section and section 1084 is that it must remain as an asset at its unrecovered amount unless he is assessed under the assets test and can demonstrate severe financial hardship.  There appears to be little doubt that, if Mr Taylor is not suffering such hardship now, which is likely, a continuation of bringing this loan to account as an asset will soon produce that result.  It would appear reasonable that this is a matter which should be considered by the legislators.

10. Other than recommending that Mr Taylor lodge the appropriate application under section 1129, the Tribunal appears to have no choice under the legislation as it stands but to affirm the decision under review.

I certify that the ten [10] preceding paragraphs are a true copy of the reasons for the decision herein of  

Mr B H Pascoe, Senior Member

Signed:  Dianne Eva

Clerk

Date of Hearing  26 August 2009
Date of Decision  5 November 2009
Advocate for the Applicant          Self-represented
Solicitor for the Respondent        Mr A Carson, Centrelink Legal Services