Whitby and Secretary, Department of Health (Social services second review)
[2015] AATA 1026
•24 December 2015
Whitby and Secretary, Department of Health (Social services) [2015] AATA 1026 (24 December 2015)
Division
GENERAL DIVISION
File number
2015/2500
Joyce Whitby
APPLICANT
And
Secretary, Department of Health
RESPONDENT
DECISION
Tribunal Dr James Popple, Senior Member
Date 24 December 2015 Place Canberra Centrelink’s decision on 28 April 2015 is set aside and the matter is remitted for reconsideration in accordance with the following direction:
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.
............................[sgd]............................................
James Popple, Senior Member
CATCHWORDS
SOCIAL SECURITY — Assets test — residential care subsidy — whether loan deducted from value of refundable deposit — whether loan is a charge or encumbrance — asset is not disregarded — decision set aside and remitted.
LEGISLATION
Aged Care Act 1997, ss 44-2, 44-26A(1), (5)
Social Security Act 1991, ss 1118(1)(v), 1121(1), (3)
Subsidy Principles 2014, s 47
CASES
Achkar and Department of Family and Community Services [2001] AATA 684
Berry and Secretary, Department of Social Security (1995) 40 ALD 327
Drake v Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60
Elliott and Secretary, Department of Social Security, unreported, Administrative Appeals Tribunal, Purcell SM, 3 September 1997
Mann and Secretary, Department of Social Services (2014) 140 ALD 443
Osborne Computer Corporation Pty Ltd v Airroad Distribution Pty Ltd (1995) 37 NSWLR 382
Pavilupillai and Secretary, Department of Employment and Workplace Relations [2007] AATA 1906
Sgouris and Secretary, Department of Family and Community Services [2000] AATA 99
Smith and Department of Family and Community Services [1999] AATA 267
Tabain and Secretary, Department of Employment and Workplace Relations [2006] AATA 616
Worner and Secretary, Department of Employment and Workplace Relations [2006] AATA 560
SECONDARY MATERIALS
Department of Social Services, Guide to Social Security Law (version 1.217, 9 November 2015)
Tricia Mann (editor), Australian Law Dictionary (Oxford University Press, 2nd edition, 2013)
REASONS FOR DECISION
Dr James Popple, Senior Member
24 December 2015
Summary
Centrelink decided that, when calculating the value of the applicant’s assets for the purposes of calculating her residential care fees under the Aged Care Act 1997, the value of the refundable accommodation deposit that she paid to her residential care provider should not be reduced by the value of the loans obtained to fund the payment of that deposit. I set aside that decision. The deposit is not an asset that is to be disregarded for these purposes. The loans were a charge over the deposit. Accordingly, the value of the deposit should be reduced by the value of the loans. I remit for reconsideration the question of the amount of residential care subsidy payable to the applicant’s service provider.
Background
On 30 March 2015, Mrs Joyce Whitby was admitted to an aged care service. Six days earlier, she had paid a $300,000 refundable accommodation deposit (the deposit) to the service provider. On 14 April 2015, Centrelink determined the fees that Mrs Whitby could be asked to pay the service provider. That determination was based on an assessment of her assets which included $150,000 described as “Accommodation Bond … or Refundable Accommodation Deposit”. This amount is half the value of the deposit because Mrs Whitby has a husband: Mr Frederick Whitby.
On 22 March 2015, in order that his wife could pay the deposit, Mr Whitby had borrowed a total of $120,000 from his and Mrs Whitby’s son (Mr Roger Whitby) and daughter (Ms Meg Whitby). Mr Whitby senior entered into a loan agreement with each of Mr Whitby junior and Ms Whitby. I discuss these loan agreements below.[1] For simplicity, I will refer to these two loans as the loan.
[1] See [13]–[19] below.
Mrs Whitby applied for internal review of Centrelink’s decision. She argued that the value of the deposit should be reduced by the value of the loan for the purposes of calculating her residential care fees. On 28 April 2015, a Centrelink authorised review officer affirmed the decision.
On 22 May 2015, Mrs Whitby applied to the Tribunal, under s 85-8 of the Aged Care Act, for review of that decision.
Decision under review
The decision under review is Centrelink’s internal review decision on 28 April 2015.
Issue
The issue in this review is whether the value of the deposit should be reduced by the value of the loan for the purposes of calculating Mrs Whitby’s residential care fees. That depends on the proper construction of provisions of the Aged Care Act, the Social Security Act 1991 and the Subsidy Principles 2014.
Legislative framework
Section 41-1 of the Aged Care Act explains that “[t]he *residential care subsidy is a payment by the Commonwealth to approved providers for providing residential care to care recipients”. The amount of Mrs Whitby’s residential care fees depends on (amongst other things) the amount of residential care subsidy payable to her service provider for providing her with residential care. The amount of residential care subsidy is calculated under s 44-2. That calculation involves (amongst other things) subtracting the amounts of any “reductions in subsidy”. Section 44-17 provides that those reductions in subsidy include the “care subsidy reduction”. The care subsidy reduction is calculated under s 44-21,[2] which takes account of the care recipient’s “means tested amount”. The means tested amount is calculated under s 44-22, which takes account of the “value of the care recipient’s assets”.
[2] The care subsidy reduction is also calculated under s 44-23 (“Care subsidy reduction taken to be zero in some circumstances”), which does not apply in this review.
Section 44-26A relevantly provides:
44-26A The value of a person’s assets
(1)Subject 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.
…
(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.
…
The Subsidy Principles were made by the Minister under s 96-1 of the Aged Care Act. Section 47 of the Subsidy Principles relevantly provides:
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 …
(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)(u) and (v) …
…
Section 1118 of the Social Security Act relevantly provides:
1118 Certain assets to be disregarded in calculating the value of a person’s assets
(1)In calculating the value of a person’s assets for the purposes of this Act …, disregard the following:
…
(v) the amount of any refundable deposit balance in respect of a refundable deposit paid by the person.
Division 1 of Part 3.12 of the Social Security Act also includes s 1121, which relevantly provides:
1121 Effect of charge or encumbrance on 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 …, is to be reduced by the value of that charge or encumbrance.
…
(3)Subsection (1) does not apply to a charge or encumbrance over assets that are to be disregarded under section 1118.
To summarise, in the circumstances of this review:
·If a person has paid a refundable deposit, the refundable deposit balance is included in the value of a care recipient’s assets. Refundable deposit balances are disregarded when s 1118(1)(v) of the Social Security Act applies. But s 1118(1)(v) does not apply.
·If there is a charge or encumbrance over an asset (for example, a refundable deposit balance) the value of that asset is reduced by the value of that charge or encumbrance, unless the asset is one that is to be disregarded under s 1118.
The nature of the deposit
Clause 1 of Schedule 1 to the Aged Care Act defines (amongst other terms) “refundable deposit” and “refundable deposit balance”. In this review, the deposit is clearly a refundable deposit for the purposes of the Act. That is not in dispute. The refundable deposit balance is the difference between the amount of the refundable deposit and any amounts permitted to be deducted from that refundable deposit. There is no evidence before me about whether there are any amounts permitted to be deducted from the deposit. However, I do not need to make a finding about the precise amount of the refundable deposit balance.[3]
[3] See [26] below.
The nature of the loan
As noted above, the loan was given on the basis of two loan agreements. Under each agreement, the amount lent is to be repaid (with interest) in full on 22 March 2025, “or on termination of refundable bond required for the age care of [Mrs Whitby]”. The Secretary accepts that the loan was obtained to fund the payment of the deposit.
The question is whether the loan is a charge or encumbrance over the deposit. Neither “charge” nor “encumbrance” is defined in the Social Security Act or the Aged Care Act. The Secretary points to the Guide to Social Security Law (the Guide), which is available on the web site of the Department of Social Services.[4] The Guide is a statement of government policy, and I should have regard to it when making my decision in this review.[5] “Encumbrance” is one of the terms included in the section of the Guide called “definition of key terms”. The Guide gives examples of “[t]he usual types of encumbrances”, including “a registered mortgage”, “accumulated interest”, and a solicitor’s or banker’s lien.[6] The Guide does not define “charge’.
[4] Drake v Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60 at 69 per Bowen CJ and Deane J.
[6] >
The Australian Law Dictionary says that a charge is “[b]roadly, any security for the performance of an obligation (usually repayment of money lent, plus interest)”.[7] It says that a security is “[a]n asset pledged to raise a loan, in default of repayment of the amount borrowed, together with interest”.[8]
[7] Tricia Mann (editor), Australian Law Dictionary (Oxford University Press, 2nd edition, 2013) at 125.
[8] Tricia Mann (editor), Australian Law Dictionary (Oxford University Press, 2nd edition, 2013) at 650.
In Osborne Computer Corporation Pty Ltd v Airroad Distribution Pty Ltd,[9] the Supreme Court of New South Wales quoted, with approval, the following description of a charge:
The charge does not depend on either the delivery of possession or the transfer of ownership, but represents an agreement between creditor and debtor by which a particular asset or class of assets is appropriated to the satisfaction of the debt, so that the creditor is entitled to look to the asset and its proceeds to discharge the indebtedness, in priority to the claims of unsecured creditors and junior encumbrancers. The charge does not transfer ownership to the creditor; it is merely an encumbrance, a weight hanging on the asset which travels with it into the hands of third parties other than a bona fide purchaser of the legal title for value and without notice.[10]
[9] (1995) 37 NSWLR 382.
[10] (1995) 37 NSWLR 382 at 390 per Rolfe J, quoting RM Goode, Legal Problems of Credit and Security (Sweet & Maxwell, 2nd edition, 1988) at 14.
In this review, the loan agreements specify that the amount lent is to be repaid with interest in full on a specified date, or when the deposit is refunded. Under those agreements the deposit is appropriated to the satisfaction of the debt. I think that the loan is a charge over the deposit.
The Secretary has not expressed a view about whether the loan is a charge or encumbrance, because he says that the question does not arise. If it is, he says that s 1121(1) does not apply, for reasons I reject below;[11] if it is not, he says that there is no other provision that allows for the value of assets to be reduced.[12]
[11] See [20]–[25] below.
[12] Because of the conclusion I have reached below, I do not need to consider whether the value of assets can be reduced if there is no charge or encumbrance. However, I note that the Guide, in a discussion of the “[e]ffect of a charge or encumbrance on asset value” says that “[i]f a customer has an unsecured loan and provides evidence that the loan was specifically obtained to purchase the asset, the outstanding amount of the loan is deducted from the value of the asset”: In this review, the Secretary accepts that the loan was obtained to fund the payment of the deposit (that is, to purchase the asset). So, if the loan were unsecured—and neither a charge nor an encumbrance—the Guide says that it would be deducted from the value of the deposit.
The Secretary does say that to give “charge or encumbrance” a meaning broader than “its ordinary meaning at law would substantially affect the administration of the Social Security system by reordering the priority of interest which the legislature can be said manifestly to have intended by section 47(2)(a) of the Aged Care Act [sic—the Subsidy Principles]”. I do not understand how s 47(2)(a) affects the priority of interest: it is concerned with the calculation of a person’s assets. In any event, I think that the ordinary meaning of “charge” includes the loan in this review.
What is the effect of s 1121 of the Social Security Act?
The Secretary says that, considering the words of s 1121 “in the context of the statute as a whole”, s 1121(1) “does not apply to assets that are listed in” s 1118 (emphasis added). I disagree. Section 1121(3) provides that s 1121(1) “does not apply to a charge or encumbrance over assets that are to be disregarded under section 1118” (emphasis added). Refundable deposit balances are amongst the classes of assets listed in s 1118, but that class of asset is only to be disregarded under s 1118 if s 1118(1)(v) applies. Section 1118(1)(v) does not apply in this review, because of s 47(2)(a) of the Subsidy Principles.
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.
[13] (1995) 40 ALD 327.
In Berry, the Tribunal considered ss 1121(1) and (3) of the Social Security Act, and came to the view that those provisions:
… while simply expressed, appear at first instance to be somewhat circulatory in the treatment of disregarded assets. Section 1121(1) contemplates the valuing of assets not disregarded that are subject to charges and encumbrances and clearly provides that the value of any such asset is to be reduced by the value of that charge or encumbrance. One could be forgiven for thinking that the asset disregarded by s 1118 of the Act would in that event be excluded from the type of calculation envisaged under s 1121(1). If that view was to prevail then the provisions contained in s 1121(3) would appear to be otiose. At the end of the day, the tribunal has concluded that the valuation function commences with a listing of all assets together with any charges or encumbrances attached to any of those particular assets. 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 (see s 1121(3)). The tribunal finds that the only realistic and workable interpretation that it can give to s 1121(3) is that its effect is to ensure that, once the disregarded asset is removed from the asset listing, any charge or encumbrance on such an asset is not available for off-set against the value of non disregarded assets.[14]
[14] (1995) 40 ALD 327 at 330 [10] per Kiosoglous SM, Lock M and Trowse M.
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).
[15] (1995) 40 ALD 327 at 331 [11] per Kiosoglous SM, Lock M and Trowse M. See also at 331 [12].
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.
[16] Elliott and Secretary, Department of Social Security, unreported, Administrative Appeals Tribunal, Purcell SM, 3 September 1997; Sgouris and Secretary, Department of Family and Community Services [2000] AATA 99 per Way M; Achkar and Department of Family and Community Services [2001] AATA 684 per Carstairs M; Tabain and Secretary, Department of Employment and Workplace Relations [2006] AATA 616 per Cunningham SM; Worner and Secretary, Department of Employment and Workplace Relations [2006] AATA 560 per Levy M; Pavilupillai and Secretary, Department of Employment and Workplace Relations [2007] AATA 1906 per Hughes M. In Mann and Secretary, Department of Social Services (2014) 140 ALD 443, the loan moneys (which had been obtained under a home equity conversion agreement) had been spent and were not treated as an asset (at 455–456 [41]–[42] per Forgie DP).
[17] Smith and Department of Family and Community Services [1999] AATA 267 per Handley SM.
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]
[18] (1995) 40 ALD 327 at 330 [10] per Kiosoglous SM, Lock M and Trowse M. See [22] above.
[19] (1995) 40 ALD 327 at 330 [10] per Kiosoglous SM, Lock M and Trowse M. See [22] above.
Conclusion
The value of the deposit should be reduced by the value of the loan for the purposes of calculating Mrs Whitby’s residential care fees. There is no evidence before me about whether there are any amounts permitted to be deducted from the deposit: that is, whether the refundable deposit balance is the entire deposit. Accordingly, I remit for reconsideration the question of the precise amount of residential care subsidy payable to Mrs Whitby’s service provider for providing her with residential care.
I certify that the preceding 26 (twenty-six) paragraphs are a true copy of the reasons for the decision herein of Senior Member Popple ................................[sgd]........................................
Associate
Dated 24 December 2015
Date of hearing 18 November 2015 Date final submissions received 16 December 2015 Advocate for the Applicant Mr Roger Whitby and Ms Meg Whitby Counsel for the Respondent Ms Amy Bartush Solicitors for the Respondent Legal Services Division,
Department of Human Services
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