Moffatt and Secretary, Department of Family and Community Service s [2003] AATA 1259 (12 December 2003)

Last Updated: 12 January 2004

DECISION AND REASONS FOR DECISION [2003] AATA 1259

ADMINISTRATIVE APPEALS TRIBUNAL )

) No N2003/666

GENERAL ADMINISTRATIVE DIVISION	)
	Re	DOUGLAS MOFFATT

Applicant

And

SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES

Respondent

DECISION

Tribunal

Mr S. Webb, Member

Date 12 December 2003

Place Armidale

Decision

The decision under review is affirmed.

[Sgd] Mr S. Webb, Member

CATCHWORDS

SOCIAL SECURITY - pensions, benefits and allowances - New Start Allowance - assets test - loan to private company - charge or encumbrance reduces asset value - informal unsecured private loans - credit card debts not related to specific asset - decision affirmed

Social Security Act 1991 sections. 11, 611, 1118, 1121, 1129, 1131

Re Fawthrop and Repatriation Commission (1994) 36 ALD 140

Re Draper and Secretary, Department of Family and Community Services [2003] AATA 706

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

Re Radovanovic and Secretary, Department of Family and Community Services (2000) 61 ALD 530

REASONS FOR DECISION

12 December 2003

Mr S. Webb, Member

1. Mr Moffatt claimed New Start Allowance on 2 July 2001 (T9). Centrelink rejected his claim on the basis that the value of his assets was above the applicable asset limit. The decision was affirmed by an authorised review officer and by the SSAT. Dissatisfied with these decisions Mr Moffatt has applied for review by this Tribunal (T1).

ISSUE

2. The sole issue for determination is whether the value of Mr Moffatt's assets exceeds the asset limit that was applicable to Newstart Allowance on 2 July 2001. In particular, it must be determined whether Mr Moffatt's claimed liabilities constitute a charge or an encumbrance over any of his agreed assets.

LEGAL PRINCIPLES

3. Mr Moffatt's claim is under the Social Security Act 1991 ("the SS Act"). For his claim to succeed the value of his assets (s.11) must not exceed the assets value limit that was applicable to New Start Allowance on the date of his claim (s.611). The value of his right or interest in his principal home is not to be included in the assessment of the value of his assets (s.1118).

4. The value of an asset is reduced by the value of any charge or encumbrance over that asset (s.1121). A "charge" means a secured liability and an "encumbrance" means a claim, lien or burden attached to a property (see Re Fawthrop and Repatriation Commission (1994) 36 ALD 140). What is required in the case of an unsecured loan is evidence of the relationship between the loan and the purchase or encumbrance of the property in question (see discussion in Re Samek and Secretary, Department of Social Security (1988) 16 ALD 295; Re Radovanovic and Secretary, Department of Family and Community Services (2000) 61 ALD 530; and Re Draper and Secretary, Department of Family and Community Services [2003] AATA 706 at [41]).

5. The facts of Mr Moffatt's case give rise to the question whether informal financial arrangements between family members who jointly own property constitute an encumbrance over that property. What is required is evidence of the encumbrance.

6. The question whether the informal financial arrangements between the directors of a private company constitute a loan for the purpose of asset valuation also arises. A contractual intention to lend and a contractual duty to repay constitute a loan. What is required is evidence of such a contractual arrangement.

7. In cases of severe financial hardship a benefit may be paid to a person who is the owner of unrealisable assets, the value of which exceeds the applicable assets value limit (s.1129). In such cases there must be evidence that the assets in question are not realisable.

EVIDENCE

8. Mr Moffatt was not represented and gave oral evidence at the hearing of this matter. No other witnesses were called upon to give oral evidence. Ms S. Mantaring represented the Secretary, Department of Family and Community Services ("the Secretary"). The Tribunal had before it documents prepared pursuant to s.37 of the Administrative Appeals Tribunal Act 1975. Items tendered by the parties were taken into evidence and labelled.

FACTUAL CONTEXT

9. The following factual findings are drawn from the evidence.

10. Mr Moffatt lives alone in `Invergowrie Homestead' that is situated on rural allotment 123, Invergowrie Road, in the Uralla Shire. He owns 50 percent of these assets and 50 percent of the adjoining rural allotment 124. David and Lee Moffatt own the remaining 50 percent of these properties.

11. Mr Moffatt owns rural allotments 103 and 104, that are situated across Invergowrie Road from his house, in his own right.

12. A private company, Trencreek-Doon Pty. Ltd ("Trencreek-Doon"), owns a house that is situated on allotment 104. Mr Moffatt owns 50 percent of the shares in Trencreek-Doon and is a director of that company. Mr Ian Telford owns the remaining 50 percent of the shares and is also a director of the company.

13. Mr Moffatt made a loan to Trencreek-Doon in 1983, the outstanding balance of which was $2,985 at 30 June 2001 (T39, f125).

14. Mr Moffatt experienced health problems in 1996 that adversely affected his ability to find employment. Since that time Mr Moffatt has accumulated credit card debts totalling $11,600 and has been reliant upon family members and Mr Telford for financial assistance to cover his living costs.

15. David and Lee Moffatt paid for improvements to Invergowrie Homestead undertaken during the period from July 1999 to June 2001.

SUMMARY FINDINGS

16. The value of Mr Moffatt's assets at 2 July 2001 was $149,310.

17. Mr Moffatt's informal arrangements with family members and Mr Telford do not constitute charges or encumbrances over one or more of his assets. His credit card debts are unsecured and those borrowed funds were not used to purchase one or more of his assets.

18. On 2 July 2001 Mr Moffatt was a homeowner who was not a member of a couple. The applicable assets value limit was $141,000.

DECISION

19. As the value of Mr Moffatt's assets exceeded the applicable assets value limit on 2 July 2001 he was not entitled to be paid a New Start Allowance.

20. The decision under review is affirmed.

REASONS FOR DECISION

21. Making this decision I have carefully considered all of the evidence, the submissions of the parties, relevant caselaw and legislation.

ASSET VALUES

22. I am satisfied that the value of Mr Moffatt's assets on 2 July 2001 was $149,310 as will be apparent.

23. The value of his real property interests were as follows:

Property Value Value OF Mr Moffatt's interest

Invergowrie Homestead, allotment 123:

House and curtilage: $155,000 $77,500

Balance of allotment: $10,000 $5,000

Allotment 124: $28,333 $14,167

Allotment 103: $28,333 $28,333

Allotment 104: $28,333 $28,333

The value of Mr Moffatt's interest in his principal residence is to be excluded for present purposes (s.1118).

24. It follows that the total value of Mr Moffatt's real property assets on 2 July 2001 was $75,833. Mr Moffatt owns 50 percent of the Invergowrie Homestead and 100 percent of allotment 123 (house and curtilage are excluded) and 100 percent of allotment 124. The valuations set out at T22 and T24 are not in dispute and I accept them. It was suggested during the hearing that the valuation of allotment 124 had been double counted. I do not agree. The valuation conducted by Mr R. Andrews makes clear that allotment 124 was not included in his valuation of the Invergowrie Homestead (T22, f90) and was valued separately (T22, f91). This fact was confirmed by a Centrelink officer on 29 August 2001 (T24, f97).

25. The valuation of allotments 124 (in which Mr Moffatt has a 50 percent interest), 103 and 104 in amount of $205,000 includes an amount of $120,000, being the value of the house situated on allotment 103 that is owned by Trencreek-Doon (T22, f91). The valuation of the allotments is an amount of $85,000. While there are some variations in the size of each allotment, Mr Moffatt accepted that each block should be considered to be of equal value for present purposes, that is a value of $28,333 each.

26. The value of Mr Moffats's shareholding in Trencreek-Doon as of 2 July 2001 was $59,492. The value of the company's principal asset, the house situated on allotment 103, is to be assessed on the market value of that property not the "at cost" value recorded in the company financial statements for the year ended 30 June 2001 (T39, f124). Mr Andrews valued the property at $120,000 (T22, f91). This valuation is not in dispute and I accept it. The company balance sheet on 30 June 2001 records other assets to the value of $1,969 and liabilities comprising a loan by Mr Moffatt with an outstanding balance of $2,985. I accept that Mr Moffatt's loan to Trencreek-Doon is permissible as a liability even though such loans after 1 January 2001 are not permitted for present purposes in the absence of a written agreement that has been duly signed and witnessed. Mr Moffatt's loan was in existence prior to the introduction of the new rules. It follows on the basis of the company's financial statement on 30 June 2001 that Mr Moffatt's 50 percent shareholding had a value of $59,492 (($120,000+$1,969-$2,985)/2).

27. Mr Moffatt submitted that his loan to the company is not repayable and should not be assessed as an asset. I do not agree. His loan to the company is recorded in the balance sheet of the company as a liability, which I have accepted. It follows that Mr Moffatt's interest in the loan represents an asset of his that must be assessed and included in the valuation of his assets for present purposes. The value of that asset was $2,985 on 2 July 2001.

28. Mr Moffatt submitted that a proportion of the furniture in Invergowrie Homestead was purchased with that property and is jointly owned, his interest being 50 percent. He accepted the $10,000 valuation of his household effects and furnishings (including the value of his interest in the jointly owned furniture) and I so find.

29. Mr Moffatt owns a 22 year old car with an estimated value of $1,000.

30. I am satisfied that the total value of Mr Moffatt's assets on 2 July 2001 was $149,310.

UNSECURED LOANS AND INFORMAL ARRANGEMENTS

31. Mr Moffatt submitted that the value of his assets should be reduced by the value of his liabilities, in the form of unsecured loans and informal arrangements. I do not agree. For the value of an unsecured loan to be offset against the value of an asset it must be shown that the loan was used to purchase the asset or that the loan represents a charge or an encumbrance over that asset. At the very least there must be evidence of a direct relationship between the asset and the liability.

32. Mr Moffatt pointed to his unsecured credit card debt and submitted that in the event of default in his repayment of that debt, the credit provider would seek to recover the outstanding monies from his assets. That may be true. However, there is no evidence before me that Mr Moffatt's credit card debt is in any way related to the purchase of his assets. Mr Moffatt submitted that the potential claim of the credit provider against the value of his assets were he to default constitutes a security or charge over his assets. Clearly, in the event of such circumstances, the credit provider may commence proceedings against Mr Moffatt to recover the debt with the possible outcome that Mr Moffatt may be required to realise one or more of his assets in order to repay the debt. It does not follow that the possibility of such proceedings raises a security or charge over Mr Moffatt's assets. On the evidence before me there is no direct relationship between the debt and any one of his assets. Given opportunity to explore this point, Mr Moffatt was unable to satisfy me that his credit card debt constitutes a charge or an encumbrance over any one of his assets.

33. The words "charge" and "encumbrance" were considered in Re Fawthrop and Repatriation Commission (1994) 36 ALD 140 in the context of the Veterans' Entitlements Act 1986 at p145:

"...

Given the context in which the word "security" is used in s 52c and particularly in the juxtaposition with the words "charge" and "encumbrance", we have concluded that the word "security" must be understood to connote a debt or claim the payment of which is in some way secured. For the same reasons, the word "charge" must also be given its narrower meaning to denote a liability, the performance of which is secured and the word "encumbrance" to mean a claim, lien or burden attached to a property.

..."

34. In this case there is no attachment between Mr Moffatt's credit card debt and his assets. Nor is there evidence that the debt is secured against his assets or that there is any charge over those assets in consequence of the credit card debt.

35. In Mr Moffatt's submission the value of his assets should be reduced by his debts to Mr Telford. He gave evidence that Mr Telford provided him with financial assistance following health problems in 1996 that prevented him from working. Mr Telford stated that he would expect "some recompense for the financial assistance I have provided in the past" (Ex A2) in the event that the principal asset of Trencreek-Doon was to be forcibly sold. There is no documentation or formal agreement between Mr Moffatt and Mr Telford concerning Mr Telford's provision of financial support and his expectation of recompense. I do not accept that such an informal arrangement constitutes a loan, with the contractual obligation for repayment, nor do I accept that Mr Telford's claim can be characterised as a charge or encumbrance over the value of Mr Moffatt's shareholding in Trencreek-Doon.

36. Mr Moffatt claimed he was indebted to his nephew, David Moffatt, in consequence of the latter expending "$195,000" on repairs and improvements to the Invergowrie Homestead during the period from July 1999 to June 2001. In Mr Moffatt's submission, as he owns 50 percent of the property and he stands to benefit from the improvement of that property, he is liable to repay to his nephew 50 percent of the cost of improvements: an amount of $97,500. There is no written agreement setting out the terms of any such arrangement. When questioned by the Tribunal about this arrangement, Mr Moffatt stated that his nephew understood that the amount would not be repaid but expected that he or his children would be beneficiaries of Mr Moffatt's estate following his death and the matter would be resolved in that manner. There is nothing before me to confirm any such arrangement and I cannot accept that such an informal, undocumented familial arrangement constitutes a charge or an encumbrance over Mr Moffatt's interest in the Invergowrie Homestead. Even if I were to find differently, the debt to which Mr Moffatt points would pertain to the Invergowrie Homestead, which is excluded from this assessment of the value of assets as it is Mr Moffatt's home.

37. I am satisfied that there is no charge or encumbrance over any of Mr Moffatt's assets as claimed and so find.

FINANCIAL HARDSHIP

38. Mr Moffatt submitted that he is "burdened with debts" and cannot find paid employment, being forced, therefore, to rely on the financial support of his family and friends. In such circumstances it is appropriate to consider whether the financial hardship provisions of the Act apply (s. 1131). I am satisfied in Mr Moffatt's case that they do not.

39. Mr Moffatt is the owner of assets that could be realised to alleviate his financial difficulties. He has chosen not to pursue this option, seeking instead assistance from the taxpayer. There is no evidence before me that Mr Moffatt's assets cannot be realised nor is there evidence that Mr Moffatt has attempted to sell one or more of his assets. In these circumstances I cannot find that the financial hardship Mr Moffatt's faces is such that the asset value limit set down by the Parliament should be set aside in order to provide him with relief from the public purse.

CONCLUSION

40. The value of Mr Moffatt's assets on 2 July 2001 exceeded the applicable asset value limit in consequence of which the New Start Allowance claimed on that day by Mr Moffatt is not payable.

I certify that the 40 preceding paragraphs are a true copy of the reasons for the decision herein of Mr S Webb, Member.

Signed: L Bonouvrie

Associate

Date/s of Hearing 4 December 2003

Date of Decision 12 December 2003

Advocate for the Applicant Self-represented

Advocate for the Respondent Ms S Mantaring