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Social Security Reporter |
Disability support pension: assessable assets; principal residence exemption; disposal of assets; encumbrance over asset for benefit of son
(2008/892)
Decided: 7th October 2008 by G.D. Friedman
Mr and Mrs Mantzios were receiving disability support pension (DSP). In September 2000 they left Australia to live in Greece while their son subdivided their Bennett Street property and built three units, one of which they would retain as their residence. In 2005 Centrelink cancelled their DSP and in 2006 raised a debt of $35,871.74 each for amounts of DSP received on the basis that the property remained an assessable asset during the period 6 September 2001 to 6July 2005.
The central issue for determination was whether the property should be treated as an assessable asset in calculating the rate of DSP.
This required the Tribunal to consider the following questions:
When did the family home cease to be the principle residence of Mr and Mrs Mantzios?
Did they dispose of their Bennett Street property for inadequate consideration?
Should the value of the property be reduced by the amount of the charge or encumbrance on the property?
Did they dispose of Lot 3 for inadequate consideration?
Should the property be treated as an assessable asset in calculating the
rate of DSP?
The Tribunal noted s.11(7) of the Social Security Act 1991 (the Act) which provided (at the relevant time) that a residence of a person is taken to continue to be the person’s principal residence during any period (not exceeding 12 months) during which the person is temporarily absent from the residence.
Mr and Mrs Mantzios’ son gave evidence to the Tribunal that the family had decided that he would redevelop the Bennett Street property by subdividing it into a number of dwellings because the house purchased by his parents in 1972 as their principal residence was in urgent need of renovation. The intention was that the son would fund the redevelopment and in return Mr and Mrs Mantzios would retain one unit as their new unencumbered home and would transfer the others to their son for him to dispose of as he wished.
Mr and Mrs Mantzios told the Tribunal that they had decided to stay with family in Greece while the construction took place. Mr and Mrs Mantzios had left Australia on 6 September 2000 with the intention to stay only until their unit was built. They had no permanent home in Greece and during their stay they relied on relatives for temporary accommodation.
The Tribunal accepted Mr and Mrs Mantzios’ evidence noting that it was consistent with their son’s evidence about the planned redevelopment and Centrelink’s file notes and therefore found that the Bennett Street property was their principal residence until 6 September 2001, which was12 months after their departure from Greece.
Section 1123(1) of the Act provides that a person disposes of assets inadequately if the person engages in conduct that directly or indirectly disposes of the assets and receives no or inadequate consideration in money or money’s worth for the disposal.
Mr and Mrs Mantzios’ son produced a Deed of Agreement between himself and his parents, signed on 5 September 2000 which acknowledged that Mr and Mrs Mantzios were the owners of the property, that their son desired to undertake works including subdividing the property into three lots, constructing new units at his expense and coordinating the work needed and that in consideration of Mr and Mrs Mantzios transferring two lots to him, he proposed to construct a unit on a third lot to be retained by his parents.
In applying the decision of Frendo and Secretary, Department of Social Security [1987] FAC 438, the Tribunal found that there had been consideration for the transfer of Lots 1 and 2 because it was linked to the promise to construct a unit on Lot 3 by the Deed. The consideration of the transfer of Lots 1 and 2 was Mr and Mrs Mantzios’ enforceable future right to own a newly constructed unit on Lot 3.
The Tribunal noted that s.1123 of the Act also required an enquiry into whether a person received no consideration or inadequate consideration in money or money’s worth for the disposal of an asset and concluded that in all the circumstances there was not inadequate consideration, taking account of the terms of the deed.
This required the Tribunal to determine whether the charge or encumbrance had been given for the benefit of a person other than the person or the person’s partner. Section 1121 did not permit the reduction to apply in these circumstances.
Mr and Mrs Mantzios agreed that the Bennett Street property from 6 September 2001 to 7 March 2003 (date of subdivision),Lots 1, 2 and 3 from 4 March 2003 to 20 March 2003 (date of transfer of Lots 1and 2 to their son) and Lot 3 from 20 March 2003 to 17 December 2004 (date of sale) were assets in their possession. Their son had a one-fiftieth share in these assets in the same periods.
The evidence was that a number of loans had been taken out over the assets jointly in the names of Mr and Mrs Mantzios and their son during the relevant period.
On behalf of Mr and Mrs Mantzios, it was argued that these loans and their son’s one-fiftieth share of Bennett Street should be taken into account, at the relevant times, to reduce the value of the assets because the loans were taken out for the benefit of Mr and Mrs Mantzios under the Deed.
Although the loans had been taken out jointly by Mr and Mrs Mantzios and their son, the Tribunal found that it was their son who had effectively taken out the loans. The Tribunal found that their son had made all the decisions regarding the mortgage, made the repayments and discharged the loans. The Tribunal also held that the loans had not been for the benefit of Mr and Mrs Mantzios but were for the benefit of their son to assist him to carry out his obligation under the Deed to provide the Mantzios with a renovated unit on Lot 3 in exchange for the transfer to him of Lots 1 and 2. The Tribunal therefore decided that the loans and their son’s interest in Bennett Street did not reduce the value of the property for the purposes of calculating the value of the Mantzios’ assets.
The evidence before the Tribunal was that Lot 3 had been sold in December 2004 for $731,000 and the loan of$342,530 was discharged on the same day. The son told the Tribunal that in consideration of the proceeds of sale of $388,470 ($731,000less the discharge of the mortgage of $342,530) his parents had received payment of advertising and commission costs of about $20,000, loan and interest payments by him on remaining loans of $41,600 (secured by Lot 2, which were obtained to fund the redevelopment project); and the promise of a new and unencumbered unit.
The Tribunal found that the $342,530 of the proceeds of Lot 3went to discharging the mortgage over it and that the remainder was put towards repaying a loan that had been taken out for the benefit of the son to assist him in carrying out his obligations under the Deed. Given these circumstances, the Tribunal found that Mr and Mrs Mantzios had received inadequate consideration for the repayment of these loans and so had disposed of the proceeds of the sale of their asset. As the son owned one-fiftieth share in Lot3, the Tribunal determined that forty-nine fiftieths of the sale price must be treated as a disposed asset under s.1123 of the Act and must be maintained as an assessable asset for five years from 17 December2004.
The Tribunal set aside the decision under review and remitted the matter back to the Department to recalculate Mr and Mrs Mantzios’ entitlement to DSP from 6 September 2001 to 6 July 2005 in accordance with its reasons. The Tribunal further directed the Department to notify if after calculation, Mr and Mrs Mantzios had been overpaid, so that the issue of whether any debt should be waived or written off could be considered.
[G.B.]
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URL: http://www.austlii.edu.au/au/journals/SocSecRpr/2008/37.html