Editors --- "Age pension: assets test; fractional interest in real property; unrealisable asset provisions" [2009] SocSecRpr 42; (2009) 11(4) Social Security Reporter, Article 5

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Age pension: assets test; fractional interest in real property; unrealisable asset provisions

ANDERSON and SECRETARY TO DFHCSIA

(2009/7/11)

Decided: 21st September 2009 by R.P. Handley

Background

Anderson controlled the Jim Anderson Family Trust (the Trust) which owned a half interest in land at Yeppoon in Queensland.

In June 2004, Anderson claimed and was granted the age pension. In July 2004, the Australian Valuation Office (AVO) valued the share of the property held by Anderson for the Trust at $125,000 and he was paid a reduced rate of pension as a result.

In March 2005, Anderson had also made an application under the hardship provisions which had been rejected because whilst Centrelink agreed the property was unrealisable, it had decided that he did not satisfy the test for severe financial hardship.

Anderson sought review of these decisions. In July 2006, the AAT set aside the Social Security Appeals Tribunal (SSAT) decision following the course adopted in an earlier AAT decision, Ralph and Repatriation Commission [2006] AATA 258(Ralph) where the Tribunal had recognised that in the case of an undivided moiety while the relevant interest:

... is capable of being disposed by sale... It must be accepted that the market is not the same as the market that might exist for the sale and purchase of the whole property or similar properties.

In Ralph the Tribunal had rejected a proportionate approach on the basis that it was not considered to be the proper measure of market value.

Following publication of the AAT decision, Centrelink had arranged for the value of the Yeppoon property as at 29 July 2004 to be reassessed and a 15 per cent discount was applied to the valuation of $125,000 (50 per cent of the valuation of the whole property of $250,000) in recognition that his interest was an undivided moiety.

In May 2006, the AVO provided a revised value for the whole property attributing the increase in value to a rezoning of the land in October 2005 and from May 2006, Anderson’s pension was cancelled because the value of his assets exceeded the allowable limit.

Anderson subsequently sought review of Centrelink’s decision that he was not eligible for payment of age pension because the value of his assets exceeded the allowable asset limit.

Issues

The Tribunal accepted Anderson’s request that consideration of the issues under review be limited to the following questions:

Should value be attributed to the Yeppoon property? and

If so, what was the value which should be given to Anderson’s interest in the Yeppoon property in the period 24 June 2004 (the date of commencement of payment of a partial age pension) to 17 October 2005 (the date of rezoning of the land from ‘Rural’ to ‘Residential R1’)

It is unclear from the Tribunal’s reasons for decision the basis on which this apparent concession was made.

Should value be attributed to the Yeppoon property?

Anderson argued that because his interest in the property was unrealisable it could not be converted into money and therefore could not have a market value.

In considering ss.11(12) and (13) of the Social Security Act 1991 (the Act) which set out the definition of ‘unrealisable asset’, the Tribunal found that the provisions needed to be read in the context of the Act as a whole – a context which included the specific provisions in s.1129 addressing the problem of severe financial hardship. Underlying this context was that the Act is beneficial legislation.

The Tribunal reasoned that the hardship provisions were explicitly designed to ensure that those who were in severe financial hardship but who had unrealisable assets, which nevertheless had value in terms of the application of the assets test, were able to receive Social Security benefits. The Tribunal relied on the decisions in SRAAAA and Secretary, Department of Family and Community Services [2003] AAT 360 and Hayes and Repatriation Commission [2006] AATA 2001 – in so far as those cases recognised that despite the unrealisability of an asset, it could still be said to have value –albeit that it is not a value that is readily realisable.

In the case of the Yeppoon property the Tribunal opined that based on Anderson’s oral evidence it was likely to be sold at some stage and accordingly rejected his contention that the property had no value.

The valuation of the Yeppoon property

Anderson contended that Centrelink had continued to fail to apply the correct methodology for the valuation of his interest in the Yeppoon property in accordance with the AAT’s decision in Ralph with the consequence that Centrelink had failed to determine the proper value of his interest. The Tribunal considered the valuations obtained by Centrelink and Anderson. It also considered the Queensland State valuation. The Tribunal identified that there were two aspects to the issue: first what was the value of the whole Yeppoon property as at the relevant date and secondly what was an appropriate discount to apply to the value of Anderson’s half interest in the property.

In determining the value of the Yeppoon property, the Tribunal preferred the valuation of the Queensland State valuers. Centrelink’s valuer at hearing had acknowledged that the discount he applied was purely subjective and was not based on market evidence. The Tribunal had also rejected the valuation, obtained by Anderson, which valued his share at $75,000, on the basis that it was not exactly clear how the valuer had arrived at this valuation.

The Tribunal reasoned that because there was little objective evidence on which to make a decision and given the Act was beneficial legislation it relied on the Queensland State valuation of $180,000 for the whole property noting that it was a conservative figure. In coming to a view on the appropriate discount to apply to the value of Anderson’s interest in the property, the Tribunal opined that ‘with a property of relatively low value, the discount required to attract a potential purchaser would need to be significant – otherwise one might anticipate that it would be simpler and easier for the potential purchaser to buy elsewhere.’ Applying this reasoning, the Tribunal allowed a discount of $20,000 noting that this figure had been mentioned in relation to the costs of subdivision and accordingly valued Anderson’s interest in the property as at 29 July 2004 at $70,000 for the purpose of the assets test.

Formal decision

The AAT set aside the decision under review and remitted the matter with the direction that Anderson’s entitlement to age pension for the period 24 June 2004 to 17 October 2005 be recalculated on the basis that his interest in the Yeppoon property should be valued at $70,000 as at 29 July 2004.

[G.B.]