Editors --- "Assets test: value of land outside curtilage of home" [2009] SocSecRpr 12; (2009) 11(2) Social Security Reporter, Article 1

• HUGHES and SECRETARY TO THE DFHCSIA
• Background
• The issue
• The law
• Evidence
• Discussion
• Findings
• Formal decision

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Assets test: value of land outside curtilage of home

HUGHES and SECRETARY TO THE DFHCSIA

(2009/293)

Decided: 29th April 2009 by P.E.Hack

Background

Jack Hughes and his mother, Francis Hughes were the owners of property in Brisbane. The area of the property was 4.197 hectares. A home was located on the property. On 17 July 2008, an AVO valuer decided that the entire property was valued at $1 million and that the dwelling house and two hectare curtilage was valued at $886,000. The balance of the value, being $114,000 was therefore not an exempt asset and was treated accordingly in respect of Mr and Mrs Hughes’ pension entitlement.

The issue

Mr and Mrs Hughes accepted the valuation of $1 million for the entire property. However they believed that the land outside the two hectare curtilage had only nominal value. It was therefore the value of the land outside this two hectare curtilage which was in dispute.

The law

The value of a person’s principal home is excluded from their assets (s.1118(1) of the Social Security Act 1991 (the Act)). However where the land is greater than two hectares, the value of the land exceeding the two hectares is treated as an asset for the purposes of pension entitlement.

The Act does not establish a process for valuing assets. The Tribunal noted various cases (Fakhry and Repatriation Commission (1986) 11 ALD 75; 5 AAR 441 Reynolds and Secretary, Department of Social Security (1986) 11 ALN N193) which had set out the steps to be taken in valuing land outside the two hectare curtilage as follows:

In summary therefore, in order to assess the value of the real property to be taken into account for the purpose of calculating the rate of the applicant’s pension, the Act requires the following process. First, to obtain the market value of the whole of the real property by assessing what amount the applicant as a hypothetical but not unwilling seller could obtain for his property from a hypothetical desirous purchaser. Second, to obtain the market value of the applicant’s principal home and curtilage of 2 hectares by assessing what amount the applicant, as a hypothetical and not unwilling seller, could obtain for that property from a hypothetical desirous purchaser, as if that property were capable of subdivision. Third, to disregard the value of the home and curtilage by deducting the market value of home and curtilage from the market value of the whole; the difference is then the value of the property to be taken into account for the purpose of assessing the applicant’s rate of pension.

(Reasons, para. 20)

Evidence

Evidence was provided that there were a number of restrictions in relation to the use of the land. Firstly, it could not be subdivided and there was no foreseeable prospect of subdivision being permitted in the future. In addition, the land was subject to environmental protection orders, protecting trees and vegetation. Two waterway corridors that crossed the land were subject to restrictions prohibiting the use of land within those corridors.

The land itself was rectangular in shape on the northern slopes of Mount Cootha. The land sloped up from the northern boundary and was also steeply contoured to the rear of the house.

The valuation evidence provided by the applicant was by way of two private valuers and a surveyor and town planner. Based on the topography, vegetation restrictions and the limitations in relation to subdivision, the valuation evidence was that land in addition to the two hectare curtilage had a nominal value of $1.

The AVO valuer provided three reports to the Tribunal. A direct comparison method was used taking into account similar nearby properties. The valuation assessed the home and curtilage at $886,000. A further valuation provided to the Tribunal increased this amount to $892,000.

Discussion

The Tribunal had great difficulty accepting the valuation evidence and approach provided by the AVO valuer, primarily because the comparison method used did not explain the process of comparison ie how the comparative properties compared with the land in question.

The Tribunal found this evidence generally unacceptable for a number of reasons and the Tribunal was unable to accept the AVO valuation of $886,000 or $892,000 as the value of the house and curtilage.

In respect of the valuation proposed for the applicant the Tribunal considered this persuasive. It found that the land was in ‘a most unusual position’ and that the restrictions on the land would prevent any meaningful use of the additional land by a prospective purchaser. There was also no realistic prospect of subdivision and it was unrealistic to regard the land as offering any additional home sites.

Findings

The Tribunal concluded that:

This case presents an extreme example of the type referred to in Fakhry where the worth of the overall parcel is concentrated in the curtilage area and the balance effectively adds nothing to the value of the whole. By reference to Reynolds it may be said that the value of the dwelling and the two hectare curtilage is for all practical purposes the same as the value of the whole. (Reasons, para. 46)

Consequently the Tribunal found that the value of the land outside the two hectare curtilage had no practical value and therefore no amount should be considered when assessing the rate of pension for Mr and Mrs Hughes.

Formal decision

The AAT set aside the decision under review and remitted the matter with the direction that the applicant’s entitlement to the age pension be determined on the basis that the balance of the land over and above the dwelling house and two hectares had no value.

[R.P.]