Pederick and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2008] AATA 750 (25 August 2008)

Last Updated: 26 August 2008

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2008] AATA 750

ADMINISTRATIVE APPEALS TRIBUNAL )

) No 2007/4462

GENERAL ADMINISTRATION DIVISION		)
	Re		Arthur Pederick

Applicant

And

Secretary, Department of Families, Housing, Community Services and Indigenous Affairs

Respondent

DECISION

Tribunal

Mr A Sweidan, Senior Member

Date 25 August 2008

Place Perth

Decision

The Tribunal sets aside the decision under review and remits the matter to the decision-maker with a direction to allow the applicant's claim for Farm Help Income Support.

....(sgd) Mr A Sweidan..............
Senior Member

CATCHWORDS

CATCHWORDS

Social Security - Farm Help Income Support - Exempt Asset - farm land gifted to son - whether value of gifted land is an exempt asset - decision under review set aside

LEGISLATION

Farm Household Support Act 1992; Social Security Act 1991

CASES

Secretary, Department of Family and Community Services and Oliver [2002] AATA 724

REASONS FOR DECISION

25 August 2008

Mr A Sweidan, Senior Member

BACKGROUND

1. The applicant (Mr Pederick) seeks a review of the decision of the Social Security Appeals Tribunal (‘SSAT’) dated 29 August 2007 that affirmed a Centrelink decision dated 24 February 2007 to reject Mr Pederick’s claim for Farm Help Income Support.

ISSUES FOR THE TRIBUNAL

2. Whether the value of Mr Pederick’s assets included the value of gifted farmland.
3. If yes, whether the value of Mr Pederick’s assets exceeded his asset value limit for Farm Help Income Support.

FACTS

4. Mr Pederick is a partner of the Corralyn Partnership, of which the other partners are his wife, Mrs Wendy Pederick, his son, Mr Stuart Pederick (‘Stuart’), and Stuart’s wife, Mrs Rachel Pederick.
5. The Corralyn Partnership carries on a farming enterprise at Wagin, in Western Australia, on land now owned by the Trustee of the Corralyn Trust.
6. Mr and Mrs Pederick were Trustees and Mr Pederick was Guardian of the Pederick Family Trust. The Trustee of the Pederick Family Trust formerly held various parts of the land farmed by the Corralyn Partnership.
7. Stuart is the Trustee of the Corralyn Trust.
8. On 1 January 2004 Mr Pederick transferred to Stuart multiple parcels of farm land that were apparently held personally by Mr Pederick. The Transfer of Land document shows that the consideration payable by Stuart in respect of this transfer was $2,230,224.00, and the transfer was stamped as being exempt from Western Australian stamp duty on 12 February 2004.
9. A Supplementary Trust Deed dated 2 February 2004 affirmed that Stuart, as Trustee of the Corralyn Trust, held the transferred land in Trust for the Corralyn Trust, and that the Corralyn Trust had provided the consideration of $2,230,224.00.
10. In fact, although the stated value of the land was $2,230,224.00, Mr Pederick received no consideration at all, either from Stuart or the Corralyn Trust, for the transferred land.
11. On 7 August 2006 Mr Pederick lodged with Centrelink a claim for Farm Help Income Support.
12. On 14 August 2006 a Centrelink officer decided that, under the gifting provisions of the Social Security Act, the sum of $2,220,224.00, being the value of the land transferred to Stuart less $10,000.00, was assessable as an asset of Mr Pederick.
13. On 14 August 2006 Centrelink gave Mr Pederick written notice of the decision to reject his claim for Farm Help Income Support. In addition to the value of the gifted land, this notice set out the other assets that Centrelink had assessed, being $41,458.00 in investments, $5,000.00 in household contents and personal effects and $85,775.00 in real estate. The total value of Mr Pederick’s assessable assets was stated to be $2,352,457.00, and his asset value limit for Farm Help Income Support $229,000.00. The notice informed Mr Pederick that, as the value of his assets exceeded his asset value limit, Farm Help Income Support was not payable to him.
14. On 24 February 2007 a Centrelink Authorised Review Officer (‘ARO’) reviewed and affirmed the decision that the amount of $2,220,224.00 was assessable as an asset of Mr Pederick for a five-year period commencing 1 January 2004, and that the value of Mr Pederick’s assets exceeded his asset value limit for Farm Help Income Support, which was stated to be $223,000.00.
15. On 29 August 2007 the SSAT reviewed and affirmed the decision that the value of Mr Pederick’s assets exceeded his asset value limit for Farm Help Income Support. The SSAT found that the value of Mr Pederick’s assets was different to that stated in the notice of 14 August 2006. At paragraph 27 of its decision statement, the SSAT agreed that the value of Mr Pederick’s investments, household contents and personal effects and real estate was as set out in the notice of 14 August 2006, but decided that the assets of Mrs Pederick’s business, valued at $54,485.00, should also be included in the assessment of the value of Mr Pederick’s assets.
16. The SSAT, while finding that the gift made by Mr Pederick to Stuart in transferring the land without the receipt of consideration meant that the value of the land transferred was assessable as an asset of Mr Pederick, concluded that the value of the land was less than $2,230,224.00, as it had not been unencumbered when transferred. The SSAT took the view that the value of $2,230,224.00 should have been reduced by up to $750,000.00, the amount of a loan said to be secured against the land. The SSAT did not make a finding as to the exact value of the land, but did conclude that the value of Mr Pederick’s assets exceeded his assets value limit for Farm Help Income Support and, therefore, that his claim for Farm Help Income Support had been correctly rejected.

LEGISLATION AND RESPONDENT’S CONTENTIONS

17. The legislation relevant to this decision is contained in the Farm Household Support Act 1992 (‘the Farm Act’) and the Social Security Act 1991 (‘the Act’). Centrelink policy on the application of legislation is contained in the Guide to Social Security Law (‘the Guide’) and also in Centrelink’s electronic reference database (‘E-Ref’).
18. Section 3 of the Farm Act sets out definitions of various terms relevant to Farm Help Income Support. Subsection 3(2) of the Farm Act relevantly provides that:

"farmer" means a person who has a right or interest in the land used for the purposes of a farm enterprise.

"farm enterprise" means an enterprise carried on within any of the agricultural, horticultural, pastoral, apicultural or aquacultural industries.

"sale of a farm enterprise" means a transaction as a result of which the rights or interests of a person in:

(a) a farm enterprise; and

(b) the land used for the purposes of the farm enterprise;

are transferred to another person.

"exempt assets" means:

(a) if a person is a farmer:

(i) any right or interest of the person in the land used for the purposes of the farm enterprise in relation to which the person is a farmer; and

(ii) any farm plant and machinery, farm livestock or other asset essential for the effective running of the farm enterprise; and

(iii) any rights of the person under an insurance policy in relation to the person's life or under a superannuation scheme . . . .

19. Subsection 3(1) of the Farm Act relevantly provides that the definition of an asset is as defined in the Act.
20. Subsection 11(1) of the Act provides that “asset” means property or money, whether held in Australia or outside Australia.
21. The Tribunal accepts that the Corralyn Partnership carries on a farm enterprise and that, as a member of the Corralyn Partnership, Mr Pederick retains a right or interest in the land farmed by the Corralyn Partnership.
22. As noted, the Farm Act defines a farmer as ‘a person who has a right or interest in the land used for the purposes of a farm enterprise.’ This right or interest does not have to be by way ownership of or a lease over the land.
23. In Secretary, Department of Family and Community Services and Oliver [2002] AATA 724, the AAT considered whether the respondent, Mr Oliver, who operated a piggery without a formal lease agreement on land owned by his father, was a farmer for the purposes of the Farm Act. Senior Member Fayle, at paragraph 17, commented that:

In the opinion of the Tribunal, whilst there is no legal title or formal lease or licence grant to the area of land occupied by the piggery, the arrangement between the respondent and his father was real and effective as is evidenced by the fact that the piggery arrangement subsisted for at least 10 years during which time the respondent established the piggery structural improvements at his own cost.

24. Senior Member Fayle concluded, at paragraph 18, that ‘the respondent enjoyed a right or interest in land used (by him) for the purposes of a farm enterprise (the piggery), albeit a non-transferable or disposable right.’
25. The Tribunal is satisfied that Mr Pederick is a farmer, as defined in subsection 3(2) of the Farm Act.
26. The qualification provisions for Farm Help Income Support are set out in section 8B of the Farm Act. It is common cause that Mr Pederick satisfies the qualification provisions for Farm Help Income Support.
27. However, although a person may be qualified for Farm Help Income Support, Farm Help Income Support may nevertheless not be payable to the person. Division 2 of the Farm Act relevantly provides for situations where Farm Help Income Support is not payable to a person.
28. Section 10 of the Farm Act sets out provisions for applying an assets test in relation to determining whether Farm Help Income Support is payable to a person.
29. Subsections 10(1) and 10(2) of the Farm Act in combination have the effect that, in order for Farm Help Income Support to be payable to a person, the value of their assets cannot exceed their asset value limit, as at the time their claim for Farm Help Income Support is determined.
30. Subsection 10(3) of the Farm Act specifies that determining the value of a person’s assets is a two-part process, firstly involving identifying those assets that are not exempt assets under the Farm Act, and secondly calculating the value of those assets with reference to Parts 3.12 and 3.18 of the Act.
31. The definition of an exempt asset contained in subsection 3(2) of the Farm Act makes clear that it is not only the land on which a farm enterprise is carried on itself that is exempt from assessment, but also a right or interest that a person has in such land. As an active partner in the Corralyn Partnership, Mr Pederick had a right or interest in the land farmed by the partnership, and this right is exempt from assessment as an asset.
32. However it is contended by the respondent that having transferred title of the land to Stuart, Mr Pederick no longer had the rights or interests associated with legal ownership of the land, and therefore the value of the transferred land is not exempt from assessment.
33. The Secretary contends that, at the time his claim for Farm Help Income Support was determined, the value of the land that had been transferred by Mr Pederick to Stuart with no consideration received in return was not an exempt asset under the Farm Act. As such, it is contended that the value of that asset must be worked out in accordance with Parts 3.12 and 3.18, as applicable, of the Social Security Act.
34. Division 2 of Part 3.12 of the Act sets out provisions relating to the disposal of assets and subsection 1123(1) relevantly provides that a person disposes of an asset for social security purposes if they dispose of the asset without receiving consideration for the asset.
35. It is common cause that Mr Pederick transferred land valued at $2,230,224.00 to Stuart and received no consideration for this land Prima facie, under subsection 1123(1) of the Act, Mr Pederick disposed of an asset, being the land transferred to Stuart.
36. Subsection 1124(a)(ii) of the Act provides that the amount of the disposal or disposition is the value of the asset that is disposed of.
37. Subsection 10(4) of the Farm Act provides that a person’s assets value limit is equal to the assets value limit for Newstart Allowance that would have been applicable to the person at the time their claim for Farm Help Income Support was determined.
38. Subsection 611(2) of the Act sets out a table for working out a person’s assets value limit for Newstart Allowance.
39. If that table is to be applied it is clear that the value of Mr Pederick’s assets exceeded the asset value limit for Farm Help Income Support, which is what the respondent contends.

TRIBUNAL’S FINDINGS

40. The Tribunal rejects the respondent’s contentions for the reasons which follow.
41. In the Tribunal’s opinion it would be anomalous if the legislation were to be applied to produce the result contended for by the respondent.
42. It is clear that if Mr Pederick had retained legal ownership of the farming land he would qualify for Farm Help Income Support as the land was an exempt asset under both sub-paragraphs (a)(i) and (ii) of the definition.
43. In the view of the Tribunal it defies logic and commonsense that the value of an exempt asset, i.e. the farm land, is to be treated as non-exempt if the exempt asset is gifted for no consideration, as has occurred here.
44. The Tribunal notes that subsections 1123 (l) and 1124 (a)(ii) of the Social Security Act do not deal with the question of exempt assets under the Farm Act.
45. In the Tribunal’s opinion these sections are clearly anti-avoidance provisions which were not intended to have the effect contended for by the respondent. To find otherwise would, in the Tribunal’s view, result in clear injustice to applicants in the position of Mr Pederick.
46. In the opinion of the Tribunal subsections 1123 (1) and 1124 (a)(ii) of the Act must be read so as not to apply to exempt assets as defined in section 3 (2) of the Farm Act.
47. The sections are clearly aimed at persons who dispose of assets in order to qualify for social security benefits. In this case Mr Pederick could have retained the asset and still qualified for the benefit, as the land was exempt.
48. Mr Pederick clearly did not dispose of the land in order to benefit. The Tribunal notes that an alternative basis for its findings is that, as set out in para 21 above, Mr Pederick retained a right or interest in the land as a member of the Corralyn Partnership following the gift and transfer of the land to Stuart.
49. Such right or interest is itself an exempt asset under part (a)(i) of the definition as the land is “used for the purposes of the farm enterprise in relation to which the person (Mr Pederick in his capacity as a member of the partnership) is a farmer.”
50. The Tribunal notes further that under para (a)(ii) of the definition an “asset essential for the effective running of the farm enterprise” is an exempt asset.
51. The uncontested evidence of Mr Pederick is that if he had not gifted the land to Stuart the farm enterprise would not have been able to continue.
52. The consequence of this is, in the Tribunal’s opinion, that the (deemed) asset constituted by the value of the gift is itself an exempt asset. The Tribunal notes that this accords with the view of an officer of the respondent as expressed in an advice letter dated 23 August 2006 which appears in T12 at Page 278 of the “T” documents, and this provides another basis for the Tribunal’s findings.

DECISION

53. The Tribunal sets aside the decision under review and remits the matter to the decision maker with a direction to allow the applicant’s claim for Farm Help Income Support.
    

I certify that the 53 preceding paragraphs are a true copy of the reasons for the decision herein of Mr A Sweidan, Senior Member

Signed: (sgd) T Freeman.........

Associate

Date of Hearing 12 August 2008

Date of Decision 25 August 2008

Applicant Self Represented

Respondent’s representative Mr P Maishman

Solicitor for the Respondent Centrelink Legal Services