Editors --- "Assets test: exempt assets; proceeds of sale of principal home; whether exemption limited to a period of 12 months from the sale of the principal home" [2006] SocSecRpr 35; (2006) 8(3) Social Security Reporter, Article 12

• SECRETARY TO THE DEWR and SAAJ
• Background
• The issues
• The legislation
• Discussion
• Formal decision

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Assets test: exempt assets; proceeds of sale of principal home; whether exemption limited to a period of 12 months from the sale of the principal home

SECRETARY TO THE DEWR and SAAJ

Decided: 28th June 2006 by D. G. Jarvis

Background

Following the break up of her marriage, Saaj decided to sell her principal home and use the proceeds to construct a new principal home for herself and her children. Centrelink decided that the proceeds of the sale were exempt for the purposes of the assets test for a period of 12 months from the date of the sale.

Unfortunately, there were delays in the construction of the new home and the 12 month period expired. As the 12 month period had expired, Centrelink decided to cancel Saaj’s parenting payment (single).

Saaj sought review of this decision and was ultimately successful before the SSAT. The Secretary sought review of the SSAT’s decision by the AAT.

The issues

This case concerns the construction of section 1118(2) of the Social Security Act 1991 (the Act). In particular, the AAT was concerned with whether the exemption of proceeds of the sale of a principal home under section 1118(2) was limited to the 12 month period immediately following the sale of the home, or whether that period could be extended.

An alternative argument on behalf of the respondent was also before the AAT concerning whether the partly constructed house could be treated as the respondent’s ‘principal home’ in the event that section 1118(2) ceased to apply to exempt the sale proceeds in this case.

The legislation

Section 1118(2) provides:

1118(2) If:

(a) a person sells the person’s principal home; and

(b) the person is likely, within 12 months, to apply the whole or a part of the proceeds of the sale in acquiring another residence that is to be the person’s principal home;

so much of the proceeds of the sale as the person is likely to apply in acquiring the other residence is to be disregarded during that period for the purposes of this Act.

Discussion

The AAT considered that section 1118(2) of the Act could not be characterized as ambiguous or obscure. The AAT considered the wording of the section to be clear and found the section only allowed the proceeds of the sale of a principal home to be disregarded for a period of 12 months from the sale of the home, provided of course that the proceeds were likely to be used in acquiring a new principal home. The AAT considered that this interpretation of section 1118(2) was consistent with other provisions in the Act, such as section 11(4)(c) of the Act.

Further, the AAT observed that section 1118(2) was not inconsistent with the beneficial nature of the Act, in that the section provided a social security recipient with 12 months in which to use the proceeds of the sale of their home to acquire another home without losing their benefits.

The AAT considered that construing section 1118(2) in a manner that would allow for the 12 month time frame to be extended was not permissible and was inconsistent with principles of statutory interpretation. The AAT observed that doing so would be tantamount to rewriting the provision.

During the hearing, the respondent’s representative referred the Tribunal to an extract from the Guide to the Social Security Law at paragraph 4.6.2.10. That extract relevantly provides:

The 12 month exemption CAN be extended IF the customer CAN demonstrate:

· that they had a genuine intention to spend the payment within 12 months, BUT

· were unable to for reasons beyond their control.

Example: The exemption can be extended if building materials or a building contractor were unavailable.

The AAT considered that this part of the Guide was not relevant to the construction of section 1118(2) of the Act, as it was included in a section entitled ‘Assessing compensation & insurance payments’. In the event that the paragraph did apply to section 1118(2), the AAT considered that the terms of the Guide could not override the clear provisions of the Act.

Further, the AAT rejected the alternative argument put by the respondent that the partly constructed house should be treated as the respondent’s ‘principal home’. The AAT noted that a ‘principal home’ is the place where the large majority of a person’s domestic life was carried out. The AAT considered that, as the respondent had never resided in the partly built house and the house was not fit for habitation, it could not be said that it was her principal home. The AAT noted that the respondent and her children carried out their domestic life in their rental premises.

The AAT made some comments in the decision about the valuation of partly constructed homes. In this particular case, the AAT was of the view that the partly constructed house would not have had a negative effect on the value of the block for the purposes of the assets test under the Act.

Formal decision

The AAT set aside the decision under review and substituted a decision that the respondent was not entitled to parenting payment (single) after the expiration of the 12 month exemption period in section 1118(2) of the Act.

[S.O.]