Ropert and Department of Social Security [1999] AATA 15 (15 January 1999)

Last Updated: 29 January 1999

Administrative

Appeals

Tribunal

DECISION AND REASONS FOR DECISION [1999] AATA 15

ADMINISTRATIVE APPEALS TRIBUNAL )

) N o N97/841

GENERAL ADMINISTRATIVE DIVISION )

Re JOSEPHINE MARIE ROPERT

Applicant

And SECRETARY, DEPARTMENT OF SOCIAL SECURITY

Respondent

DECISION

Tribunal Senior Member M D Allen

Mr G D Stanford, Member

Date 15 January 1999

Place Sydney

Decision The decision under review is affirmed.

(Sgd) M D ALLEN

..............................................

Presiding Member

CATCHWORDS

SOCIAL SECURITY - Valuation of assets. Loan deemed to create income even though irrecoverable. Application of hardship provisions regarding payment of parenting allowance.

Social Security Act 1991 - s.11(1), 838, 1121, 1122, 1132A

Unicomb v Secretary, Department of Social Security 50 ALD 405

Re Eimberts and Repatriation Commission 16 ALD 19

REASONS FOR DECISION

15 January 1999 Senior member M D Allen

Mr G D Stanford, Member

1. By application lodged 11 June 1997, the Applicant sought a review of a decision by a Social Security Appeals Tribunal made 24 April 1997 which affirmed a prior decision to cancel payment of basic parenting allowance, reject a claim for additional parenting allowance and reduce family payment to the minimum rate. Those decisions were made on the grounds that the combined assets of the Applicant and her husband exceeded the value at which those allowances ceased to be payable.

2. The matter came on for hearing before this Tribunal on 8 July 1998 and 22 October 1998. At the hearing the Applicant was represented by her husband.

3. In his written submissions to the Tribunal, the advocate for the Respondent succinctly set out the issues in this matter, namely:

(i) whether the Applicant's assets for purposes of the Social Security Act 1991 exceeded the non homeowner disqualifying limit ($251,500.00) for additional parenting allowance in January 1996;

(ii) whether the Applicant's assets for the purposes of the Social Security Act 1991 exceeded the disqualifying limit for family payment ($584,500.00) in January 1996; and

(iii) whether the Applicant's income for purposes of the Social Security Act 1991 exceeded the disqualifying limit for family payment on hardship grounds ($16,422.40) for 3 children in January 1996.

4. Currently the family of the Applicant and her husband consist of the following children:

Samuel born 18 September 1992

Leticia born 1 April 1994

Isabella born 8 December 1995

Evangeline born 17 February 1998.

On 2 January 1996, the Applicant lodged a claim for additional; parenting allowance and, on or about 18 March 1996, a delegate of the Respondent made the decision set out in paragraph 1. above.

5. The relevant sections of the Social Security Act 1991 read:

"838(1) A person is qualified for family allowance if:

(a) the person has at least one family allowance child; and

(b) the person is an inhabitant of Australia; and

(c) the person's income for the relevant family allowance period does not exceed the person's income ceiling; and

(d) the value of the person's assets does not exceed $376,750.

Subsection 11(1) defines "asset" as:

"asset means property (including property outside Australia)."

Subsection 1121(1) reads:

"If there is a charge or encumbrance over a particular asset of the person, the value of the asset, for the purposes of calculating the value of the person's assets for the purposes of this Act, is to be reduced by the value of that charge or encumbrance."

And section 1122 reads:

"If a person lends an amount after 27 October 1986, the value of the assets of the person for the purposes of this Act includes so much of that amount as remains unpaid but does not include any amount payable by way of interest under the loan."

6. The assets of the Applicant and her husband, which were taken into account by the Respondent, are:

(1) a property at 61 Australia Street, Camperdown, Sydney, and a property known as "The Daffodil Farm" and "Robb's Cottage" situated at Ormond Street, Suttons Forest in the Southern Highlands of New South Wales;

(2) a loan by Mr Ropert to Trepor Pty Ltd in the sum of $605,524.00 as at 30 June 1995 (see T64 p210);

(3) an equity by Mr Ropert in Hat Hill Holdings Pty Ltd of $81,843.00 as at 1 February 1996. It is accepted by the Respondent that, upon the liquidation of Hat Hill Holdings Pty Ltd on 9 September 1997, the equity in that company was reduced to nil; and

(4) in addition there have been loans to Mr and Mrs Ropert by Trepor Pty Ltd in order to finance 61 Australia Street, Camperdown, amounting to the total sum of $314,071.00, as at 30 June 1995.

7. The property at 61 Australia Street, Camperdown was valued by Mr Starr, a Senior Valuer with the Australian Valuation Office with particular expertise in the area encompassing Camperdown and its surrounding suburbs. He opined that the highest and best use of the said premises was as a single residence and, using the comparable sales method, valued the said property in the sum of $500,000 as at 2 January 1996.

8. Mr Starr's valuation was criticised by the Applicant as not being based on sales which were truly comparable, and for failing to take into account the effects of the third runway at Sydney Airport upon the sale of property in the Camperdown area. We reject this criticism. The comparable sales were in 1997, long after the third runway and its associated flight patterns had affected the suburb of Camperdown, and thus would have been subject to any diminution in value caused by aircraft noise. The Applicant referred to anecdotal evidence but was unable to point to any specific evidence showing a drop in value because of aircraft noise.

9. Although the Applicant claimed the sales relied upon by Mr Starr were not truly comparable, this submission showed a lack of appreciation of what constitutes a comparable sale. No two properties will be exactly alike and it is part of the valuation process to make the appropriate comparisons and adjustments. This Mr Starr did in his report and he expanded upon this in his oral evidence. For a discussion of what constitutes a comparable sale and its application to the valuation process, see "Land Valuation and Compensation in Australia" - Rost and Collins at pp72-75.

10. In any event, we find that we do not need to make a concluded decision as to the value of 61 Australia Street, Camperdown in that the assets level created by the loan by Mr Ropert to Trepor Pty Ltd is sufficient by itself to disqualify the Applicant. On the other hand, had we been of a different opinion as to this loan we would, as a matter of comparison, requested the Respondent to obtain a valuation of 61 Australia Street which is currently constructed and leased out as a boarding house on the capitalisation of rental values (or net rental returns) method of valuation. The property at Suttons Forest is now being used as the principal residence of Mr and Mrs Ropert and adjustments have been made according to its asset value. We understand that the Applicant does not take issue with the actual value of the land as calculated by a rural valuer from the Australian Valuation Office. In any event, no alternative valuation was proposed.

11. The gravamen of the Applicant's case was described by the Social Security Appeals Tribunal, at paragraph 42 of its decision, in the following terms:

"Mr Ropert said that the authorised review officer should have set off the loan of around $314,000 from Trepor Pty Ltd to the partnership against the $605,000 loan to Trepor Pty Ltd by himself. He said that the actual net loan amount is around $300,000."

12. We understand the Applicant now to be saying that although she accepts the imperative of sections 1121(1) and 1122, their effect should be modified to take into account the actual circumstances surrounding the advance to Trepor Pty Ltd and the irrecoverability of that debt.

13. At all relevant times Trepor Pty Ltd has been insolvent. The Respondent accepts the fact that, if the company were to be placed in liquidation, the Applicant's husband would not receive any repayment of his advances to that company. Mr Ropert, however, points out that the company is the Trustee of a superannuation fund and, if wound up, alternative Trustees would have to be found. This, together with the expenses incurred in winding up the company makes it not financially viable for him to adopt such a course. He is therefore in a situation where he is credited as having an asset, namely the loan to Trepor Pty Ltd, which is non existent as it cannot be realised.

14. Exhibit R4 in these proceedings is a spreadsheet showing reconciliation details of the amounts advanced by Mr Ropert to Trepor Pty Ltd depending upon whether amounts were advanced pre or post 27 October 1986. Different results are obtained according to which method is used but, as pointed out by Mr Kenny for the Respondent, the so-called "apportionment" method is the most favourable to both parties. As submitted by him, this method is appropriate where, as in this case, there is no need to keep a record of the individual amounts which made up the outstanding loan balance at any time or where it is not intended for interest to be calculated on the outstanding balance.

15. That the advances by Mr Ropert to Trepor Pty Ltd cannot be offset against advances by Trepor Pty Ltd to him, or the partnership of Mr Ropert and the Applicant, is made clear by the decision of Branson J in Unicomb v Secretary, Department of Social Security 50 ALD 405. In that case the appellant submitted that, although a company Chemle Pty Ltd had an obligation to repay the sum of $647,000 to the appellant and thus was an asset of the appellant, the value of that asset to the appellant was wholly offset by the appellant's obligation to repay that sum to Australian Guarantee Corporation. As Her Honour said at p407:

"Nothing in the terms of s 1122 of the Act, in my view, suggests that it is appropriate, for the purpose of determining whether a person has lent an amount, to consider whether, having regard to the factual circumstances which surround the transaction prima facie falling within the terms of the section, the person has gained a net advantage from such transaction so far as his or her total assets are concerned. ..."

16. Similarly, in this matter there is no warrant for lifting the corporate veil, as urged by Mr Ropert, so as to take into account the fact that the series of transactions between Trepor Pty Ltd and the Roperts was in reality a series of transactions between Mr Ropert, as shareholder of all shares but one in Trepor Pty Ltd, and himself and his wife. Cf the decision of the Tribunal in Re Eimberts and Repatriation Commission 16 ALD 19 especially at p26. The loan by Mr Ropert to Trepor Pty Ltd therefore remains as an asset in his hands. As at 30 June 1995 the balance of that loan stood at the sum of $605,524 and, as at 30 June 1996, the amount outstanding was $500,932 (see Exhibit R4).

17. On the second day of the hearing in this matter the Applicant raised the question as to whether she had an entitlement to family payment under the hardship rules. Section 1132A of the Social Security Act 1991 read:

"1132(1) If:

(a) the application of paragraph 838(1)(d) would disqualify a person for family payment; and

(b) the person lodges with the Department, in a form approved by the Secretary, a request that paragraph 838(1)(d) not apply to the person; and

(c) the request includes a statement signed by the person estimating the person's income for the current financial year; and

(d) the Secretary is satisfied that the estimate is reasonable;

the following provisions of this section have effect.

1132A(1A) The Secretary may determine that paragraph 838(1)(d) does not apply to the person if:

(a) the value of the person's assets is more than $376,750 and not more than $559,250; and

(b) the value of the person's liquid assets is less than the liquid assets limit; and

(c) the amount of the estimated income is less than the threshold amount worked out under subsection (2).

1132A(1B) The Secretary may determine that paragraph 838(1)(d) does not apply to the person if the value of the person's assets is more than $376,750 and more than $559,250 and:

(a) the value of the person's liquid assets is equal to or greater than the liquid assets limit; or

(b) the amount of the estimated income is equal to or more than the threshold amount worked out under subsection (2).

1132A(1C) The Secretary may determine that paragraph 838(1)(d) does not apply to the person if:

(a) the value of the person's assets is more than $559,250; and

(b) the value of the person's liquid assets is less than the liquid assets limit; and

(c) the amount of the estimated income is less than the threshold amount worked out under subsection (2).

Note 1: The amounts is subsections (1A), (1B) and (1C) are indexed annually (see sections 1191 to 1194)

1132A(1D) For the purposes of this section, a person's income for a particular financial year is the sum of:

(a) the person's taxable income for that year; and

(b) the person's adjusted fringe benefits value for that year; and

(c) the person's target foreign income for that year; and

(d) the person's net rental property loss for that year.

1132A(2) In subsection (1A), (1B) and (1C):

threshold amount means the amount worked out using the following formula:

(MBR x 2) + (624 x FPC)

where:

MBR is the maximum basic rate of age pension payable, as at the last 1 January, to a person who has a partner.

FPC is the number of FP children of the person.

1132A(3) Omitted.

1132A(4) For the purposes of paragraph (1)(c), if the person is a member of a couple, the person's income for a financial year is taken to include the income for that year of the person's partner.

1132A(5) In this section:

adjusted fringe benefits value has the same meaning as in points 1069-H25 and 1069-H26 in Module H in the Family Payment Rate Calculator in section 1069.

liquid assets value limit, in relation to a person, means:

(a) if the person is a member of a couple - $10,000; or

(b) if the person is not a member of a couple - $6,000.

Note 1: For liquid assets see section 19B.

Note 2: For taxable income see subsection 23(1).

Note 3: For target foreign income see subsection 10A(2).

Note 4: For net rental property loss see subsection 10A(15)."

18. We are satisfied that, as the matter of payment pursuant to section 1132A was considered by the Authorised Review Officer, the matter is properly before us although the Social Security Appeals Tribunal failed to consider the matter. The figures used by the Authorised Review Officer have not been revised by this Tribunal and we have found that the valuation of the Applicant and her husband's assets are correct and the loan by Mr Ropert to Trepor Pty Ltd must be taken into account. This loan is deemed by the Social Security Act 1991 to create an income and, for the reasons addressed by the Authorised Review Officer at Document T66, the income and assets of the Applicant exceed the formula in section 1132A and prevent the payment of family allowance pursuant to the hardship rules.

19. The decision under review will therefore be affirmed.

I certify that this and the 8 preceding pages are a true copy of the decision and reasons for decision herein of

Senior Member M D Allen

Mr G D Stanford, Member

Signed: Ian Taylor .....................................................................................

Associate

Date/s of Hearing 8 July 1998 and 22 October 1998

Date of Decision 15 January 1999

Representative for the Applicant Mr Ropert (Applicant's husband)

Advocate for the Respondent Mr J Kenny,

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