Reid and Department of Family and Community Services [2000] AATA 59 (3 February 2000)

Last Updated: 4 February 2000

DECISION AND REASONS FOR DECISION [2000] AATA 59

ADMINISTRATIVE APPEALS TRIBUNAL )

) No Q1998/765

GENERAL ADMINISTRATIVE DIVISION )

Re IAN JAMES REID

Applicant

And SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES

Respondent

DECISION

Tribunal Mr K L Beddoe (Senior Member)

Date 3 February 2000

Place Brisbane

Decision The Tribunal decides that the decision under review is affirmed.

(Sgd) K L Beddoe

Decision No 59/2000 Senior Member

CATCHWORDS

SOCIAL SECURITY : Newstart allowance - Assets test - Value of subdivided land

Newstart Allowance - Assets test - value of jointly owned assets

Social Security Act 1991 ss 4(2), 11(4), 611(1) (2), 1118(1)

Valuation of Land Act 1944

Re Reynolds and Department of Social Security (1986) 10 ALN 155

Re Earlam and Department of Social Security (1991) 4 ALD 606

Re Kirkham and Department of Social Security (Decision No 2135)

Spencer v Commonwealth (1907) 5 CLR 418

Re Samek and Department of Social Security (1988) 16 ALD 295

REASONS FOR DECISION

3 February 2000 Mr K L Beddoe (Senior Member)

1. Effective from 8 October 1997 the respondent decided to cancel payment of Newstart Allowance. That decision was subsequently affirmed by an Authorised Review Officer (T80) and the Social Security Appeals Tribunal (T2). The applicant seeks review of that decision.

2. A Newstart Allowance is not payable to a person if:

(a) the person is not excluded from the Newstart Allowance assets test; and

(b) the value of the person's assets is more than the person's assets value limit.

It is not suggested in this case that the applicant is a person excluded from the Newstart Allowance assets test.

3. For the purposes of the Social Security Act 1991 ("the Act") a person who is not a member of a couple is a home owner if:

(i) the person has a right or interest in the person's principal home; and

(ii) the person's right or interest in the home gives the person reasonable security of tenure in the home (s 11(4)(a)).

If a person has a right or interest in the person's principal home, the person is taken to have a right or interest that gives the person reasonable security of tenure in the home unless the Secretary is satisfied that the right or interest does not give the person reasonable security of tenure in the home (S 11(8)).

4. Section 11(5) relevantly provides that a reference to the principal home of a person includes the private land adjacent to the principal home to the extent that the private land including the ground floor area of the home does not exceed two hectares. The said private land is, by virtue of s 11(6), confined to land used primarily for private or domestic purposes in association with the home.

5. Section 11(2) provides for the value of a person's interest in a jointly owned asset to be the value of the person's interest in the asset.

6. The only issue before the Tribunal is the value of the applicant's assets.

7. The hearing commenced in Hervey Bay when the applicant conducted his own case and Mrs Guthrie represented the respondent. The documents lodged pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 were before the Tribunal as the T documents and further documents were tendered and marked as exhibits. Oral evidence was given by the applicant, an estate agent and two registered valuers. Following the hearing further material has been submitted by the applicant and the parties have made written submissions in relation to the material before the Tribunal.

8. On 14 May 1997 the applicant lodged a claim for Newstart Allowance. He did not disclose his marital status except to say he and his wife separated from 18 January 1997 and that the separation was due to breakdown of marriage. He disclosed his home address as Dale Drive, Tiaro and his postal address as 168 Ann Street, Maryborough. He says, and I accept, that there is no mail service to the Tiaro address. He disclosed that his wife lived at 168 Ann Street, Maryborough.

9. The applicant acknowledged joint ownership, with his wife, of two residential properties in Maryborough and he acknowledged investments in companies. The applicant said he kept the rental income derived from 151 Ann Street, Maryborough and his wife kept the income derived from the other investments.

10. The arrangements in relation to the income are confirmed in a letter dated 6 June 1997 (T21) signed by the applicant and is wife. That letter also confirms that the house at Dale Drive, Tiaro was the applicant's principal place of residence and the house at 168 Ann Street, Maryborough was the wife's principal place of residence.

11. The applicant and his wife purchased land at Tiaro for the purpose of subdivision and sale. He financed the purchase by borrowing funds from members of his family without giving any formal security for loans which remain unpaid (Exhibits A, B and C). He proceeded with the subdivision and development of the land including building his residence on one of the subdivided lots. As to sales of the subdivided lots the applicant has been unsuccessful. In this regard I am satisfied that the applicant has not met the market. I am also satisfied there is a low level of demand for subdivided land in the township of Tiaro.

12. The Australian Valuation Office valued the properties as follows:

Property Value

151 Ann Street $40,000.00

168 Ann Street $70,000.00

Dale Drive, Tiaro $247,000.00

(including applicant's home

on Lot 18)

In fixing values for the subdivided lots at Tiaro the valuer relied upon evidence of six sales in the town between September 1995 and April 1997. Date of valuation was as at 26 September 1997 but made in June 1998.

13. At the time of cancellation of the payment of Newstart Allowance the assets test specified an allowable limit of $125,750 for a single person home owner.

14. Document T42 is a copy of a valuation notice in respect of the Tiaro land by the Department of Natural Resources effective on 30 June 1996 and made under the Valuation of Land Act 1944. The valuation covers all lots owned by the applicant and his wife at Tiaro including Lot 18. It will be apparent that this valuation is for a time 15 months before the relevant time but, given the evidence before the Tribunal, it is unlikely that the next valuation under the Valuation of Land Act 1944 will vary much from this valuation reflecting a static or limited market for subdivided land at Tiaro.

15. As a purely arbitrary adjustment I will assume that if the Department of Natural Resources had valued the land at October 1997 it may have increased the valuation by 5% giving a value of $95,550.00. Because Lot 18 is the jointly owned home of the applicant I would assign an unimproved value of $5,971.00 say $6,000.00 as the proportion of the unimproved value attributable to Lot 18 being 1/16^th of $95,550.00. The value of the applicant's half share in the non-excluded lots is $44,775.00.

16. The applicant sought an independent valuation of the Tiaro land which was prepared by ACVAL Maddern Valuation Services and made in writing dated 19 May 1998. That valuation assessed a value of $247,500.00 for the lots, excluding Lot 18, on the basis of valuation of individual lots. That value was then discounted by 50% for "Allowance for bulk". That valuation exhibited 12 comparable sales, four of which had been exhibited in the Australian Valuation Office valuation.

17. Evidence given by Mr Barrett, an estate agent who carries on business in Tiaro, satisfied me that the real estate market in Tiaro has been depressed since 1995. He said the applicant's land was listed for sale with him but at prices too high in the context of the market (Exhibit 1). He also said there was only one sale of a vacant lot in Tiaro in 1997 (T83).

18. He also gave evidence about an unsuccessful auction of other subdivided lots in 1997 which resulted in the eventual sale of one lot for $7,000.00. I accept that evidence as truthfully given.

19. The essence of the problem is found in the evidence of Mr Maddern, a registered valuer, called by the applicant. He explained that he had applied the 50% discount because the values assigned to the lots could not be achieved over a 3-4 months selling period as might be expected in a realisation of the property. The volume of sales of land in Tiaro did not justify an expectation of realising the assessed values except on a very long term basis. This was confirmed by the evidence of Mr Adams, called for the respondent, except that he would discount by 30%.

20. An issue also arises as to whether the applicant uses the land for his domestic purposes. The material established to my satisfaction that the applicant maintains portion of the total area of the lots in a mown condition and this land is used by himself and others. He also maintains some fruit trees and melons on the land for his use. No commercial activities are conducted in relation to the land other than the offering of the lots for sale. The Tiaro land is not mortgaged but was financed by loans (Exhibits A, B and C).

21. Exhibit D includes a copy of a consent order of the Family Court dated 21 May 1999 whereby the property of the applicant and his wife was settled as between them. On consideration I am not satisfied that order has any relevance to the circumstances of the applicant in October 1997. In some aspects the consent order contradicts the position as to assets as asserted by the applicant in these proceedings but confirms his assertion that he had relinquished his interest in 168 Ann Street.

22. There is no evidence before me that any of the applicant's interests in assets are encumbered. It is clear on the material, as already noted, that he borrowed considerable sums to finance the purchase/development of the Tiaro land but there is nothing to show that those loans are secured by any charge or encumbrance on the land or any other property of the applicant.

23. The subdivided lots at Tiaro have not been withdrawn from sale but the evidence satisfies me that the applicant's asking prices are such that the land is unlikely to attract the attention of purchasers of subdivided lots in Tiaro given the depressed prices being accepted by vendors.

The Applicant's Submissions

24. Following the hearing the applicant made written submissions and also a reply to the respondent's submissions. The applicant says that the following values for assets should be included for the purposes of the Assets Test:

Shares and Managed Investments $67,608.00

Bank Balances $ 1,813.00

Furniture - Tiaro house $ 2,000.00

Holden Motor Vehicle $ 900.00

$72,321.00

The respondent agrees with these values. The applicant says that half the value of the furniture at 168 Ann Street should not be included in his assets because the furniture belongs to his wife absolutely. That assertion is consistent with the evidence before the Tribunal. The applicant also submits that the jointly owned property known as 168 Ann Street should be treated as not included in his assets because it is his wife's place of residence and his interest should be disregarded because of his agreement with his wife that the property would be hers absolutely. He says that the subsequent consent order of the Family Court confirms this. In the alternative he submits that neither he nor his wife had reasonable security of tenure in their respective homes if the joint ownership was (except for the agreement) likely to cause the properties to be sold.

25. The applicant relies on the decision in Re Reynolds and Department of Social Security (1986) 10 ALN 155 for a proposition that it is the net market value which is to be taken into account. That citation is incorrect, the relevant decision is reported in full at (1986) 5 AAR 365. The context of the decision is clearly set out in the headnote as follows:

"The applicant owned four and a half hectares of land on which was his home. He sought review of a decision taking account of part of it in the assets test on his age pension under the Social Security Act 1947. Under s 6AA a person's 'principal home' was to be disregarded, and this was defined to include the private land adjacent to the dwelling house to the extent that the land and area of the house did not exceed two hectares.

Held: (1) The value of the assets to be taken into account under the Act was the 'net market value' of those assets or the value of the asset in the market place less any debts secured on the asset.

(2) The value of the residue of the applicant's property was to be determined by deducting the market value of the house and curtilage from the market value of the whole property.

(3) The Act required that a notional market value be ascribed to the house and curtilage as if that portion of the property were capable of division, and notwithstanding that such a subdivision was prohibited."

In so far as the headnote refers to debts secured on the asset I note that the Tribunal found at 5 AAR 368 that there was no mortgage on the property and therefore it was the market value rather than "net market value" that was relevant. While the applicant asserts there is a fixed charge over the Tiaro land and a floating charge over all his assets in favour of the family members who loaned him money there is no document in the evidence which supports this proposition. Nor is it suggested that there is any registered charge on the properties.

26. As to the market value of the Tiaro land the applicant says that the Tribunal should rely on the valuation by the Department of Natural Resources but then does not rely on that straightforward proposition in his submissions. In so far as the applicant attempts to make his own valuation I reject those submissions. In so far as he submits that the sales evidence should be treated with care I agree. I am satisfied that the sales evidence of so-called comparable sales does not appear to correctly reflect the state of the market for subdivided land in Tiaro at October 1997 but I do not need to pursue this matter.

27. The applicant submits that valuation on a lot by lot basis fails to take into account the nature of what is being valued is subdivided broad acres and not individual lots. Hence, he says, there is a need to follow Mr Maddern's valuation, rather than the Australian Valuation Office valuation, because it acknowledges the fact of 15 blocks for sale.

28. The applicant also asserts that the lots adjacent to his home on Lot 18 should be disregarded because those lots are used primarily for domestic purposes. In this regard he relies on the Tribunal decision Re Earlam and Department of Social Security (1991) 4 ALD 606. As the applicant submits that case decided that an adjoining lot was private land adjacent to the dwelling house there in question. The applicant also says that the fact of more than one adjacent lot (as distinct from but including adjoining lots) does not alter in principle the effect of the decision in Re Earlam. He submits that the adjacent land up to a total of two hectares in area should be disregarded in accordance with subsections 11(5) and 11(6) of the Act.

The Respondent's Submissions

29. The applicant's assets include those agreed together with half the value of furniture at 168 Ann Street, half the value of 151 Ann Street (accepted by the respondent as being $20,000.00 for the applicant's interest, half the value of 168 Ann Street (accepted as $35,000.00 for the applicant interest).

30. The respondent says that the above are jointly owned with the applicant's wife and therefore the interest must be included as an asset. In so far as the respondent seeks to rely on the reasoning in Re Kirkham and Department of Social Security (Decision No 2135) I have not found that decision instructive in the circumstances of this case where the wife was willing to and did accept a transfer of the applicant's interest in 168 Ann Street. That was not the case in Kirkham. The respondent raises an issue about the distinction between equitable and legal interests in land and assets that the property settlement cannot be construed as confirming the earlier agreement that the jointly owned 168 Ann Street was to be regarded as the wife's. As the respondent acknowledges s 11(2) provides that the value of a jointly owned asset is to be taken into account by reference to the value of the persons interest in the asset.

31. The respondent submits that there is no charge or encumbrance on the applicant's assets and s 1121(4) of the Act has no operation.

32. In relation to the Tiaro land the respondent submits, in effect, that it must be valued on a lot by lot basis with no allowance for the "bulk". The respondent submits that I should not follow the evidence of Mr Maddern supporting a 50% discount or that of Mr Adams supporting a 30% discount. It submits that the original valuation by the Australian Valuation Office (T64) is the correct basis for valuation.

33. As to the applicant's claim that the Tiaro land is used for domestic purposes and thereby should be treated as private land adjacent to the applicant's home the respondent submits, in effect, that the subdivided lots (other than Lot 18) cannot be characterised as land that is used primarily for private or domestic purposes in association with the applicant's home on Lot 18. The respondent submits that the subdivided lots are used for commercial purposes ie they are intended to be sold. The respondent distinguishes the decision in Re Earlman relied upon by the applicant.

Consideration

34. I am satisfied that it is more likely than not that the respective interests of the applicant and his wife in household furniture were reflected by location of the furniture at October 1997. The furniture at 168 Ann Street was hers and the furniture at Tiaro was his. I find accordingly.

35. In relation to the valuation of properties I am not satisfied that the valuations submitted to the Tribunal in the material are fairly based in their hypothesis. I am satisfied that the land at Tiaro must be valued as a parcel of subdivided lots including the balance of Lot 1. I am also satisfied that the Tiaro land must be valued on the basis of the hypothetical willing but not anxious purchaser dealing with the hypothetical willing but not anxious vendor (Spencer v Commonwealth (1907) 5 CLR 418). In coming to such a valuation weight must be given to evidence of comparable sales, evidence of any special features about the subject land and evidence of market factors likely to have a relevant effect.

36. In the present case the respondent is an optimistic vendor because he does not seek to meet the market and is hoping the market will come to him. Given the evidence about available subdivided lots for sale in Tiaro the applicant may be unduly optimistic in his expectations. I have come to the conclusion that he is! I have also come to the conclusion that there are few purchasers with any real interest in purchasing vacant subdivided lots in Tiaro. In these circumstances the most reliable valuation is the official valuation made by the Department of Natural Resources. That is the valuation required to be adopted by the Tiaro Shire Council for rating purposes (T42 and copy Rate Notice attached to applicant's submissions). Given that the valuation was made effective 30 June 1996 and notwithstanding the slump in retail prices due to lack of demand I am satisfied that the upward adjustment already noted should be made to achieve the October 1997 value.

37. I am not satisfied that the land at Tiaro is charged or encumbered because of debts owing by the applicant, and I so find. The evidence does not support the submission of the applicant in this regard.

38. More difficult is the issue of the value, if any, of the applicant's interest in the property known as 168 Ann Street. At the relevant time he jointly owned the property with his wife. They had agreed that the property was to be hers. That agreement was eventually given effect in the consent property settlement in the Family Court.

39. However at the relevant time the applicant was registered proprietor as joint tenant with his wife.

40. I have come to the conclusion that the applicant held his interest as joint tenant for the benefit of his wife from the time they agreed the property was to be hers and that agreement is evidenced in writing (T21). Similarly his wife held the interest as joint tenant in Lot 18 Tiaro for the benefit of the applicant and this is also evidenced in writing (T21).

41. It follows in my view that the applicant ceased to have any relevant beneficial interest in 168 Ann Street from June 1997 when he and his wife entered into the agreement.

42. To come to that conclusion, as contended by the applicant, creates a possible anomaly. That anomaly can be explained as follows. Where a married couple, not separated, live in two different residences only one of those residences can be excluded from the assets test as the principal place of residence (see the discussion in Re Samek and Department of Social Security (1988) 16 ALD 295). On the other hand where a married couple who are separated live in two different residences both residences may be excluded from the assets test as the respective principal places of residence. That appears, on a factual basis, to create an anomalous situation. I turn then to consider the statutory provisions.

43. Section 11(4) of the Act defines "homeowner". The definition distinguishes between a person who is a member of a couple and a person who is not a member of a couple.

44. "Member of a couple" is defined by s 4(2) of the Act. In this case it is clear that the applicant and his wife were legally married at the relevant time but were living separately and apart from each other on a permanent or indefinite basis. I am satisfied on the material that the applicant was not a member of a couple.

45. Section 1118(1) of the Act deals with certain assets that are to be disregarded in calculating the value of a person's assets including the value of any right or interest of the person in the person's principal home. The Act does not explain how the right or interest is to be valued. The respondent says, in effect, that it is the proprietary interest that is to be valued apparently without regard to factors such as rent free occupation. It seems to me that where a person jointly owns a principal home, in which the person resides on a rent free basis, with another person who does not reside there the home has a greater value to the residing joint owner.

46. That scenario applies in the present case, together with the applicant's promise to transfer his interest in 168 Ann Street to his wife. Therefore not only does the wife enjoy rent free occupation of the property she also has the benefit of precatory words evidenced in writing. I am satisfied that the applicant's legal interest in 168 Ann Street is subject to his wife's equitable interest based on his promise to transfer the property for her benefit. In the circumstances the applicant's interest in 168 Ann Street should be accepted as being valueless.

47. I am satisfied that Lot 18 at Tiaro is the applicant's principal home and the value of his interest in the property is excluded for the purposes of the assets test. I do not need to calculate the value of his interest but I will adjust the Department of Natural Resources basis of valuation to exclude Lot 18 on an arbitrary basis.

48. I am not satisfied that the remaining subdivided blocks (including the balance of Lot 1) at Tiaro can be characterised in any way other than subdivided land developed for the purpose of sale. Any private or domestic use by the applicant is incidental to the primary purpose of sale. It is not adjoining land used for private or domestic purposes.

49. In this case I am satisfied that the fact of subdivision and development of the subdivided lots as vacant land for sale is the correct characterisation of the lots. This case is clearly distinguishable from the facts in Re Earlham.

50. As to the rental property at 151 Ann Street I accept that the valuation by the Australian Valuation Office is merely a reiteration of the applicant's valuation from which he now resiles. In my opinion there is no reason to reduce the value in the light of Mr Barrett's evidence about declining values in Maryborough. The improved value of $40,000.00 is consistent with the unimproved capital value of $4,600.00 and the fact that the house has a rental value of $110.00 per week (T19) yielding a gross return of 14.3% per annum on a valuation of $40,000.00 and 12% per annum after payment of rates.

51. I am satisfied that $40,000 is a low but fair value for 151 Ann Street.

52. In summary I have assessed the value of the applicant's assets as follows:

Shares and Managed Investments (as agreed) $67,608.00

Cash at bank (as agreed) $ 1,813.00

Holden Motor Car (as agreed) $ 900.00

Furniture - 168 Ann Street Nil

Furniture - Tiaro (as agreed) $ 2,000.00

Interests in Jointly owned Property

168 Ann Street Nil

151 Ann Street $20,000.00

Tiaro land (excluding Lot 18) $ 44,775.00

$137,096.00

The value of the applicant's assets (not including excluded assets) exceeds the threshold figure of $125,750.00 in s 611(2) of the Act. Section 611(1) therefore operates to deny payment of Newstart Allowance to the applicant.

53. The decision under review will be affirmed.

I certify that the 53 preceding paragraphs are a true copy of the reasons for the decision herein of Mr K L Beddoe (Senior Member)

Signed: T LOWTHER

Associate

Date/s of Hearing 28 May 1999

Date of Decision 3 February 2000

Applicant In Person

Advocate for the Respondent Mrs Guthrie