Vakrinos and Secretary, Department of Health (Social services) - [2018] AATA 2669

Vakrinos and Secretary, Department of Health (Social services) [2018] AATA 2669 (7 August 2018)
Division:GENERAL DIVISION
File Number(s): 2017/6382
Re:Mrs Vasiliki Vakrinos
APPLICANT

AndSecretary, Department of Health
RESPONDENT

DECISION
Tribunal:Ms Anna Burke, Member
Date:7 August 2018
Place:Melbourne

The Tribunal affirms the decision under review.
[sgd]........................................................................
Ms Anna Burke, Member
CATCHWORDS - AGED CARE ASSESSMENT – means tested daily fee – whether refundable accommodation deposit is an asset – whether a loan can be used to reduce the value of the assessable asset – decision affirmed
Legislation
Aged Care Act 1997
Social Security Act 1991
Cases
Re Whitby and Secretary, Department of Health [2015] AATA 1026
Re Hughes and Secretary, Department of Health [2017] AATA 2590
Re Berry and Secretary, Department of Social Security (1995) 40 ALD 327
Secondary Materials
Aged Care (Subsidy, Fees and Payments) Determination 2014
Social Security Guide, Department of Social Services
Schedule of Fees and Charges for Residential Home Care: from 1 July 2017
Subsidy Amendment (Flexible Care Subsidy and other Measures) Principles 2016 Subsidy Principles 2014
REASONS FOR DECISION
Ms Anna Burke, Member
7 August 2018

Mrs Vasiliki Vakrinos (the Applicant) entered the Claremont & South Port Aged Care (“CaSPA care”) Emerald Hill Residential Care Home (“Emerald Hill”), originally for respite care, in January 2016. At that time she was expecting to return to the family home. In March 2016 Mrs Vakrinos became a permanent resident at the aged care facility, agreeing to a Refundable Accommodation Deposit (“RAD”) of $475,000 with Emerald Hill.
Mrs Vakrinos could not afford to pay the RAD without selling her home. She had no desire to sell her home then (or now), and subsequently her son, Mr Nick Vakrinos, and daughter, Ms Barbara Vakrinos, agreed to assist her in the form of a loan, with each contributing $195,000 towards the RAD and Mrs Vakrinos contributing $61,250.
On 11 March 2016 and 18 March 2016 Ms Barbara Vakrinos paid $190,000 and $5000 respectively directly to CaSPA care. Subsequently, on 23 October 2016 she entered into a loan agreement with her mother for this amount.
On 15 March 2016 Mr Nick Vakrinos paid $195,000 directly to CaSPA care. Subsequently, on 14 October 2016 he entered into a loan agreement with his mother for this amount.
On entering the nursing home Mrs Vakrinos was assessed as being required to pay a means-tested care fee of $2.86 per day based on the value of her assets, assessed as being $262,106.20, and her net fortnightly income, assessed as $914.16. Included in this calculation was the capped value of $157,987.20 on her home, which she had assessed as being valued at a market value of $1,000,000.
Subsequently, Mrs Vakrinos was advised that her daily fees had increased and a means tested care fee of $19.88 per day would apply from 1 July 2017.
Mrs Vakrinos’ daughter Barbara has sought to appeal this decision of the Department of Human Services to increase her mother’s means-tested care fee as she does not believe the full amount of the RAD should be included in her mother’s asset and income assessment due to the fact that $390,000 is a loan from her and her brother.
ISSUE IN CONTENTION
Whether the calculation of Mrs Vakrinos’ means-tested care fee should be assessed on the basis of her assets including the full value of the RAD or whether the RAD component should be reduced by the value of the loan from her children.
LEGISLATIVE FRAMEWORK
Schedule 1 to the Aged Care Act 1997 (“the Act”) provides definitions for relevant sections of the Act and defines the term refundable accommodation deposits:
"refundable accommodation deposit" means * accommodation payment that:
(a) does not accrue daily; and
(b) is paid as a lump sum.
"refundable deposit" means:
(a) a * refundable accommodation deposit; or
(b) a * refundable accommodation contribution.
"refundable deposit balance" , in relation to a * refundable deposit is, at a particular time, an amount equal to the difference between:
(a) the amount of the refundable deposit; and
(b) any amounts that have been, or are permitted to be, deducted at the time from the refundable deposit under this Act as at that time.
Section 44.26A of the Act determines the value of a person's assets and includes:
(5) If a person has paid a * refundable deposit, the value of the person's assets is taken to include the amount of the * refundable deposit balance.
(6) In working out the value at a particular time of the assets of a person who is or was a * homeowner, disregard the value of a home that, at the time, was occupied by:
(a) the * partner or a * dependent child of the person; or
(b) a carer of the person who:
(i) had occupied the home for the past 2 years; and
(ii) was eligible to receive an * income support payment at the time; or
(c) a * close relation of the person who:
(i) had occupied the home for the past 5 years; and
(ii) was eligible to receive an * income support payment at the time.
(7) In working out the value at a particular time of the assets of a person who is or was a * homeowner, disregard the value of a home to the extent that it exceeded the * maximum home value in force at that time.
The Subsidy Principles 2014 state:
47 Working out care recipient’s means tested amount–value of assets
(1) For subsection 44‑26A(1) of the Act, the value of a person’s assets is the value worked out in accordance with Division 1 of Part 3.12 of the Social Security Act, reduced by any compensation payments received by the person under:
…
(2) However, the following provisions of Division 1 of Part 3.12 of the Social Security Act do not apply for the purposes of working out the person’s assets:
(a) paragraphs 1118(1)(a), (b) and (g), subparagraphs 1118(1)(ga)(ii) and (gb)(ii), paragraphs 1118(1)(u) and (v) and subsection 1118(4) (Certain assets to be disregarded in calculating the value of a person’s assets);
(b) section 1118AB (Value of person’s assets reduced: certain transactions to do with aged care accommodation bonds);
(c) section 1118AC (Value of person’s assets reduced: refunds to charge exempt residents).
(2A) Also, subsection 1121(1) of the Social Security Act does not apply, for the purposes of working out the value of the person’s assets, to a charge or encumbrance over the amount of any refundable deposit balance in respect of a refundable deposit paid by the person.
Section 1121 of the Social Security Act 1991 outlines the effect of a charge or encumbrance on the 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.
The Subsidy Amendment (Flexible Care Subsidy and Other Measures) Principles 2016 of the Minister for Health made 14 October 2016 (“Amending Principles”) provides:
(2A) Also, subsection 1121(1) of the Social Security Act does not apply, for the purposes of working out the value of the person’s assets, to a charge or encumbrance over the amount of any refundable deposit balance in respect of a refundable deposit paid by the person.
The Explanatory Statement to the Amending Principles states:
The amendments related to the first purpose confirm the position that the full value of a refundable accommodation deposit is included as an asset for aged care means testing purposes and is not reduced by any charge or encumbrance over the refundable accommodation deposit.
The “myagedcare” site of the Australian Government provides the following explanation in respect of aged care homes costs:
There are strong protections in place to ensure that care is affordable for everyone. The Australian Government regulates the maximum costs you may have to pay. You will never be denied the care that you need because you cannot afford to pay.
…
Means-tested care fee
This is an additional contribution towards the cost of care that some people may be required to pay. The Department of Human Services will work out if you are required to pay this fee based on an assessment of your income and assets, and will advise you of the amount. Please note that if you are a member of a couple, half of your combined income and assets are considered in determining your means-tested care fee, regardless of which partner earns the income or owns the asset.
There are annual and lifetime caps that apply to the means-tested care fee. Once these caps are reached, you cannot be asked to pay any more means-tested care fees. Any income-tested care fees you have paid in a Home Care Package prior to moving into an aged care home will also contribute to your annual and lifetime caps.
Aged care means test assessments
Information on the governing rules of aged care means test assessments, including deemed income and exemptions, is available on the Department of Human Services website.
Accommodation payments
This is for your accommodation in the home. Some people will have their accommodation costs met in full or in part by the Australian Government, while others will need to pay the accommodation price agreed with the aged care home. The Department of Human Services will advise which applies to you based on an assessment of your income and assets.
Refundable Accommodation Deposit (RAD) – a lump sum payment for accommodation in an aged care home. This is the price of a room, in lump sum form, that residents have agreed with their aged care home to pay. Residents can pay their accommodation price in full by RAD or they can pay via combination of a smaller RAD and Daily Accommodation Payment (DAP) or they can pay in full by DAP.
If the residents and their aged care home agree, the resident can ask their provider to deduct certain amounts from the lump sum they already paid – for example for care fees. The RAD, minus any amounts deducted (as agreed), is refunded when the residents leaves the aged care home.
CONSIDERATION
The representative for Mrs Vakrinos contended that the amount of the RAD should be reduced by the loan from her children as it was an encumbrance over the bond entered into in March 2016; and the legislative change excluding any reduction by any encumbrance over a RAD was not enacted until October 2016.
The representative of Mrs Vakrinos cited Re Whitby and Secretary, Department of Health [2015] AATA 1026 (“Whitby”) as the authority to be relied upon in this matter, where Senior Member Popple decided:
In calculating the value of the applicant’s assets, for the purposes of s 44-26A of the Aged Care Act 1997, the value of the refundable deposit balance in respect of the refundable deposit paid by the applicant to her residential care service provider is to be reduced by the value of the loans obtained to fund the payment of that deposit.
Mrs Vakrinos’ daughter advised the hearing that at the time her mother was entering the nursing home on a permanent basis she was having a great deal of difficulty ascertaining from Centrelink the calculation of her mother’s assets. Centrelink advised that they were awaiting the outcome of legislative changes before they could provide a definitive assessment of the RAD and any reductions associated with loans provided to her mother.
The Secretary submitted that the principles were operative from 15 October 2016 and would apply to Mrs Vakrinos. Therefore, the loan to Mrs Vakrinos would not reduce the value of her RAD for assessment of her assets and referred to the decision of Re Hughes and Secretary Department of Health [2017] AATA 2590, where Senior Member Davies stated:
Having regard to the meaning to be given to the words “charge” or “encumbrance” I do not consider a statement by the Applicant in Section 3 of his Application for Review to this Tribunal that the money for the RAD played [sic] by his son and daughter-in-law “was a loan which I will repay upon the sale of my house” is sufficient to constitute a charge or encumbrance over his house property nor does it meet the requirements of the Property Law Act to create a security interest over his house.
Accordingly for the purposes of section 1121(1) of the Social Security Act I do not consider that the loan for the payment of the RAD constitutes a charge or encumbrance over the Applicant’s principal home so that the value of the asset is to be reduced by the value of the loan.
The next question to be considered is whether the loan is a charge or encumbrance over the amount to the refundable deposit balance in respect of the RAD. Whilst I do not consider the loan is a “charge” or “encumbrance” even it is, the effective subsection 47(2)A of the Subsidy Principles is quite clear, that Section 1121(1) of the Social Security Act does not apply for the purposes of working out the value of the person’s assets to a charge or encumbrance over the amount of any refundable deposit balance.
Accordingly, in the present case, I find that for the purpose of calculating the value of the Applicant’s assets there is no reduction of the value of those assets by the value of the loan of $250,000.00 which was used to pay the RAD on behalf of the applicant.
The Secretary alternatively submitted that the loans from Mrs Vakrinos’ children for the payment of the RAD constituted a charge or encumbrance over her home and not the RAD. The loan agreements entered into by Mrs Vakrinos children states at clause 9:
Charge
(a) as security for payment to the lender of all monies due to the Lender and the performance of all their obligations under this document, the Borrower:
(i) charges to the Lender the Property with the performance of all his obligations under this document including the payment of all monies due to the Lender under this document; and
(ii) acknowledges and agrees that the lender may register or cause to be registered a mortgage or a caveat over the Certificate of Title for the Property to give notice of and secure the performance by the Lender of all its obligations and the payment of all monies due to the Lender under this document (the Mortgage).
The Schedule goes on to state at “ITEM 5”:
The 10^th anniversary of the Commencement Date or on return of the bond held by the Emerald Hill Residential Aged Care Facility
And then at “ITEM 15 (Property)”:
The property located at 55 Crichton Avenue, Port Melbourne, VIC 320. *(Mrs Vakrinos home)
The Secretary therefore submitted that the value of Mrs Vakrinos home was reduced by the amount of the loans and not the RAD. This would in turn not impact the assessment of her assets as the value of her home in accordance with the legislation is disregarded to the extent that it exceeds the maximum home value in force at the time and the determination of the means-tested care fees would remain the same.
Senior Member Popple in Whitby addressed a similar issue:
The Secretary says that his view of the effect of s 1121(3) is supported by the Tribunal's 1995 decision in Berry and Secretary, Department of Social Security.[13] As the Secretary says:
In that case, the Applicant had sought to offset against her assets of $250,000 a loan which was secured against her place of residence which is a disregarded asset for the purposes of section 1118 of the Act. The Tribunal held that the meaning of section 1121(3) of the Act was clear in its meaning such that a charge or encumbrance raised on a disregarded asset is also disregarded as a set-off. While the Tribunal noted that it was "patently unfair" to include borrowed money as an asset but to ignore a corresponding liability because it related to a disregarded asset, it was noted that this issue could only be resolved by legislative amendment.
The patent unfairness that the Tribunal identified, and to which the Secretary refers, is that "the legislation makes no allowance for the situation where a disregarded asset provides the security for a loan of money which is used for a purpose which has absolutely no connection with that disregarded asset".[15] But that is not the case in this review. In Berry, there was an encumbrance over a disregarded asset, the applicant's principal home. In this review, the charge (the loan) is over-to adopt the language of Berry-a non-disregarded asset (the deposit).
The Secretary referred me to several other decisions of the Tribunal which, he says, also support his view of the effect of s 1121(3) in this review. But in those cases the encumbrance or charge was disregarded because the asset was the applicant's home (as in Berry) and was also disregarded,[16] or there was no charge or encumbrance.[17] In none of these cases was the charge or encumbrance over a non-disregarded asset, as in this review.
I think that ss 1121(1) and (3) are intended to ensure that, when calculating the value of a person's assets, the value of a charge or encumbrance over an asset is only subtracted if the value of that asset is added. As the Tribunal put it in Berry:
In the case of non disregarded assets, their value is reduced by the amounts of debts outstanding in terms of any attaching charge or encumbrance. This off-set process arrangement does not extend to disregarded assets.[18]
In this review, the value of the asset (the deposit) is included in the calculation of the value of Mrs Whitby's assets, so the value of the charge (the loan) should be subtracted from it. Section 1121(1) applies to the calculation of Mrs Whitby's assets. Her assets should be valued (in the words of the Tribunal in Berry) "together with any charges or encumbrances attached to any of those particular assets".[19]
The loan agreements clearly identify Mr Nick Vakrinos and Ms Barbara Vakrinos as the lenders and Mrs Vasiliki Vakrinos as the borrower, nominating Mrs Vakrinos’ property in Port Melbourne as security. However, the loan did not indicate the money had been loaned to fund Mrs Vakrinos’ RAD.
The representative for Mrs Vakrinos, and her daughter Barbara, reiterated that Mrs Vakrinos would rather go without food or water than sell her family home. They simply described the situation as unfair, as the loan had been paid to cover the cost of the RAD and for no other purpose. They maintained that Barbara had been given conflicting advice at the time her mother entered aged care permanently and the loan was structured on the best advice given at the time.
CONCLUSION
The Act was amended in October 2016 to provide certainty and remove any patent unfairness, so that “a refundable accommodation deposit is included as an asset for aged care means testing purposes and is not reduced by any charge or encumbrance over the refundable accommodation deposit”.
Mrs Vakrinos’ children directly paid a substantial portion of her RAD in March 2016 and later entered into the loan agreements in October 2016. The Act was amended in October 2016 after the bond had been paid and at the time the loan agreements had been finalised. Therefore, the clarity of the Act was not apparent to Mrs Vakrinos and her children at the time she was entering the nursing home.
However, the Act was amended to provide certainty in its operation, reflecting the intent the RAD could not be reduced by a charge or encumbrance; it was not an introduction or a new provision but a clarification of the Act’s original intent. The Act and subsequent case law indicated that a RAD is included as an asset for age care means testing and cannot be reduced by any charge or encumbrance. Therefore, the full value of the RAD must be considered when assessing Mrs Vakrinos’ assets for the determination of her means tested care fee.
For the reasons outlined above, the Tribunal affirms the decision under review.

I certify that the preceding 28(twenty-eight) paragraphs are a true copy of the reasons for the decision herein of Ms Anna Burke, Member

[sgd]........................................................................

Associate
Dated: 7 August 2018

Date of hearing: 10 May 2018

Advocate for the Applicant:
Mr Graeme Head, LWVR Financial Group

Solicitors for the Respondent:
Mr Tim Noonan, Department of Human Services

Date of hearing:	10 May 2018
Advocate for the Applicant:	Mr Graeme Head, LWVR Financial Group
Solicitors for the Respondent:	Mr Tim Noonan, Department of Human Services