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Social Security Reporter |
Assets test: whether loan facility used by children were loans from parent
(2005/331)
Decided: 13th April 2005 by R. Hunt
Gordon and his wife were receiving age pension when, on 19 September 2003, they completed an updated income and assets statement at the request of Centrelink disclosing that their children were using their revolving loan facility that was secured against their house.
Gordon claimed that he had offered this facility to his children after a Centrelink officer had told him that the arrangement would not affect his pension entitlements.
As a result of this disclosure Centrelink treated the amounts borrowed by the children as loans made by Gordon to his children and hence reduced Gordon’s pension rate by the value of his financial assets. Gordon sought review of this decision.
The issue to be determined was whether the advances to Gordon’s children were loans and financial assets forage pension purposes.
Gordon’s case
Gordon argued that he was simply guarantor for the loans and not a lender. He did not regard the advances to his children as loans by him as he made no repayments and received no money from his children who made the repayments directly to the bank. Moreover he had received no benefit from the arrangement, the debts having in fact incurred about $5000 in interest.
Section 9 of the Social Security Act 1991 (the Act) defines “financial assets” as including financial investment. As well, “financial investment” in s.9(1)of the Act is defined so as to include “a loan that has not been repaid in full.”
The value of the loan is calculated according to s.1122 of the Act. Section 1122 of the Act provides as follows:
1122. If a person lends an amount after 27 October 1986, the value of the assets of the person for the purposes of this Act includes so much of that amount as remains unpaid but does not include any amount payable by way of interest under the loan.
The AAT found that the children’s borrowings were loans and financial assets in accordance with the Act on the basis that the children’s obligations to make repayments were as a result of an understanding with Gordon and were not pursuant to any contractual obligations they owed to the bank. The contractual obligations to the bank in respect of the loan facility rested with Gordon.
The AAT agreed with the earlier decisions of Ropert and the Secretary, Department of Social Security (1999) AATA 15 and Unicomb and the Secretary, Department of Social Security (1998) 82 FCR 96 which found that in accordance with s. 1122 the value of the loan assets was the amount unpaid, and which could not be reduced by the interest due to the bank. The Tribunal also observed that paragraph 4.2.2.40 of the Guide to Social Security Law pointed out that loans made to family members were nevertheless loans.
The AAT affirmed the decision under review.
[G.B.]
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URL: http://www.austlii.edu.au/au/journals/SocSecRpr/2005/7.html