Editors --- "Assets and income test: meaning of 'financial asset', 'available money' and 'deposit money'" [2007] SocSecRpr 18; (2007) 9(2) Social Security Reporter, Article 5

• THOROGOOD and SECRETARY TO THE DFaCSIA
• Background
• The law
• The evidence
• Consideration
• Formal decision

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Assets and income test: meaning of 'financial asset', 'available money' and 'deposit money'

THOROGOOD and SECRETARY TO THE DFaCSIA

(2007/1126)

Decided: 13th March 2007 by P. E. Hack

Background

Thorogood and his wife both claimed age pension and the pension bonus on 18 November 2005. The claims were both granted. However, Centrelink decided that the rate at which their age pension and pension bonus were to be paid was affected by their financial assets at that time, including the amount of $155,111.21 which was deposited in their bank account. The central issue in this appeal was whether $151,000 of this amount was a ‘financial asset’, as a cheque had been drawn on this account for that amount, but had not yet been paid out, as at the date of the claim.

The law

Division 1B of Part 3.10 of the Social Security Act 1991 (the Act) provides a mechanism by which income is deemed to be earned on financial assets, regardless of the actual return received on the investment. This mechanism is commonly known as ‘the deeming rules’.

The term ‘financial asset’ is defined in s.9(1) of the Act to include a ‘financial investment’ or a ‘deprived asset’. That subsection also provides a definition for the term ‘financial investment’:

‘financial investment’ means:

(a)available money; or

(b) deposit money; or

(c) a managed investment; or

(d) a listed security; or

(e) a loan that has not been repaid in full; or

(f) an unlisted public security; or

(g) gold, silver or platinum bullion; or

(h)an asset tested income stream (short term).

The terms relevant in this matter were ‘available money’ and ‘deposit money’. These are defined in s. 8(1):

‘available money’ , in relation to a person, means money that:

(a) is held by or on behalf of the person; and

(b) is not deposit money of the person; and

(c) is not the subject of a loan made by the person.

‘deposit money’ , in relation to a person, means the person’s money that is deposited in an account with a financial institution.

The evidence

The facts in this case were not in dispute. Thorogood had been planning his retirement from work for some time before his and his wife’s claims for age pension and pension bonus were lodged, and had engaged the services of a financial planner employed by AMP Financial Planning Pty Ltd (AMP). On 8 November 2005 the financial planner provided Thorogood with advice on a way to convert his savings into a particular type of superannuation pension plan that would be exempt from assessment under the Act.

Thorogood agreed to act on this advice and provided a cheque for $151,000 to AMP on 9 November 2005. He was given a receipt for the cheque on that day. Thorogood and his wife claimed age pension and the pension bonus on 18 November 2005. Their age pensions were granted with effect from 14 November 2005. However, the superannuation pension plan was not issued until its eventual date of purchase of 16 December 2005.

In determining the rate at which the age pension was payable to the Thorogoods, Centrelink took the view that the whole amount of $155,113.21 in their bank balance was to be taken into account as a financial asset. The Thorogoods argued that only the balance, after taking the effect of the cheque for $151,000 into account, should have been assessed as a financial asset. Note that Centrelink increased the rate after 16 December 2005, as Centrelink took the view that this was the date on which the purchase of the superannuation pension plan was finalised. However, the rate at which the age pension was payable at the date it was claimed also had a significant effect on the rate at which the pension bonus was payable.

Consideration

The Tribunal analysed the contractual dealings between Thorogood and AMP. The Tribunal concluded that, once the AMP financial planner had accepted the cheque for $151,000, AMP came under an enforceable obligation to provide Thorogood with a superannuation pension plan in the terms agreed between them.

The Tribunal then undertook an analysis of the law concerning the character of undrawn funds. The Tribunal stated that the general principle from the case-law was that a disposition of property by way of a cheque will take place not when the cheque is paid, but on the date on which the cheque was issued. On this basis, when Thorogood drew the cheque for $151,000 and delivered it to AMP’s agent, he transferred to AMP the entire face value of the cheque. Because the cheque was honoured on its eventual presentation, it constituted actual payment of Thorogood’s debt to AMP from the time it was given. As the definition in the Act of ‘available money’ is intended to encompass money immediately available to a person, the amount of $151,000 in the bank account that was required to honour the cheque could not be regarded as ‘available money’ for the purposes of the Act.

The Tribunal then considered whether the amount met the definition of ‘deposit money’. The Tribunal decided that it met this definition. The definition of deposit money in the Act to include ‘the person’s money that is deposited in an account in a financial institution’ was sufficiently broad to encompass all of the money in the bank account. The Tribunal noted that the drawing of the cheque did not create a charge over specific funds standing in Thorogood’s account. It was theoretically possible for Thorogood to draw against the funds, despite having issued the earlier cheque, even though he had no intention of doing so. The money in the account still technically belonged to Thorogood, so long as the funds remained in the account. That is, the amount represented by the cheque was a financial asset up to, and including, the day prior to the presentation of the cheque to Thorogood’s bank. For this reason the amount of $151,000 was to be included in the calculation of Thorogood’s and his wife’s financial assets for the purposes of working out their rate of age pension and pension bonus at the date of their claims for these payments.

Formal decision

The Tribunal set aside the decision under review and remitted it to the respondent for reconsideration in accordance with the direction that the entitlement of the applicants to age pension and pension bonus be determined on the basis that the sum of $151,000 was a financial asset of the applicants up to, and including, the day prior to the presentation of the cheque for $151,000 to the applicants’ bank.

[D.A.]

Note: The decision under review was set aside because the AAT had no evidence before it regarding the date of presentation of the cheque, but concluded is was unlikely to be 16.12.05.