Editors --- "Assets test: effect of cavea" [2005] SocSecRpr 6; (2005) 7 Social Security Reporter, Article 6

• FINLEY and SECRETARY TO THE DFaCS
• Background
• Legislation
• The issues
• Discussion
• Formal decision

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Assets test: effect of caveat

FINLEY and SECRETARY TO THE DFaCS

(2005/018)

Decided: 11th January 2005 by R. Hunt

Background

Finley’s age pension payment was significantly reduced under the assets test in November 2003 when a property she had inherited from her mother in 1996 was valued by the Australian Valuer’s Office (AVO) at $300,000.

Finley claimed hardship and argued that the property was an unrealisable asset because of a caveat lodged by her sister on 26 March 1996. Finley disagreed with the valuation of the property, arguing that the value was reduced by the caveat.

Ms Finley told the AAT that her sister was claiming a half share in the property, and acknowledged on the hardship claim form that her sister ‘owns half the house as per caveat’. Finley wrote to the AAT in December 2004 stating that it was her intention to give her sister half of the value of the property upon sale.

Finley informed the Tribunal that she had not attempted to sell the property because she thought it might be difficult to sell and wrote on her hardship claim form that she was waiting for the best time to sell.

It was not disputed that Finley was the sole owner of the property since her husband passed away in2001.

Legislation

Under the Social Security Act 1991 (the Act) age pension is subject to an assets test, which requires the calculation of the value of a person’s assets.

Section 1129 governs access to the assets test hardship rules, which among other things requires a person to satisfy the Secretary that they have an ‘unrealisable asset’ and would suffer severe financial hardship if the section didn’t apply. An ‘unrealisable asset’ is defined in s .11(12) and s.(11(13):

11(12)An asset of a person is an unrealisable asset if:

(a) the person cannot sell or realise the asset; and

(b) the person cannot use the asset as a security for borrowing.

11(13) For the purposes of the application of this Act to a social security pension (other than a pension PP (single)), an asset of a person is also an unrealisable asset if:

(a) the person could not reasonably be expected to sell or realise the asset; and

(b) the person could not reasonably be expected to use the asset as a security for borrowing.

Section 1130 states that if section 1129 applies to a person, the value of an ‘unrealisable asset’ is to be disregarded when calculating a person’s pension rate.

The issues

The main issue to be decided was whether the caveat on the property prevented its sale or reduced its value.

Discussion

The AAT found that the property was an asset that must be taken into account for the purposes of the age pension rate calculation as required by ss.55 and 1064 of the Act. The AAT held that the rate reduction had been appropriately calculated using the lower estimate of property value obtained by Centrelink from the AVO. The AAT accepted this valuation noting the absence of any evidence challenging the valuation by the AVO.

The AAT then turned to the question of whether the caveat prevented sale of the property or reduced its value. The Tribunal found that a caveat ‘is simply a device for protecting an interest claimed’ and noted that there is a ‘readily available’ process for requesting the Registrar General to remove a caveat. The Tribunal found that

until Finley takes formal steps to place the property on the market to test its value or enters into an enforceable agreement with the sister giving her half a share, there is no basis on which the Secretary or the Tribunal can treat Finley’s interest in the Charles Street property as any less than the value to her of $300,000. (Reasons, para. 16)

The Tribunal also observed that the caveat was not a charge or encumbrance whose value could be deducted from the asset as it did not prevent sale of the property or of itself create any right of payment to the caveator. The AAT found that it was within Finley’s power to take steps to realise the asset and that the hardship provisions should therefore not apply in her case.

Formal decision

The AAT affirmed the decision under review.

[A.M.]