Editors --- "Exceptional circumstances relief payment and asset test: value of assets, principles of valuation, effect of Family Court order on value of interests in assets" [2008] SocSecRpr 20; (2008) 10(2) Social Security Reporter, Article 2

• HENDERSON and SECRETARY TO THE DFHCSIA
• Background
• Decision 1
• Decisions 2 and 3
• Formal decision

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Exceptional circumstances relief payment and asset test: value of assets, principles of valuation, effect of Family Court order on value of interests in assets

HENDERSON and SECRETARY TO THE DFHCSIA

(2008/468)

Decided: 5th June 2008 by S.A. Forgie

Background

Henderson owned a farming enterprise jointly with his former wife which consisted of 2 main lots of land on separate titles. Their marriage ended and an order of the Family Court dated 17May 2005 provided for the sale of the farm and distribution of the proceeds between them.

From at least 2003, Henderson had been in receipt of disability support pension (DSP). Over the years, his DSP rate had been readjusted and reduced based on various assessments of his assets and income. In respect of the farming enterprise there had been a few valuations. Henderson had submitted a value by the Valuer-General of $250 000 for a capital improved value. In February 2006, Centrelink received a valuation from the AVO of $480 000. A year or so earlier, Centrelink had CJA Lee and Associate’s kerbside valuation of $400 000. Centrelink had firstly relied on the kerbside valuation and then the Valuer-General’s valuation to assess the value of the farming enterprise.

On 30 September 2005, Henderson lodged a claim for exceptional circumstances relief payment (ECRP) following a further declaration that his farm enterprise was located in an area that had been affected by exceptional circumstances. Though he had previously been in receipt of ECRP for the period 2003 to August 2005, his fresh claim was refused. At the time of lodging the ECRP claim, Henderson was receiving DSP. His DSP was later cancelled on 6 March 2006 on the basis that his assets exceeded the allowable limit. His subsequent claim for newstart allowance (NSA) was also rejected on 28 July 2006.

Henderson subsequently sought review before the Tribunal of the following decisions:

Decision 1: To refuse his claim to pay him ECRP under the Farm Household Support Act 1992 (FHS Act).

Decision 2: To reduce the rate of DSP under the Social Security Act 1991 (the Act) that he was paid with effect from 7September 2005 to the point where it was cancelled on 6 March 2006 on the basis that his assets exceeded the allowable limit.

Decision 3: To reject his application for NSA under the Act on 28 July 2006.

Decision 1

After setting out in detail, the legislative scheme governing ECRP, the Tribunal noted that s.12(1) of the FHS Act stated that ECRP was not payable to a person if that person is receiving asocial security pension.

As Henderson was receiving DSP at the time of the fresh claim, the Tribunal considered that the question to be determined was whether a person could choose whether he is paid ECRP or DSP when he is entitled to both or whether the decision is made by the DFHCSIA Secretary.

The Tribunal found that the decision rested with the individual, and stated at para. 83of the decision:

It seems to me that a person receiving DSP could claim and, if successful, be paid ECRP only if he or she withdraws his or his claim for DSP in some way before being paid ECRP. Without a claim, DSP would no longer be payable for it is not open under 94A for the DFHCSIA Secretary to decide that a person is entitled to DSP when considering a claim for ECRP. Once DSP, which is a social security pension, is not payable and is in fact not paid, it cannot be said that the person “is receiving asocial security pension”. Whether there remains a claim is a choice that lies in the hands of the recipient. It is not one that the delegate may make for the person even though, as in this case, it is to be expected that the delegate has acted with the best interests of the person firmly in mind.

On the facts, the Tribunal found that Henderson had not renounced his entitlement to DSP and that he was receiving the pension when the decision regarding his claim for ECRP was made. As Henderson’s affairs were being managed by an administrator at the time, the Tribunal went on to consider whether the issue was a decision for the administrator. Noting that the role of administrator is to be distinguished from a guardian, the Tribunal concluded that the decision remained with Henderson.

Decisions 2 and 3

These decisions rested on the assessment of Henderson’s income and assets. At various times, Henderson’s assets included the farming enterprise, shares, household contents and effects, and farm equipment and he had income from payments under the Dairy Adjustment Scheme.

The Tribunal considered the various valuations that had been obtained in relation to the farm enterprise. In considering the valuations obtained from the Valuer-General and the AVO, the Tribunal noted that valuations can be prepared for different reasons. The Tribunal noted that the Valuer-General’s valuation had been prepared under its own statute which was principally concerned with rates and charges on rateable land and not for the purposes of the Act. Whereas, the AVO had adopted as its basis the market value which the Tribunal found was the basis that accords with the principles underlying payments of NSA and DSP under the Act. Accordingly, the Tribunal preferred the value of the AVO to that of the Valuer-General and determined that it was appropriate for Centrelink to adopt the AVO’s value after it had been received in February 2006 and that it remained valid until the property was actually sold. Prior to February 2006, the Tribunal noted that Centrelink had relied on CJA Lee and Associate’s kerbside valuation in December 2004 of$400,000. The Tribunal expressed the view that it was an acceptable method of valuation notwithstanding the limitations of it taking place from the kerbside. In the absence of any other valuation available at the time, the Tribunal found that it was an appropriate basis to assess the farm enterprise until the AVO valuation was received in February 2006.

Finally, the Tribunal considered the relevance of the Family Court order and its consequence before the property was sold in February 2006 and finally settled in May 2006. The Tribunal found that s.1121A of the Act did not apply as it could not be regarded as a liability related to the carrying on of primary production. The Tribunal determined that the Family Court order could be regarded as a charge or an encumbrance over the property within the meaning of s.1121 of the Act after considering the ordinary meaning of a charge or encumbrance and the reasoning of the Tribunal in Fawthrop and Repatriation Commission[1993] AATA 359; (1993) 36 ALD 140. The Tribunal added that this conclusion was consistent with the requirement in s.11(2) of the Act that the value of a jointly owned asset is a reference to the value of a person’s interest in that asset and in s.11(3) that the value of a charge or encumbrance on an asset is the value of that charge or encumbrance so far as it relates to the person’s interest in the asset. Having regard to the rationale of the assets test, the Tribunal stated that the value of assets should be assessed on the basis of what they would realize. The Tribunal observed that ‘they cannot realize more than would remain after a sale of the sort to which I referred and the deduction of any amounts in relation to which a third party would have a right to resort to the land in order to be paid’.

The Tribunal then considered whether the charge or encumbrance over the asset was given for the benefit of Henderson’s ex wife. The Tribunal noted if it hads.1121 could not apply. The Tribunal came to the view that the Family Court order could not be said to have been ‘given’ for the benefit of the party as it was the alteration of interests of the parties in the marriage imposed on the parties, albeit with their consent. In so deciding the Tribunal stated that the fact that the Family Court order alters the interests of the parties, gave rise to a second and stronger reason for concluding that Henderson’s interest in the farm between the date of the order and the sale should be assessed in accordance with the order. The practical effect of the order was to alter the interests of the parties to the marriage in the farm so that Henderson’s interest amounted to that determined by the order.

The Tribunal concluded that the assessment of the value of the farm for the purposes of DSP was not appropriate as it did not appear to have had regard to the impact of the Family Court’s order between the date on which the order had been made and the date of the sale of the farm. The Tribunal further noted that as at date Henderson’s NSA claim was made, the Family Court order was no longer relevant because by that time the farm had been sold, settlement had taken place and the proceeds had been paid.

Formal decision

The AAT affirmed the decisions to refuse to pay Henderson exceptional circumstances relief payment and to reject his claim for newstart allowance and set aside the DSP decision, remitting it back for the rate of DSP to be reassessed having regard to:

(i) the value of the farm enterprise from the date of Henderson’s claim for DSP made on 27 June 2006 to 6 December 2005 being$400,000;

(ii) the value of the farm enterprise from 7 December 2005 to the date of the sale of that property being $480,000;

(iii) the value of Henderson’s interest in the farm enterprise until the date of sale on 12February 2006 calculated on the basis of the Family Court orders; and

(iv) from the date of sale, the net proceeds of the sale that would be payable to Henderson from the date of settlement.

[G.B.]