Zielke and Secretary, Department of Social Services (Social services second review) - [2017] AATA 478

Zielke and Secretary, Department of Social Services (Social services second review) [2017] AATA 478 (13 April 2017)
Division:GENERAL DIVISION
File Number(s): 2016/2428
Re:Gerhard Zielke
APPLICANT

AndSecretary, Department of Social Services
RESPONDENT

DECISION
Tribunal:Ms S Taglieri, Member
Date:13 April 2017
Place:Hobart

The Respondent’s last decision, that the Applicant had disposed of assets on 6 April 2011 and had been overpaid Age Pension, creating a debt of $9 149.85, is affirmed.
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Ms S Taglieri, Member
SOCIAL SECURITY – age pension – disposal of assets – value of assets – overpayment debt – decision under review set aside – remitted to Respondent for recalculation
Legislation
Social Security Act 1991, ss 182, 1114, 1118, 1123, 1124, 1126AA
Cases
Balfour v Balfour (1919) 2 KB 571
Dranichnikov v Centrelink [2003] FCAFC 133
Re Secretary, Department of Social Security and Lynelle Schofield [1991] AATA 222
Snodgrass and Secretary, Department of Social Services [2016] AATA 185
Wasley and SDFCS [2004] AATA 765
Worthington and SDFCSIA [2007] AATA 1599
REASONS FOR DECISION
Ms S Taglieri, Member
13 April 2017
INTRODUCTION

On 11 May 2016, Mr Zielke applied to this Tribunal for a review of a decision made by the Respondent in respect of his Age Pension. Various decisions had been made to the effect that Mr Zielke had been overpaid Age Pension and was indebted to repay the overpayment.[1]
[1] See T2, T16, T19 and a decision of 22 August 2016 (a copy of which was attached to the Respondent’s Statement of Facts and Contentions dated 14 November 2016).
The effect of section 182 of the Social Security (Administration) Act 1999 is that the last of the decisions of the Respondent is to be taken as the decision to be reviewed by this Tribunal. At the commencement of the hearing of this Application, that decision was one dated 22 August 2016 and identified an overpayment of $12 582.24.
The background facts relevant to the Application to the Tribunal are not particularly contentious and are the subject of various T Documents, which the Tribunal received in evidence at the hearing.
The hearing commenced on 27 January 2017, was adjourned and then finalised on 6 March 2017, when Mr Zielke’s daughter gave evidence and the parties made closing submissions. Following the hearing, the Tribunal formed a preliminary view about what ought to be the correct decision in this matter. However, little information was provided about how the Respondent had arrived at the amount in paragraph 2 and the Tribunal was unable to form a view about whether the reviewable decision[2] should be affirmed.
[2] The 22 August 2016 decision.
Further submissions about specific matters were sought from the Respondent on 29 March 2017 and Mr Zielke was also invited to respond. Further information requested by the Tribunal was received from the Respondent by letter dated 5 April 2017. No response to this material has been filed by Mr Zielke.
UNCONTENTIOUS BACKGROUND FACTS
Mr Zielke has been in receipt of an Age Pension since 2003, and resides in the Philippines, having moved there and built a home for himself in around 2010/2011.
From at least 2011, Mr Zielke received correspondence from the Respondent notifying that he was required to advise the Respondent if he sold his house, gifted any assets or sold any assets, amongst other things.[3]
[3] T5 to T10 from page 15 of the T Documents.
At the time of moving to reside in the Philippines, Mr Zielke jointly owned a residential property at 7 Craignish Loop, Kinross in Western Australia (the property). The property was owned jointly with his former wife, Marlita Zielke.
By transfer dated 6 April 2011, Mr Zielke and his former wife transferred the property to his former wife and to his daughter Stefanie Jane Zielke as joint tenants.[4] The sum of $121 000 was the consideration said to have been received. No advice was given to the Respondent about the transfer at the time it occurred.
[4] T20 at page 73 of the T documents.
Then in August 2015, Mr Zielke’s Age Pension was suspended as he had failed to respond to numerous requests from the Respondent for an update in relation to his income and assets.[5]
[5] T28 at page 290 of the T documents.
The Applicant’s daughter Stephanie Zielke was assisting Mr Zielke to address the suspension of his Age Pension. She advised the Respondent that the property had been purchased by herself and her mother[6]. This resulted in further investigation and enquiries by the Respondent in relation to Mr Zielke’s assets.
[6] T28 at page 290 of the T documents.
It was determined by the Respondent that Mr Zielke had disposed of assets for the purposes of s 1123 of the Social Security Act 1991 (the Act). Mr Zielke does not dispute that he transferred his interest in the property to his daughter.
The Respondent also raised a debt for overpayment of Age Pension to Mr Zielke, it being satisfied that there had been a disposal of assets which meant that the Age Pension had been paid at an incorrect rate, above the rate Mr Zielke was entitled under the Act.
The Tribunal must determine if Mr Zielke was overpaid Age Pension as a result of disposing of assets and if so, whether he is indebted to the Respondent and by how much.
RESPECTIVE CONTENTIONS
The Respondent determined that Mr Zielke’s total assets were higher than what they had previously been assessed to be because of the disposal of an asset, namely his interest in the property. It says the effect of that disposal is to reduce the rate at which he was entitled to receive an Age Pension, thereby creating an overpayment of Age Pension.
During the course of the hearing, Mr Zielke did not argue against the proposition that he had transferred his interest in the property, but said this did not invoke the disposal of assets provisions in the Act.
He argued that he was entitled to make the transfer and that the effect of the transfer did not constitute a gift, nor did it create an overpayment of Age Pension warranting a debt owed by him to the Respondent.
Mr Zielke’s contentions were made in a general way without specific reference to any of the legislative provisions concerning disposition of assets under the Act. This is no criticism of Mr Zielke, because he is not legally trained. However, it does suggest that Mr Zielke does not have a correct understanding of the relevant provisions of the Act.
In a general way Mr Zielke felt he had been treated unfairly and that he ought not be indebted or liable to repay the claimed overpayment of Age Pension. He did make some references to Granny Flat provisions and using the funds received from the transfer to build a home in the Philippines.
In order to determine this review and arrive at the correct or preferable decision given the competing contentions of the parties, it is necessary to consider whether there was a disposal of assets for the purposes of the Act. If so, then it is necessary to decide the effect of that on the rate of Age Pension to which Mr Zielke was entitled.
THE LAW – DISPOSITION OF ASSETS
Before Mr Zielke left Australia to reside in the Philippines, the value of his interest in the property had been disregarded in calculating his entitlement to Age Pension. This was consistent with s 1118 of the Act, which provided that a person’s interest in their principle home was to be disregarded for the purposes of calculating the rate of Age Pension.
Once Mr Zielke transferred his interest in the property, it could no longer be said that the he had an interest in the property as his principal place of residence. Further, even if he had some type of “right” to live at the property at various times, by late 2010 he was ordinarily residing in the Philippines and had a residence there.
Once Mr Zielke transferred his interest in the property, consideration needed to be given to whether he had disposed of an asset. S 1123 of the Act provides as follows:
(1) For the purposes of this Act, a person disposes of assets of the person if:
(a) the person engages in a course of conduct that directly or indirectly:
(i) destroys all or some of the person's assets; or
(ii) disposes of all or some of the person's assets; or
(iii) diminishes the value of all or some of the person's assets; and
(b) one of the following subparagraphs is satisfied:
(i) the person receives no consideration in money or money's worth for the destruction, disposal or diminution;
(ii) the person receives inadequate consideration in money or money's worth for the destruction, disposal or diminution;
(iii) the Secretary is satisfied that the person's purpose, or the dominant purpose, in engaging in that course of conduct was to obtain a social security advantage.
The provision deems a disposal of asset if the transfer of Mr Zielke’s 50% interest in the property was for “inadequate consideration”, meaning less than its value.
The consequence of a deemed disposal of assets is that it causes an increase in the value of the person’s assets for the purposes of the assessing the rate of Age Pension to which they are entitled. Such increase in value is to be equal to the value of the disposed of asset, which is determined according to s 1124 of the Act.
There is no discretion under the Act to exclude the operation of the disposal of assets provisions in the Act. However, the Respondent ought to disregard the value of disposed assets in the calculation of Age Pension, if certain specific conditions as prescribed in s 1118 of the Act apply.
In Mr Zielke’s case, the provisions contained in s 1118(1)(g) and (ga) and s 1118(1B) of the Act may apply, given his contentions. The former providing means by which the value of granny flat interests can be disregarded and the latter, which permits the value of the disposal to be disregarded if a new principal home is acquired within 12 months, or a longer period as determined by the Secretary.
EVIDENCE RELATING TO TRANSFER OF HALF INTEREST IN PROPERTY
The transfer document that had been lodged with the Western Australian Land Information Authority on 6 April 2011 evidenced that the transfer was for a consideration of $121 000.[7]
[7] T20 at page 73 of the T documents.
Other information before the Tribunal was a copy of an email from Mr Phillip Loveland, a taxation agent, dated 21 December 2011, which confirmed that the total sum paid at the time of transfer was $121 000.[8]
[8] T24 at page 80 of the T documents.
During the course of the hearing on 27 January 2017, Mr Zielke stated that he had an agreement with his daughter Stefanie, where he transferred his half interest in the property to her in exchange for $100 000 so he could build a smaller home for himself in the Philippines. In addition, she would provide further sums of money should he require it over time, and that he would have a right to live in the property for life.
Mr Zielke’s evidence was that a total of $157 000 had been paid by his daughter to him for his half interest in the property. That is $121 000 immediately at the time of transfer and other smaller payments at various times totalling $36 000 which were paid direct to his bank account.
Mr Zielke agreed that there was no formal written agreement between him and his daughter in respect of the arrangement, nor was there any specific or precise figure agreed to be paid in total to him by his daughter.
Mr Zielke accepted an invitation from the Tribunal to provide further or corroborative evidence from his daughter in relation to the particular agreement or arrangement at the time of the transfer of the property. A statutory declaration of Stefanie Zielke was received in evidence upon the resumption of the hearing on 6 March 2017. [9]
[9] Exhibit A4.
Ms Zielke was also cross examined by Counsel for the Respondent at the resumed hearing. Ms Zielke’s evidence was that she had paid $121 000 to her father at the time of transfer of the property to her, but that she had also agreed to pay incoming bills and other amounts required to financially support her father “when needed”.
Ms Zielke also provided a list of payments that had been made to her father after the initial sum of $121 000 was paid. The additional amounts were paid between 10 August 2012 and 24 February 2016, totalling $40 000. The effect of Ms Zielke’s evidence was that in total she has paid $161 000 to her father for his half interest in the property.
During cross examination Ms Zielke stated that since making her Statutory Declaration, she has continued to provide money to her father and that she will continue to do so in the future if requested by him. She described the agreement that she had with her father as one that required her to continue providing money to him if requested.
She confirmed that her father’s principal place of residence was in the Philippines and had been for quite some time, as his health had not permitted him to return to Australia since at least 2014. It was then that, because of his declining health, a further agreement was reached between her and her father that her interest in the property would be sold.
Ms Zielke agreed that she had sold her half interest in the property to her mother’s partner in 2014 and that she continued to hold a sum of $115 000, which she would pay to her father as and when requested over time.
It was put to her by the Respondent’s counsel that the $115 000 that she still held from the proceeds of the sale of the property was a loan. She agreed that it was. However it is hard to characterise the arrangement as a loan of $115 000 to her by Mr Zielke, given that there is no evidence that she is using the monies for her own purposes. Rather her evidence was explicitly that she is holding it for her father.
The Tribunal also had in evidence before it a “Restricted Residential Assessment” from MVS Valuations and Property Consulting concerning the property.[10] This identified the market value of the property following an inspection on 27 November 2015. It is apparent that MVS Valuations and Property Consulting were asked to express an opinion as to the value of the property as at 17 October 2010. The value assessed at that time is said to be $510 000.[11]
[10] T17, page 50-51 of the T Documents.
[11] T17 at pages 50-51 of the T documents.
Although Mr Zielke disputed this figure as the market value of the property at the time he disposed of his half interest, he did not furnish any expert opinion or other documentation which enables the Tribunal to reach a conclusion as to the value of the property, contrary to the opinion of MVS Valuations and Property Consulting.
FINDINGS AND CONCLUSION
The Tribunal does not have any direct evidence as to the value of the property in April 2011, when Mr Zielke’s interest was transferred to his daughter. It is unlikely that the valuation would have changed markedly between October 2010 and April 2011 and on the basis of the opinion of MVS Valuations and Property Consulting, the Tribunal finds that the market value of the half interest in the property transferred by Mr Zielke was $255 000.
On the evidence of Ms Zielke and Mr Zielke, the Tribunal considers that there was an informal arrangement within the family, based on duty, respect and honour that Ms Zielke had for her father. He transferred his half interest to her on a mutual understanding of trust that she would continue to provide for him generally, including financially, while she owned the half interest in the property, and after she disposed of it. The Tribunal accepts the submission made by Counsel for the Respondent that it was an informal family arrangement, not intended or actually having legal consequence as between them. [12]
[12] Re Secretary, Department of Social Security and Lynelle Schofield [1991] AATA 222 at [36] citing Balfour v Balfour (1919) 2 KB 571 and Wasley and SDFCS [2004] AATA 765; Worthington and SDFCSIA [2007] AATA 1599
The SSCSD determination of 22 April 2016 concluded that the date of the disposal of the assets was 15 July 2014.[13] The faxed copy of the transfer document from WA Landgate bears a transaction date of 6 April 2011 for the Transfer and dutiable value of $121 000.[14] The fax copy from WA Landgate is dated 13/12/2011 showing that by that date the Transfer had already been lodged with the relevant state government land titles authority. The finding that Mr Zielke’s name was not removed from the title until the 15 July 2014, with respect, cannot be correct.[15] This appears to be accepted by the Respondent given the 22 August 2016 decision document it filed on 17 November 2016.
[13] Paragraph 33 and 34 of T2 at page 9 of the T documents.
[14]T20, see top and right hand top of page 73 of the T Documents.
[15] Above n 13 at paragraph 33.
It is not apparent whether the Tribunal below had a copy of the fax from WA Landgate before it. The email of 2 December 2015, being a report from an intelligence analyst from the Department of Health and Human Services,[16] in my view appears to be an incomplete reporting of the search record of the Western Australian Land and Information Authority records. The copy of the Certificate of Title, being T17,[17] merely shows the Registered Proprietors as Marlita Epiz Morhall and John Ivor Morhall at the time of search on 2 December 2015. This is perfectly consistent with the evidence of Ms Stephanie Zielke that was not contested, that by that time, she had transferred her interest in the property to her mother’s new husband.
[16] Page 49 of the T documents.
[17] Page 53 of the T Documents.
The consequence of the findings above is that by operation of ss 1123, 1124 and 1126AA of the Act, there was a disposal of assets on 6 April 2011 to the value of $134 000 ($255 000 less $121 000) and this must be taken into account in determining the rate of pension to which Mr Zielke was entitled over the relevant period, unless any of the exclusions in s 1118 apply.
The Tribunal is not persuaded that the “Granny Flat” exclusion provisions in s 1118 apply. They only operate when the interest is in that person’s principal home. The evidence clearly established that Mr Zielke’s principal home was in the Philippines where he had built a residence and home. So whatever right he continued to have in the property, it was not in the same property as the principal home and ss 1118(1)(g) and (ga) do not assist him.
The exclusion in s 1118(1B) which applies if a person sells their principal home and then uses the proceeds to purchase, build or renovate another which becomes his principal home, does operate to assist Mr Zielke. There is uncontradicted evidence that he used proceeds from his interest in the property to build a home in the Philippines.
Pursuant to s1118(1B) the sum that was paid into building the home in the Philippines ($121 000) is to be disregarded in the assets test for the purpose of calculating the rate of Age Pension. In addition, the value of the disposed of asset, namely $134 000, affects the rate of calculation of Age Pension by virtue of s 1126AB for the 5 year period from 6 April 2011. Further, the allowable gifting amount of $10 000 must be taken into account.
Additional information filed by the Respondent on 5 April 2017 pursuant to a direction made on 29 March 2017 demonstrates that if the findings at paragraphs 47, 49 and 50 are assumed, the correct amount of the overpayment of Age pension is far less than the sum of $12 582.24.
The correct application of the law based on the findings made by this Tribunal lead to the conclusion that there has been an overpayment of Age Pension because Mr Zielke disposed of assets on 6 April 2011. However, the debt consequentially arising is only $9 149.85. The Respondent has acknowledged the inaccuracy of the earlier calculation of debt and made a reassessment consequent to the directions of this Tribunal on 29 March 2017. It is the reassessed decision in April 2017 that the Tribunal must either affirm or set aside.[18]
[18] By virtue of section 182 (2) of the Social Security (Administration) Act 1999.

Although Mr Zielke did not specifically contend that any debt owed ought to be waived because of special circumstances pursuant to section 1237AAD of the Act, his general contentions were such that the Tribunal ought to consider if the discretion to waive the debt ought to be exercised.
The discretion to waive a debt arising from overpayment of entitlements under the Act, can only be exercised when there are special circumstances. The decision on the tier 1 review by this Tribunal accurately identified the relevant considerations and instructed itself correctly about the law[19]. The facts of this case do not disclose special circumstances and the debt which I am now satisfied is owed in the sum of $9 149.85, should not be waived.
[19] T2, page 11 and 12 of the T documents, referring to Dranichnikov v Centrelink [2003] FCAFC 133.
In circumstances of severe financial hardship, the rate of payment of Age Pension may not be affected despite the disposal of the assets[20]. However, I was informed by Counsel for the Respondent that Mr Zielke had not made a hardship claim pursuant to the relevant provisions. Further, the Respondent is limited to consideration of a maximum period of 6 month prior to the claim[21].
[20] Section 1129 of the Act
[21] Section 1129(2) of the Act
As the overpayment arises all by reference to past periods more than 6 months ago, a hardship claim will not assist in reducing the debt owed[22]. Furthermore, Mr Zielke did not provide any compelling corroborated evidence about financial hardship. It appears that he has means because his daughter’s evidence was that she would continue to provide financial assistance from the balance $115 000 she held from sale of the half interest of the property. Further, the Respondent advised in the additional materials filed on 5 April 2017 that at that date, the debt has almost been recovered in full.
[22] Snodgrass and Secretary, Department of Social Services [2016] AATA 185.
The decision deemed to be under review, which the Tribunal was notified of by the Respondent on 4 April 2017, is that there was an overpayment of Age Pension and that the debt recoverable from Mr Zielke is $9 149.85. That decision is affirmed. I note that by the time this decision is published, Mr Zielke ought no longer be indebted because of the disposal of assets in 2011.
It is unfortunate that there have been so many determinations by the Respondent arising from the disposal of assets by Mr Zielke. It is desirable that the Respondent adopt greater care and precision when reassessing eligibility for entitlements upon receipt of information that impacts on such entitlements.
Ms S Taglieri, Member

I certify that the preceding 57 (fifty-seven) paragraphs are a true copy of the reasons for the decision herein of Ms S Taglieri, Member

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Associate
Dated: 13 April 2017

Date(s) of hearing: 27 January 2017 and 6 March 2017

Applicant: In person

Counsel for the Respondent: Mr Brian Sparkes

Date(s) of hearing:	27 January 2017 and 6 March 2017
Applicant:	In person
Counsel for the Respondent:	Mr Brian Sparkes