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

Wells; Secretary, Department of Social Services and (Social services second review) [2018] AATA 974 (24 April 2018)
Division:GENERAL DIVISION
File Number: 2017/7364
Re:Secretary, Department of Social Services
APPLICANT

AndRosalyn Wells
RESPONDENT

DECISION
Tribunal:Member D K Grigg
Date:24 April 2018
Place:Brisbane

The decision under review is set aside and substituted with a decision that the Applicant was not qualified for the Age Pension at the date of her claim.
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Member D K Grigg
CATCHWORDS
SOCIAL SECURITY – age pension – whether certain asset to be disregarded in calculating rate of age pension – decision under review set aside
LEGISLATION
Administrative Appeals Tribunal Act 1975
Social Security Act 1991
Social Security (Administration) Act 1999
CASES
Secretary, Department of Education, Employment and Workplace Relations and Yilmaz [2008] AATA 594
SECONDARY MATERIALS
Guide to Social Security Law (2017, Cth)
REASONS FOR DECISION
Member D K Grigg
24 April 2018
INTRODUCTION AND CLAIM HISTORY

On 19 April 2018 Mrs Wells obtained advice from a financial advisor, Kerry Goodsell, from the Department of Human Services Financial Information Service. Ms Goodsell informed Mrs Wells that she was eligible to receive the Age Pension.[1]
[1] Exhibit 1, T Documents, T11, pages 153-160, Advice of Ms Goodsell dated 19 April 2017.
The day after meeting with Ms Goodsell, Mrs Wells made an application for the Age Pension.[2]
[2] Exhibit 1, T Documents, T5, pages 77-99, Claim for Age Pension dated 20 April 2017.
As part of her claim for the Age Pension Mrs Wells completed an Income and Assets form which indicated that she:[3]
[3]           Exhibit 1, T Documents, T6, pages 100-136, Income and Assets form dated 20 April 2017.
·had household contents worth $5,000 of which she had a 50% share;
·owned a 50% share in motor vehicles worth $29,000;
·owned a 50% share in a boat worth car worth $1,500;
·had a 50% share in bonus interest account at the Bank of Queensland totalling $1,186,188.59 (“BOQ Account”);[4]
·had a loan from Ezy Mortgage on a property in Surfers Paradise (“Surfers Paradise Property”) which had an outstanding balance of $305,369.30 which was to be paid out using $305,000 from the BOQ Account;[5]
·had a 50% share in an offset home loan with Ezy Mortgage totalling $96,082.71;
·had savings of $4,883.45;[6]
·superannuation of approximately $22,940.70;[7]
·was the recipient of an old age pension from the United Kingdom;
·received $230/fortnight from British Steel Pension fund.
[4]           Exhibit 1, T Documents, T6, page 135, BOQ Account statement for the period 19 January 2017 to 18 April 2017.
[5]Exhibit 1, T Documents, T6, pages 124-129, Ezy Mortgage Statements for the period 1 January to 31 March 2017.
[6]           Exhibit 1, T Documents, T6, pages 131-135, Bank of Queensland Statements for the period 19 January 2017 - 18
April 2017.
[7]           Exhibit 1, T Documents, T6, page 118, Letter from Sunsuper to Mrs Wells dated 11 May 2016.
Prior to lodging her claim for the Age Pension Mrs Wells was the owner (in equal shares with her husband) of a property at Springwood (“Springwood Property”). On 8 February 2017 Mrs Wells entered into a contract to sell the Springwood Property for $842,000 with a settlement date of 5 April 2017.[8]
[8] Exhibit 1, T Documents, T6, page 136, Settlement Statement.
Mrs Wells told the Tribunal that prior to the settlement date of the Springwood Property, in March 2017, she and her husband moved into the Surfers Paradise Property as their principal home. The Surfers Paradise Property had originally been purchased in April 2015 and previously been rented out as an investment property.[9]
[9] Exhibit 2, Secretary’s Statement of Facts, Issues and Contentions dated 12 March 2018, Annexure 1.
On 27 April 2017 the Department of Human Services (“Centrelink”) rejected Mrs Wells’ claim for the Age Pension on the grounds that the value of her assets, which was calculated as $1,353,494.00, was above the allowable asset limit.[10] The asset test limit for a partnered homeowner as at 20 March 2017 was $821,500, and $827,000 as at 1 July 2017.[11]
[10] Exhibit 1, T Documents, T7, page 137, Rejection of claim for Age Pension dated 27 April 2017.
[11] Exhibit 1, T Documents, T9, page 147, Authorised Review Officer’s Decisions and Notes dated 12 July 2017.
Mrs Wells requested a review and contended that Centrelink had counted a $400,000 mortgage, which was to be repaid on 18 May 2017, as an asset instead of a debt, when considering her asset value.[12]
[12] Exhibit 1, T Documents, T8, page 139, Statement of Mrs Wells dated 7 May 2017.
The Secretary acknowledges, correctly, that Mrs Wells indicated in her letter dated 14 August 2017, that she paid off the remaining $400,000 mortgage on the Surfers Paradise Property on or about 12 May 2017,[13] and that therefore her assets would be reduced by this amount from this point in time.[14] However, the Secretary submits that even then the value Mrs Wells assets would have been $953,495, which was greater than the assets limited of $821,500, and therefore she did not qualify for the Age Pension.[15]
[13]         Exhibit 1, T Documents, T11, page 151, Letter from Mrs Wells dated 14 August 2017.
[14]         Exhibit 2, Secretary’s Statement of Facts, Issues and Contentions dated 12 March 2018, para 45.
[15]         Exhibit 2, Secretary’s Statement of Facts, Issues and Contentions dated 12 March 2018, para 46.
Mrs Wells’ appeal to the Authorised Review Officer (“ARO”) ARO was unsuccessful.[16]
[16]Exhibit 1, T Documents, T9, pages 141-147, Authorised Review Officer’s Decisions and Notes dated 12 July 2017.
On 31 July 2017, Mrs Wells lodged an application for review with the Social Services and Child Support Division (“SSCSD”) of this Tribunal.[17] Mrs Wells contended that:[18]
[17] Exhibit 1, T Documents, T10, page 148, Request for statement dated 31 July 2017.
[18] Exhibit 1, T Documents, T11, page 151, Letter from Mrs Wells dated 14 August 2017.
(a)until 5 April 2017 she had two properties – the Springwood Property and the Surfers Paradise Property;
(b)proceeds from the Springwood Property sale were used to pay out mortgages on both properties;
(c)some of the money from the sale was intended to be used to renovate the Surfers Paradise Property;
(d)the Guide to Social Security Law, which is used by Centrelink, sets out in paragraph 4.6.3.80 that the:
The value of principal home sale proceeds that have been applied to build, rebuild, repair or renovate a new principal home can be exempt under the assets test
The maximum total asset value that may be exempt is the value of the proceeds of the sale of the old principal home
(e)a financial advisor estimated the sale proceeds at around $500,000; and
(f)the Surfers Paradise Property was not a temporary residence.
The SSCSD set aside the ARO’s decision on 13 November 2017 and found that Mrs Wells qualified for the Age Pension at the date of her claim and had an asset amount of $531,954.60.[19]
[19] Exhibit 1, T Documents, T2, pages 4-9, SSCSD’s Decision and Reasons for Decision dated 13 November 2017.
The Secretary has sought a review of the SSCSD’s decision by this Tribunal and contends that the SSCSD erred in its application of section 1118(1B) of the Act.[20]
[20] Exhibit 1, T Documents, T1, pages 1 – 3, Application for Review dated 13 December 2017.
ISSUES FOR DETERMINATION
The Tribunal has to determine whether Mrs Wells’s Age Pension calculation should have included the proceeds of sale of the Springwood Property.
LEGAL REQUIREMENTS
The rates at which people (who are not permanently blind) are paid an age pension is determined using the Pension Rate Calculator A at the end of section 1064 of the Act and is affected by, among other things, a person’s income and the value of their assets.[21] The maximum basic rate payable varies depending upon a person’s family situation.[22]
[21] Section 55(a), Act.
[22] Section 1064-B1, Act.
If a person’s age pension rate is calculated as nil, no age pension is payable.[23]
[23] Section 44(1), Act
Section 1064-G1 of the Act sets out how to work out the effect of a person's assets on the person's maximum payment rate.
The Secretary informed the Tribunal that the asset test limit for a partnered homeowner as at 20 March 2017 was $821,500 and $827,000 as at 1 July 2017.[24]
[24] Exhibit 2, Secretary’s Statement of Facts, Issues and Contentions dated 12 March 2018, paras 14 and 30.
Certain assets, set out in section 1118 of the Act, are to be disregarded in calculating the value of a person's assets. Relevantly here, the following assets are to be disregarded (emphasis added):
(1) …
(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;
….
(r) if the person has sold a residence that was the principal home of the person on terms and has purchased, also on terms, another residence that is the principal home of the person--so much of the balance due to the person in respect of the sale as will be applied by the person in respect of the purchase of the other residence;
Note 2: For principal home see section 11A.
Note 3: For reasonable security of tenure see subsection 11A(10).
Section 1118(1B) of the Act provides:
(1B) Application of proceeds of sale of principal home
Subsection (2) applies if:
(a) a person sells the person’s principal home; and
(b) either:
(i) the person does not have a right or interest in a principal home; or
(ii) the person has a right or interest in a principal home that the Secretary is satisfied does not give the person reasonable security of tenure in the home; and
(c) before the end of 12 months, or any longer period determined under subsection (2B), after the sale, one or more of the following applies:
(i) the person intends to apply the whole or a part of the proceeds of the sale to build, rebuild, repair or renovate another residence that is to be the person’s principal home;
(ii) the person applies the whole or a part of the proceeds of the sale to build, rebuild, repair or renovate another residence that is to be the person’s principal home;
(iii) the person intends to apply the whole or a part of the proceeds of the sale to purchase another residence that is to be the person’s principal home.
Section 1118(2) of the Act provides:
(2) For the purposes of this Act (other than Division 1B of Part 3.10):
(a) if subparagraph (1B)(c)(i) applies—disregard the proceeds, to the extent that the person intends to apply those proceeds to build, rebuild, repair or renovate the other residence, until the earlier of the following times:
(i) the period mentioned in paragraph (1B)(c) ends;
(ii) the Secretary becomes satisfied that the person has ceased to have that intention; or
(b) if subparagraph (1B)(c)(ii) applies—disregard the value of the following, until the end of the period mentioned in paragraph (1B)(c), to the extent that the person applies those proceeds to build, rebuild, repair or renovate that other residence:
(i) the value of the other residence;
(ii) the value of the land on which the other residence is being built, rebuilt, repaired or renovated to the extent that, once the building becomes the person’s principal home, the land will, under section 11A, be included in a reference to the principal home;
(iii) the value of any other structure, on that land, that is to be the person’s principal home to the extent that the structure was built before the person began applying those proceeds; or
(c) if subparagraph (1B)(c)(iii) applies—disregard the proceeds, to the extent that the person intends to apply those proceeds to purchase the other residence, until the earlier of the following times:
(i) the period mentioned in paragraph (1B)(c) ends;
(ii) the Secretary becomes satisfied that the person has ceased to have that intention.
Section 11A of the Act provides:
(1)A reference in this Act to the principal home of a person includes a reference to:
(a) if the principal home is a dwelling-house--the land adjacent to the dwelling-house to the extent that:
(i) the land is held under the same title document as the land on which the dwelling-house is located; and
(ii) the private land use test in subsection (3) is satisfied in relation to the land or, if the person is one to whom the extended land use test applies in relation to the land, the extended land use test in subsection (6) is satisfied in relation to the land; or
(b) if the principal home is a flat or home unit--a garage or storeroom that is used primarily for private or domestic purposes in association with the flat or home unit.
CONSIDERATION
There was no dispute between the parties that when Mr and Mrs Wells moved into the Surfers Paradise Property that it was their principal home.
The issue is whether section 1118(1B) of the Act applies such that the proceeds of sale of the Springwood Property can be disregarded in the calculation of the value of Mrs Wells’ assets. The answer is no.
Mrs Wells was understandably frustrated at how her application for the Age Pension has proceeded. She, reasonably, believed that the advice from Ms Goodsell was correct and that she was qualified for the Age Pension. When her application was rejected, she could not understand why. Then all appeared to be well again when the SSCSD set aside Centrelink’s decision and decided Mrs Wells was eligible and that the proceeds of the sale of the Springwood Property should have been disregarded.
However, the SSCSD erred. The SSCSD did not seem to address the requirements in section 1118(1B) of the Act and in fact referred to the section incorrectly as section 1118(1)(b).
According to section 1118(1B)(b)(i), section 1118(2) only applies, such that the proceeds of sale can be disregarded if, at the time Mrs Wells sold her home she did not have a right or interest in a principal home. Mrs Wells did have an interest in a principal home, the Surfers Paradise Property, at the time the Springwood Property was sold.
As the Secretary submitted, the exemption in section 1118 only applies up until the time a person obtains another home and cannot apply at all if a person has already purchased another home before the sale of their former principal home takes place.[25] The Secretary referred to Secretary, Department of Education, Employment and Workplace Relations and Yilmaz [2008] AATA 594 where the Tribunal made the following observation:
5. The Acts 1118(2) applies when a person sells their principal home and, effectively, the proceeds are exempt for another 12 months while another principal home is obtained. After that time [that is, after another principal home is obtained] the proceeds are counted as assets. [Emphasis added]
[25] Exhibit 2, Secretary’s Statement of Facts, Issues and Contentions dated 12 March 2018, para 35.
The Secretary also referred the Tribunal to the Guide to Social Security Law (“the Guide”) which is used by Centrelink in interpreting and administering the Act. The Tribunal is not bound to apply the Guide, but it may, and it should, apply it in exercising its discretion unless it is unlawful or “tends to produce an unjust decision”.[26]
[26] Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634 at 645.
The Guide confirms that principal home sale proceeds can only be exempt if a person does not already have another principal home. It provides at 4.6.3.80:
When the principal home sale proceeds exemption can apply
The principal home sale proceeds exemption only applies IF:
•    an income support recipient sells their principal home, and
•    the income support recipient does not have a right or interest in their principal home, or
•    that right or interest does not give the income support recipient reasonable security of tenure.
Explanation: An income support recipient can only gain access to the principal home sale proceeds exemption if they do not have another principal home.
If an income support recipient has sold their principal home and is living in another home they own, they CANNOT gain both a principal home exemption on the home they are currently living in as well as an exemption on the principal home sale proceeds. If this is the case, either the home they are currently living in or the principal home sale proceeds will be exempt from the assets test, but not both. The one which is exempt depends on what property the income support recipient intends to be their new principal home.
Example: Joan sells her principal home and moves into another home that was previously her investment property. Joan cannot gain a principal home exemption on the home she is living in as well as having the sale proceeds exempt from the assets test. In this case, Joan intends her principal home to be the one she builds with the sale proceeds. Therefore, given Joan does not intend the home she is currently living in to be her principal home it will be assessed as an asset. The sale proceeds that will be used to build a new principal home will be exempt from the assets test.
The exemption provided for in section 1118(2) does not apply to Mrs Wells’ circumstances.
There was no dispute that, taking the sale proceeds of the Springwood Property into account, the total asset value at the date of Mrs Wells’ Age Pension claim was $1,353,495[27] and the total asset value at the date the mortgage of $400,000 on the Surfers Paradise Property had been paid, was $953,495. At both of those stages the value of Mrs Wells’ assets was over the asset limit of $821,500 and therefore she was not qualified for the Age Pension.
[27] Exhibit 2, Secretary’s Statement of Facts, Issues and Contentions dated 12 March 2018, para 43.
DECISION
The decision under review is set aside and substituted with a decision that the Applicant was not qualified for the Age Pension at the date of her claim.
It is open for Mrs Wells to make a fresh claim for age pension if the value of her assets is now below the asset limit.

I certify that the preceding 33 (thirty-three) paragraphs are a true copy of the reasons for the decision herein of Member D K Grigg

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Associate
Dated: 24 April 2018

Date of hearing:

Advocate for the Applicant:

17 April 2018

By phone

Advocate for the Respondent: Mr Rick McQuinlan

Solicitors for the Respondent: Department of Social Services

[2018] AATA 974

24 April 2018

Key Legal Topics

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