Sgouros and Secretary, Department of Family and Community Services [2000] AATA 99 (14 February 2000)

Last Updated: 17 February 2000

DECISION AND REASONS FOR DECISION [2000] AATA 99

ADMINISTRATIVE APPEALS TRIBUNAL )

) No N98/1733

GENERAL ADMINISTRATIVE DIVISION )

Re MARCIA SGOUROS

Applicant

And SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES

Respondent

DECISION

Tribunal Mr I Way, Member

Date 14 February 2000

Place Sydney

Decision The Tribunal affirms the decision under review.

(Sgd) I R Way

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

Member

CATCHWORDS

SOCIAL SECURITY - Partner Allowance - assets test - whether encumbrance or charge over disregarded asset to be set off against value of other assets - whether trust arose pursuant to family agreement

Re Berry and Secretary, Department of Social Security (1995) 40 ALD 327

Re Smith and Secretary, Department of Social Security [1999] AATA 267

Dineen v Secretary, Department of Social Security (1988) 17 ALD 91

Butler v Craine [1986] VR 274

Kidner and Secretary, Department of Social Security (1993) 31 ALD 63

Social Security Act 1991 ss 771HF, 11(1) 1118, 1121

REASONS FOR DECISION

Mr I Way, Member

1. This is an application by Marcia Sgouris ("the Applicant") for review of a decision of the Social Security Appeals Tribunal ("the SSAT") made on 4 November 1998 which affirmed a decision of a delegate of the Secretary of the Department of Social Security, now the Department of Family and Community Services ("the Respondent") and an authorised review officer, cancelling the Applicant's Partner Allowance from 28 October 1997 due to the application of the assets test.

2. At the hearing the Tribunal had before it the documents lodged pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 (T1-T43) together with three documents for the Applicant (exhibits A1-A3) and a submission from the Respondent (exhibit R1). The Applicant presented her own case and gave oral evidence through an interpreter in the Greek language.

3. The principal issue in this matter is whether or not, pursuant to the Social Security Act 1991 ("the Act"), the value of the applicant's assets were above the allowable level to receive Partner Allowance as at 28 October 1997. The Act relevantly provides as follows:

"771HF Assets test - allowance not payable if assets value limit exceeded

771HF (1) A partner allowance is not payable to a person if the value of the person's assets exceeds the person's assets value limit.

Note: The value of the person's assets is only half the combined value of the person's assets and the assets of the person's partner (see subsection (3)).

771HF (2) A person's assets value limit is worked out using the following Table:

ASSETS VALUE LIMIT TABLE

Column 1 item Column 2 Person's situation Column 3 Assets value limit

1. 2. Person or partner a homeowner Neither person nor partner a homeowner $89,250.00 $134,250.00

Note 1: For homeowner see section 11.

Note 2: The assets value limits in column 3 are indexed annually in line with CPI increases (see sections 1191 to 1194).

771HF(3) The value of the person's assets is taken to be 50% of the sum of the value of the assets of the person and the value of the assets of the person's partner."

..."

4. The meaning of the term "assets" is defined in section 11(1) of the Act:

"...

asset means property (including property outside Australia)

..."

1118 Certain assets to be disregarded in calculating the value of a person's assets

(1) In calculating the value of a person's assets for the purposes of this Act (other than subparagraph 263(1)(d)(iv) and sections 1125, 1126, 1133 and 1135A), disregard the following:

...

(b) if the person is a member of a couple - the value of any right or interest of the person in one residence that is the principal home of the person, of the person's partner or of both of them that:

(i) is a right or interest that gives the person or the person's partner reasonable security of tenure in the home;"

...

1121 Effect of charge or encumbrance on value of assets

1121(1) 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.

Note: this section does not apply to an asset to which section 1121A (primary production assets) applies.

1121 (2) Subsection (1) does not apply to a charge or encumbrance over an asset of a person to the extent that:

(a) the charge or encumbrance is a collateral security; or

(b) the charge or encumbrance was given for the benefit of a person other than the person or the person's partner.

1121 (3) Subsection (1) does not apply to a charge or encumbrance over assets that are to be disregarded under section 1118.

..."

5. There was no dispute between the parties that the Applicant and her husband, at all relevant times up to 28 October 1997, jointly owned their residential home at 43 Reynolds Avenue, Bankstown and two investment properties, one at 53 Marion Street, Condell Park and one at 260 Edgar Street, Bankstown. Both investment properties were rented out.

6. Determination of the correct values of the investment properties and the extent to which these values can be set off by secured encumbrances on all three properties is central to the principal issue in this matter. Also at issue is whether or not, at the relevant time, a trust existed in favour of the Applicant's son in respect of the Marion Street property, thereby excluding all or part of the value of this property from the Applicant's assessable assets.

Applicant's Evidence

7. The Applicant was born in Greece on 14 January 1938 and arrived in Australia in 1961. She told the Tribunal that she ceased working in 1995 and early in 1996 sought unemployment benefits. She said the Department told her that there was no point her looking for a job. Shortly thereafter, her husband claimed and was granted Disability Support Pension and from March 1996, the Applicant commenced receiving Partner Allowance. She has been in receipt of the Age Pension since 13 May 1999.

8. The Applicant has two children, a son born on 20 October 1967 and a daughter born on 20 January 1969. Both children are now married. The daughter is now living in Greece. The Applicant said that when the children were living at home prior to being married they would help by paying some rent towards household expenses and by buying some of their own clothes.

9. It was the Applicant's evidence that she and her husband bought the property at Marion Street in the late 70s for about $80,000 and that they had since given the house to their son after he married and had his first son. She said that it was always intended that eventually the house in Marion Street would be given to her son. She said her son always saw the house as his own. The house at Edgar Street was bought for approximately $110,000. The Applicant told the Tribunal that this house was sold in April 1998 for $190,000, the profits from this sale being used to pay off mortgages from the properties at Marion Street and Edgar Street; to meet the cost of renovations of the family residence in Reynolds Avenue; and to meet the costs of her daughter's wedding.

10. The Applicant told the Tribunal that she was not sure about the amount of the mortgages on each of the properties she and her husband owned. She said she had not been involved in the details of arranging and managing the family finances as she left these matters to her husband.

11. The Tribunal notes that the Applicant and her husband declared in a Departmental Real Estate Details form signed by them on 11 January 1996 that they received $400 per week rent from the properties at Marion Street and Edgar Street and that they owed $190,000 on both these properties (T10/33,34). At T39/103, a Departmental Real Estate Details Form signed by the Applicant and her husband on 9 May 1996 values the property at 53 Marion Street at $150,000 with a mortgage of $95,000 and at T39/104, Edgar Street at $130,000 with a mortgage of $95,000.

12. In cross examination, the Applicant was referred to various T documents in respect of financial matters relating to the three properties owned by her and her husband.

13. In regard to the Marion Street property, the Applicant was referred to a Bankstown rate notice (T38/100), showing this property to be lot 76 DP 6599; a title search (T42/107-109) showing two discharges of mortgages on 4 September 1995 and a Discharge of Mortgage Form showing two discharges of mortgage to Westpac on 25 August 1995; and a transfer document (T42/112) showing that 76/6599 was transferred free of encumbrances to Peter and Susane Sgouris on 27 July 1998. The Applicant did not dispute any of these documents. The Tribunal notes that at T42/108-111 two mortgages over this property were recorded as discharged on 25 August 1995.

14. In regard to the Edgar Street property the Applicant was referred to a Bankstown rate notice (T38/101) which showed this property was lot 5, DP 13573; a discharge of mortgage (T43/114) for 5/13573 on 8 March 1979 by payment of $17,500; a new mortgage of $35,000 being taken out on 18 April 1997 with George Arfaras and Aristea Arfaras as mortgagees (T43/116-120); this mortgage being discharged on 23 April 1998 when the house was sold (T43/113 and 121) and transfer of the property to Binh My Luu and Thu Van Nguyen free of encumbrances for $202,000 (T43/122). The Applicant did not dispute any of these documents. The Tribunal notes the correspondence to the Applicant and her husband from McDonell Vertzayias dated 22 April 1998 which refers to the sale of 260 Edgar Street and discharge of mortgage on 43 Reynolds Avenue (T31/68,69). In this letter McDonell Vertzayias confirmed settlement on 16 April 1998 at a purchase price of $202,000; discharge of indebtedness to G & A Arfaras ($38,500); and discharge of indebtedness to Perpetual Trustees Australia Limited of a total amount of $185,734.56. McDonell Vertzayias also advised the Applicant and her husband that they had collected the title deed and discharge of mortgages for 43 Reynolds Avenue and lodged the same for title at the Land Titles Office. The Tribunal notes that at T30/65,66 Olympic Real Estate Pty Limited on 25 June 1998, valued 53 Marion Street Bankstown for stamp duty purposes only at $160,000 and that at T41/106 the Australian Valuation Office on 17 March 1998 valued the property at $200,000.

15. In regard to other assets, the Applicant in cross examination was referred to T12/42 where she and her husband had signed a Departmental Income and Assets Review Form, declaring on 27 July 1996 that the total net value of their household contents was $15,000 and their car was valued at $4,000. The Applicant was also referred to a Centrelink Computer Printout (exhibit R1) giving a balance of $1,918 in the couple's passbook account on 13 October 1997. The Applicant agreed that all of these details were correct.

16. In cross examination, the Respondent raised with the Applicant the question of some form of trust existing in favour of her son in respect of the Marion Street property.

17. Three letters from family friends were tendered and received into evidence (exhibits A1, A2 and A3).

18. The Applicant in answer to questions in cross examination and from the Tribunal said that her husband, prior to going on a Disability Pension, had been engaged in the building trade doing small scale renovation work. She said that her son assisted her father in this work as a general helper on Saturdays and during school holidays. He was not paid for this work and only received pocket money. The son attended Trinity Grammar School and on leaving secondary school after completing Year 12, attended a Bankstown Technical College for 2 years before becoming apprenticed to a builder, other than his father, as a carpenter.

19. The Applicant told the Tribunal that her son did not do any renovation or effect improvements to the Marion Street property until after he commenced living there in 1998. She said he did assist her in cleaning up the house between tenancies and this took place, on average, every five months or so.

20. It was the Applicant's evidence that her son did not pay any money towards Marion Street and that there was no legal or formal document or agreement in respect of her son having an interest over the property.

Consideration

21. The Tribunal is satisfied that, at all relevant times up to 28 October 1997, the Applicant and her husband were joint owners of the following properties;

* 43 Reynolds Street, Bankstown

* 53 Marion Street, Condell Park

* 260 Edgar Street, Bankstown

22. The Tribunal is also satisfied that the property at 43 Reynolds Avenue Bankstown was the family residential home and that the other two properties were investment properties rented out.

23. In respect of the Marion Street property, after consideration of all of the material before it, the Tribunal is satisfied that at the relevant time the property was free of encumbrances and so finds. The Tribunal accepts the submission of the Respondent that the value of this property, as determined by the Australian Valuation Office at $200,000, should be preferred to the real estate company's valuation of $160,000 obtained for stamp duty purposes only and finds the correct valuation of the property at 53 Marion Street at the relevant time to be $200,000.

24. In respect of the property at 260 Edgar Street the Tribunal, after consideration of all the material before it, finds, at the relevant time, the value of the property to be $202,000, less the debt of $35,000 existing at the time and half the interest payable, namely $1,750.

25. In respect of the family residence at 43 Reynolds Avenue Bankstown, the value of this property is not relevant, the value of the Applicant's principal home being disregarded and the Tribunal so finds.

26. Clearly from the evidence given by the Applicant, she was confused about the extent and nature of the mortgages over the three properties. It is also reasonable to accept that the evidence points to sizeable mortgages over the family residence at the relevant time. The question as to whether or not such a debt can be used to offset non-disregarded assets needs, therefore, to be addressed.

27. In this regard, the Respondent referred the Tribunal to Re Berry and Secretary, Department of Social Security (1995) 40 ALD 327 and Re Smith and Secretary, Department of Social Security [1999] AATA 267 and submitted that by virtue of subsection 1121(3), the encumbrances over the Reynolds Avenue property cannot be regarded when assessing the value of other assets owned by the Applicant and her husband.

28. In Re Berry (supra) the Tribunal found, at para 10:

"...that the only realistic and workable interpretation that it can give to section 1121(3) is that its effect is to ensure that, once the disregarded asset is removed from the asset listing, any charge or encumbrance on such an asset is not available for off-set against the value of non-disregarded assets."

29. The Tribunal follows the approach taken in Re Berry (supra) (as supported by Senior Member RP Handley in Smith (supra)) and is satisfied that, at the relevant date, any encumbrance over the Applicant's principal home is to be disregarded in calculating the total value of the Applicant's assets in order to determine her eligibility for Partner Allowance.

30. In regard to the Applicant's household contents and car, the Applicant agreed that the value she had attributed to these in a Departmental Income and Assets Review Form contained in the T documents were correct and that the balance of the couple's savings account in exhibit R1 was correct. The Tribunal is satisfied that these assets have been correctly stated and finds, at the relevant time, the assets to be:

* Household contents - $15,000

* Car - $4,000

* Savings account - $1,918

31. Turning now to the question of whether some form of trust existed in favour of the Applicant's son in respect of the Marion Street property.

32. There was no evidence before the Tribunal that there was in place, at the relevant time, any binding written agreement such as to give the Applicant's son a legal interest in the Marion Street property, nor was there any evidence before the Tribunal which would point to an intention to enter into any legally enforceable arrangement. After careful consideration of all the material before it, the Tribunal is satisfied that there was no arrangement between the son and his parents which could have amounted to a concluded agreement which they intended to have legal effect.

33. In view of the Applicant presenting her own case the Respondent, in order to ensure that the Applicant's case was presented fairly, submitted to the Tribunal that as there was no evidence of an express trust, there was a need for the Tribunal to consider whether a constructed trust had been established. It was submitted for the Respondent that before a constructed trust in favour of the Applicant's son could be found there was a need to establish the following elements:

(a) the parents and the son forming a common intention as to the beneficial ownership of the Marion Street property which was evidenced only through words or conduct;

(b) the son would have to show that he acted to his detriment on the basis of the common intention as to the beneficial ownership, and must show that this amounted to a material disadvantage of the kind contemplated in the common interest of the parties; and

(c) it must be a fraud to assert that the son had no beneficial interest in the property.

34. The Tribunal accepts that the elements as submitted by the Respondent need to be established and in so doing notes that in Dineen v Secretary, Department of Social Security (1988) 17 ALD 91, Woodward J cited with approval the passage from a judgement of Marks J in Butler v Craine [1986] VR 274 when he said that the essential elements of a constructive trust are:

"...(1) the parties to it must form a 'common intention' as to the ownership of the beneficial interest in real property; (2) the claimant of the beneficial interest must have acted to his, or her, detriment consequent on the formation of the common intention; (3) it must appear that it would be a fraud on the claimant for the other party to assert that the claimant had and no beneficial interest in the property...".

35. The Tribunal was referred to Kidner and Secretary, Department of Social Security (1993) 31 ALD 63. Justice Drummond in Kidner (supra) at 74 said:

"...

What is essential before a constructive trust can arise where the owner of property has its value increased by means of direct or indirect financial contributions or work or labour provided by another is that it must be unconscionable, having regard to all the relevant circumstances of the case, for that owner to assert unfetted beneficial ownership of the improved property. If the other person made the improvements on a common understanding with the owner that he or she would have a beneficial interest in the property, that will often provide this element of unconscionability sufficient to make the property subject to a constructive trust of appropriate content for that other person..."

36. The Tribunal is satisfied on the Applicant's evidence before the Tribunal that the Applicant's son made no contribution whatsoever towards increasing the value of the property at Marion Street until such time as the property had been transferred to his name and hence the Tribunal is satisfied that the beneficial ownership of the legal owners at the relevant time was unfetted and the Applicant's son did not act to his detriment.

37. In respect of fraud, the Tribunal accepts the submission of the Respondent that it would not have been a fraud for the Applicant and her husband to sell the Marion Street property and use the money other than for the benefit of their son. The Tribunal accepts the view expressed by the Applicant that there was no prospect whatsoever that her son would take any legal action if the property was not, in due course, transferred to him as promised.

38. The Tribunal is also satisfied that at best, any agreement that was in place between the son and parents in regard to the Marion Street property was "a family arrangement based on mutual trust, ie, an arrangement not intended to affect their legal relations" (Re Kidner, supra, at 70). The Tribunal is satisfied that the matters raised in the three letters provided by the Applicant's friends (Exhibits R1, R2 and R3) do no more than reinforce the existence of such a family arrangement.

39. The Tribunal therefore is satisfied that a constructive trust over the Marion Street property was not in existence and therefore the value of this property can not be disregarded in whole or part when determining the Applicant's assets.

40. It follows from the Tribunal's findings above that the revised combined assets value for the Applicant and her husband are as follows;

* Marion Street - $200,000

* Edgar Street - $165,250

* Household contents, car and savings account - $20,918

* Total $386,168

41. The Tribunal therefore finds that the Applicant's assets value at the relevant time is 50% of this, namely $193,084 and that this amount is well in excess of the assets limit of $89,250 applicable at the date of cancellation of Partner Allowance.

42. The Tribunal is mindful that the Applicant has presented her own case and that she has not called any witnesses to give evidence on her behalf. In this context the Tribunal notes that even if the Applicant had been successful in establishing that there was in existence a trust in favour of her son with respect to the Marion Street property, and if therefore the whole of the value of this property were to be disregarded, her remaining assets could still be in excess of the assets value limit.

43. The Tribunal notes that its findings about assets values are significantly different to those of the SSAT. The Tribunal in so noting is mindful that much of the material it has based its findings on was not available to the SSAT at the time it reached its decision. These differences in findings about asset values do not materially affect the outcome of this review.

44. The Tribunal affirms the decision under review.

I certify that the 44 preceding paragraphs are a true copy of the reasons for the decision herein of Mr I Way, Member

Signed: .....................................................................................

Associate

Date/s of Hearing 9 December 1999

Date of Decision 14 February 2000

Representative for the Applicant Self-represented

Advocate for the Respondent Hannelore Schuster