Editors --- "Age pension: assets; value of fractional interest in land; whether value can be ascertained; whether unreasonable to sell the asset" [2010] SocSecRpr 30; (2010) 12(2) Social Security Reporter, Article 16

• SECRETARY TO THE DFHCSIA and PAYNE
• Background
• Discussion
• Formal decision

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Age pension: assets; value of fractional interest in land; whether value can be ascertained; whether unreasonable to sell the asset

SECRETARY TO THE DFHCSIA and PAYNE

(2010/347)

Decided: 11th May 2010 by B.H. McPherson and M.J. Carstairs

Background

On 1 May 2009, Payne applied for and was granted age pension. On 10 September 2009, the decision to grant her a pension was varied on review, when an ARO decided that, in determining the value of the respondent’s assets, regard was to be had to her interest in land at 57 Donegan’s Road, Allora (the homestead property).

Payne inherited a 20% share in the homestead property following the death of her father in 1997. The other shares in the homestead property were held by her siblings in equal shares.

The homestead property was approximately 40 acres in extent, and accommodated a homestead, sheds, cattle yards, grain silos and an underground bore. The homestead property adjoined a parcel of farming/grazing land of around 400 acres in size, which was owned by Payne’s brother, Barry. It was said that the land owned by Barry could only be operated successfully in conjunction with the homestead property and the improvements on that land.

With the apparent agreement of his siblings, Barry occupied the property.

Payne appealed the decision of the ARO to the SSAT. The SSAT set aside the ARO’s decision and directed that Payne’s interest in the land was to be disregarded.

The Secretary applied to the AAT for a review of the SSAT’s decision.

Discussion

The AAT accepted that the value of Payne’s interest in the homestead property had to be taken into account in assessing her entitlement to age pension.

The AAT noted that the whole of the homestead property, including the permanent improvements on the land, had been valued in May 2009 at $300,000. The AAT observed that it was not appropriate to simply divide the value of the whole property by Payne’s share to determine the value of her interest in the property. The AAT found that, consistent with Spencer v Commonwealth (1907) 5 CLR 419, what has to be determined is the price that is likely to be paid for Payne’s 20% interest in the homestead property by a willing but not overanxious purchaser of that interest as tenant in common in the homestead property.

The AAT referred to the observation made by Deputy President Hack SC in Ralph and Repatriation Commission [2006] AATA 258, that the ‘market’ for a fractional interest in land was in practice likely to be limited to the other co-owners. The AAT agreed with these remarks, and observed that, in the present case, the range of potential buyers of Payne’s fractional interest as a tenant in common in the homestead property must be very limited indeed.

The AAT observed that it would be possible for someone who acquired an interest in land as a tenant in common to apply to the Court to appoint trustees for the sale of the property and distribution of the sale proceeds among the tenants in common. However, the AAT observed that the power to appoint trustees is discretionary and might not necessarily be exercised in favour of a stranger who bought a share in a family tenancy in common knowing that the other co-owners wished it to remain as it was.

The AAT also commented that, upon the sale of the homestead property, Barry might seek compensation for the improvements he had made to the homestead property, and that the other tenants in common might seek to cross-claim for occupation rent. The AAT observed that, until the homestead property was sold, it was simply not possible to quantify with any accuracy the value of the claims and cross-claims or, in consequence, to determine where the ultimate credit balance would lie.

The AAT found that, since none of the tenants in common could be compelled to apply for the appointment of a trustee for sale of the homestead property, the value of an undivided share in the property was at present unascertainable; but was probably nil. The AAT further concluded that it was only if the shares in the land were liquidated by sale that a value could be placed upon them.

In those circumstances, the AAT concluded that Payne’s 20% interest as tenant in common in the homestead property had a nil value. The AAT directed that Payne’s pension application be determined accordingly.

The AAT observed that their conclusion in this matter was consistent with paragraph 4.6.7.50 of the Guide to the Social Security Law, which states that a customer is unable to sell an asset if ‘the asset is owned as a tenant in common and the practical effect of this form of ownership is that the asset would be unsaleable’. The AAT observed that it would be unreasonable to sell the homestead property, as the property was occupied by Payne’s near relative, who had lived in the house for the last 69 years. The AAT considered that it would be unreasonable to expect Payne to apply to the Court for the appointment of a trustee to sell the property in those circumstances.

Formal decision

The AAT set aside the decision under review and remitted it to the Secretary for reconsideration in accordance with the AAT’s reasons for decision.

[S.O.]