Editors --- "Cancellation and debt of carer payment: value of assets" [2009] SocSecRpr 43; (2009) 11(4) Social Security Reporter, Article 6

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Cancellation and debt of carer payment: value of assets

LOVEDAY and SECRETARY TO THE DFHCSIA

(2009/697)

Decided: 11th September 2009 by N. Isenberg

Loveday and the Secretary both applied for review of a decision made by the Social Security Appeals Tribunal (SSAT) on 23 August 2007.

Background

Loveday and her husband owned four properties at Riverstone, each comprising a number of lots. From 14 December 1995, Loveday was granted carer pension (now carer payment) for care provided by her for her husband.

On 22 February 1999, Centrelink sent Loveday a notice requiring her to notify Centrelink within 14 days if the value of her and her husband’s assets went over $178,500. Similar notices were sent to her over the next five to six years, each referring to an increasing base level of assets.

In July 2006, Centrelink initiated a review of Loveday’s carer allowance after information was received concerning properties owned and rented out. The Australian Valuation Office (AVO) provided valuations and as a result Loveday’s pension was cancelled on 3 October 2006.

In December 2006, the AVO provided further valuations of the properties, as a result of which Centrelink decided to raise a debt of $93,994.41 for the period 18 April 1996 to 19 September 2006. On review the cancellation decision was affirmed but the debt was reduced to $54,854.92 for the period 22 February 1999 to 19 September 2006. The debt for the earlier period (prior to 22 February 1999) was waived on the basis that the debt was caused by Centrelink’s sole administrative error before that date and Loveday received the payments in good faith, she apparently not having previously been advised about the review of her assets.

For the SSAT hearing Loveday engaged a valuer from Independent Property Valuations Pty Ltd (IPV) who completed valuations of the properties. As a result, the SSAT adjusted the value of Loveday’s assets which resulted in the debt having to be recalculated.

Issues

The principal issue in this case was the value to be given to Loveday’s assets, in particular her real estate.

Evidence

Each property comprised a number of lots and most were in a high flood area.

The Blacktown City Council Town Planner gave evidence that there was no indication of when the area might be developed, especially because it was prone to flooding and all structures erected on the properties before 1988 were ‘illegal dwellings’.

Two valuers, one retained by Loveday and the other by Centrelink from the AVO gave evidence and stated they had conducted further valuations of the properties for the purpose of the hearing, and critiqued each other’s valuations.

Loveday did not accept either valuation including evidence by her own valuer. She considered that both valuers had failed to take into account a number of matters peculiar to the properties and the Riverstone area:

- the devaluing effect of being in a high flood area

- the disestabilization and manipulation of the market by some unscrupulous property owners in the area, and

- the fact that lots could not be subdivided.

Loveday tendered a valuation from Blacktown City Council made on 26 May 2009, used as the basis for rate calculations for the properties until 2007, and which were supposedly based on the Valuer-General’s valuation. Loveday submitted that the Blacktown City Council valuation should be preferred to both the valuations presented but that she and her husband proposed appealing in the Land and Environment Court of New South Wales against that valuation.

Consideration

The AAT noted that the Act does not specify any particular method for the valuation of assets. In Kirkovski v Secretary, DFCS [2004] FCA 790 at [17] Bennett J noted:

The test which seems to have been applied by the AAT in a majority of cases is a net market value approach based on comparable sales and the ‘best use’ to which the asset could be put.

In Torv and Secretary, DSS [1992] AATA 185 the Tribunal stressed the necessity for valuations to proceed on the basis of truly comparative sales, that is, having regard to factors such as location, size, degree of improvement and potential use.

In Evans and Secretary, DSS [1993] AATA 497, the Tribunal considered the question of valuation of property for the purpose of assessing jobsearch allowance. Referring to Spencer v Commonwealth of Australia [1907] HCA 82; (1907) 5 CLR 418, the Tribunal said that ‘it is necessary to ascertain the highest and best use of the property’ and further to assess the price that a willing but not anxious buyer would pay the willing but not anxious seller to conclude a sale.

The Tribunal in Evans also referred toReynolds and Secretary, DSS (1986) 11 ALN N193, where it was said that a valuation done independently by an experienced and competent qualified valuer would carry considerable weight. It is a question of fact in each particular case, but in assessing the weight to give expert valuation evidence, the Tribunal may consider the following matters:

- is the valuer appropriately qualified?

- is the valuer experienced in the sort of valuation under consideration?

- was the valuer’s state of mind independent of the purpose for which the value was sought? and

- was the valuation carried out in accordance with accepted practices of the profession?

The accuracy, depth, logic and consistency of any valuation reports may also be a relevant consideration.

In relation to Loveday’s properties, the Tribunal considered the Blacktown City Council valuations and concluded that these were values used by the council in assessing land values for the purpose of issuing rate notices and did not meet any of the tests discussed above.

The Tribunal considered the qualifications of both the valuers and noted that the AVO valuer who gave evidence held a Master of Valuation (Real Estate), a Master of Valuation (Plant and Machinery), was an associate member of the Australian Property Institute and held a Bachelor of Science. The Tribunal noted Loveday’s valuer was the principal of Independent Property Valuations, an associate member of the Australian Valuers Institute and the Australian Property Institute, a former board member of the Australian Valuer’s Institute and held a Bachelor of Business (Land Economy) from the University of Western Sydney. The Tribunal found that both valuers were appropriately qualified.

The Tribunal next considered whether each valuer was experienced in the sort of valuation under consideration. It accepted that the AVO was a national organisation and had valuers operating in every area of Sydney who undertook specialised valuations in real estate, plant and equipment, business valuation, rural, government and specialised properties. The organisation undertook many valuations in Riverstone each year, but it was the experience of its valuer, and not the organisation as a whole which was of relevance. The Tribunal accepted that the AVO valuer was skilled in valuing property for the purposes of the application of the social security assets test and had experience in conducting private valuations.

The Tribunal also accepted that Loveday’s valuer had participated in over 25,000 commissioned reports, and had practised mainly in western Sydney, for over 15 years, post–qualification. The Tribunal noted that the valuer had lived in the area for 21 of the last 27 years and that the SSAT preferred his (earlier) valuation because of his experience in the area.

The Tribunal also accepted that both valuers were relevantly independent and in arriving at the valuations, both gave consideration to relevant factors of the subject properties.

After considering factors put forward by each valuer, the Tribunal concluded that the correct or preferable property valuations were as provided by Loveday’s valuer, other than for one of the properties from December 2004 where the Tribunal preferred the AVO valuation. The end result was that the calculation of Loveday’s assets for each year increased on the figures used by the SSAT in coming to its decision.

Overpayment and debt

The Tribunal concluded that on the available evidence Loveday had an ongoing entitlement to part payment of carer pension, however there was a debt and the amount would have to be re-calculated in light of its findings.

The Tribunal then considered whether the debt should be waived or written-off. The Tribunal found that Loveday had the capacity to repay the carer payment debt through deductions from her Centrelink payments and it was also possible to realise the properties. Therefore the Tribunal concluded that it was inappropriate to write-off the debt.

The Tribunal next considered whether the debt could be waived on the basis of administrative error.

Centrelink did not dispute that the overpayment before 22 February 1999 was attributable solely to administrative error and that part of the debt should be waived.

The Tribunal noted that on 22 February 1999, Centrelink sent Loveday a notice requiring that she notify Centrelink within 14 days if her combined assets exceeded $178,500. Over the next five to six years Loveday was sent similar notices.

Loveday told the SSAT that she thought that she was exempt from the assets test due to her husband’s blindness, and that the assets limit did not apply to her and so she did not respond to these letters. She also believed the value of her assets were less than the amounts stated in the letters from Centrelink because the Valuer–General valuations were considerably less. She submitted that she did not know when she first became aware that her assets might affect her carer pension.

The Tribunal found that Loveday contributed to the debt by not responding to the notice of 22 February 1999 and to subsequent notices. Consequently the debt could not be waived under s.1237A of the Act as the debt did not arise solely from Centrelink’s error.

The Tribunal also considered s.1237A(2) of the Act which provides for waiver of a debt where there is an underestimation of property value:

(2) If:

b) a debt arose because the debtor or the debtor’s partner underestimated the value of particular property of the debtor or partner; and

c) the estimate was made in good faith; and

d) the value of the property was not able to be easily determined when the estimate was made;

the Secretary must waive the right to recover the proportion of the debt attributable to the underestimate.

The Tribunal found Loveday’s evidence regarding this point was unclear. She also told the SSAT that she was not aware that the value of her assets might reduce her carer’s pension. The Tribunal rejected Loveday’s submission that it was enough to rely on the Valuer-General’s valuations which were considered to be notoriously conservative. In addition the Tribunal noted that Loveday had over the years displayed considerable interest in local property values: talking to council, challenging Valuer-General’s valuations, and attending local auctions. The Tribunal could not accept that Loveday underestimated the value of the properties in good faith and the waiver under s.1237A(2) therefore did not apply.

The Tribunal next considered s.1237AAD of the Act which provides for waiver of debts in ‘special circumstances’ and concluded there was no evidence that Loveday intentionally or deliberately failed to comply with her obligations. The Tribunal then considered whether there were any special circumstances other than financial hardship that made it desirable to waive the debt. The Tribunal noted that the Act provides no guidance as to the meaning of the term ‘special circumstances’.

The Tribunal accepted that both Loveday and her husband had some serious health issues but they could not be said to be in financial hardship as they had no debts and owned several unencumbered properties of some value.

The Tribunal specifically asked Loveday why one or more of the four properties could not be sold. She said that her husband took the view that he would not sell flood affected properties and thereby ‘take advantage’ of people. It was pointed out that two of the four properties were flood affected, and one was on ‘scheduled lands’ (which precluded the legal erection of dwellings). She thought that the remaining property should be retained to leave to her children and grandchildren.

Loveday gave evidence that they rely on her carer pension and her husband’s blind pension and they receive a total of $160 per week in rental for two of the properties.

The Tribunal observed that taxpayers are entitled to expect that in the ordinary course money paid to Centrelink beneficiaries to which they are not entitled will be recovered: Secretary, DSS v Hales [1997] FCA 1565; (1998) 82 FCR 154. For that reason the Tribunal concluded that taking all of Loveday’s circumstances together, they were not sufficiently unusual or unfair to justify a waiver of the debt.

Formal decision

The decision was set aside and the matter was remitted to Centrelink for reconsideration with the following directions:

e) as at 3 October 2006 Loveday was entitled to carer payment

f) Loveday’s entitlement to carer payment from 22 February 1999 to 20 September 2006 was to be reassessed and recalculated on the basis of the assets detailed in the reasons

g) to the extent that there was an overpayment during the relevant period, that amount constituted a recoverable debt, and

h) any debt arising from payments in the period before 22 February 1999 was waived on the basis of administrative error.

[S.P.]