Editors --- "Age pension: assets test; valuation of land adjacent to home" [2013] SocSecRpr 6; (2013) 15(1) Social Security Reporter, Article 6

• SECRETARY TO THE DFHCSIA
• Background
• The issue
• Consideration of the evidence
• Formal decision

---

Age pension: assets test; valuation of land adjacent to home

SECRETARY TO THE DFHCSIA

(2012/840)

Decided: 28th November 2012 by B.J. McCabe

Background

Mr and Mrs Lind owned their home on a property where they had lived for many years. In May 2000, they purchased a parcel of land from their neighbour across the creek. It had no road access. They paid $75,000 for the property. They built a bridge over the creek. In December 2010 the Linds applied for the age pension. They provided information about their assets and income to Centrelink and nominated the current market value of the property they acquired in 2000 to be $75,000 (as the property did not have road access and the Valuer-General had nominated that amount in the latest rates notice.) They were granted age pension.

Centrelink engaged Mr Burgis of the Australian Valuation Office to conduct a valuation of the parcel of land and on 25 January 2011, he estimated the property was worth at least $225,000. Centrelink reduced the Linds’ pensions on the basis of that valuation. The Linds asked for a review of that decision. On 20 April 2011 Mr Burgis increased the valuation as at January 2011 to $325,000. Mr and Mrs Lind appealed that decision. They were successful before the Social Security Appeals Tribunal (SSAT). The Secretary sought review by the AAT.

The issue

The issue was whether the parcel acquired in 2000 was an assessable asset and if so, the correct value to be ascribed to it.

Consideration of the evidence

The AAT noted that pursuant to s.1118(1) (b) of the Social Security Act 1991 (‘the Act’) the Linds’ family home was not an assessable asset. The AAT found that as the land acquired in 2000 was on a separate title it could not be regarded as being part of their home (s.11A(1)(a)(i) of the Act). The Tribunal also found that while the Secretary had the discretion in certain circumstances to ignore the fact that properties are not held on the same title document, none of the pre-requisites in s.11A(2) were satisfied in this case. It concluded that the value of the adjoining block must be assessed for the purposes of the assets test.

The Tribunal then considered how the property should be valued and noted that the Act did not specify how properties are to be valued or define ‘value’. It referred to the decision by Bennet J in Kirkocski v Secretary, Department of Family and Community Services (2004)FCA 790 (at [17]):

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

The AAT referred to another Tribunal decision for further explanation. In Secretary, Department of Social Security and Margaret Langton and Maree Langton (1993) AATA 315; 31 ALD 579 at [33] the AAT adopted the definition of market value suggested by The International Assets Valuations Standards Committee:

Market value is the estimated amount for which an asset should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing, wherein the parties had each acted knowledgably, prudently and without compulsion. (The Valuer and Land Economist, May, 1993)

While noting that the Linds had no intention of selling the property the Tribunal emphasised the need to look at what hypothetical buyers and sellers might do.

Three expert valuers were asked to value the property (as at January 2011), two were called by the Secretary including Mr Burgis and one called by the Linds, Mr Smits. All were qualified valuers with relevant experience. The difference between them was summed up by Mr Smits who said the real issue was the availability of legal access. He said that unless the Linds were prepared to provide legal access so a purchaser of the property could access the bridge over the creek by driving down the Linds’ driveway, the property was unlikely to be worth more than $75,000.

Mr Burgis estimated the value of the property if it had unfettered access at about $500,000. He said that a seller would be taken at common law to have granted an implied right of access to the property which meant a purchaser would enjoy legal access via the Linds’ driveway. That access would reduce the value of the house block and lead to additional costs to the Linds in the order of $175,000. The hypothetical seller would negotiate a deal with the purchaser of the block over an easement or registered agreement – and the buyer would be willing to deal in order to secure his rights of access. The AAT thought this approach was ‘artificial’ but accepted that Mr Burgis offered a carefully reasoned argument in support of the figure he reached.

Mr Smits insisted a purchaser would be unwilling to buy the property without legal access. Since the Linds were unwilling to provide such access, the property was only saleable on the basis it did not include access. When asked by the Tribunal to consider whether a hypothetical seller who was open to reaching a deal in respect of access with a reasonable buyer might conclude a sale at a particular price, he agreed such a deal was possible and that the price would fall in the same range as Mr Burgis had indicated.

As the third valuer reached a similar figure to Mr Burgis, the AAT concluded that it was reasonable to accept the figure of $325,000.

Formal decision

The decision of the SSAT was set aside and the matter was remitted to the Secretary for further consideration with the instruction that the property should be valued at $325,000 as at January 2011.

[C.E.]