Sambell and Secretary, Department of Social Services (Social services second review) [2018] AATA 3732 (8 October 2018)

Last Updated: 9 October 2018

Sambell and Secretary, Department of Social Services (Social services second review) [2018] AATA 3732 (8 October 2018)

Division: GENERAL DIVISION

File Number(s): 2018/0266

Re: Neil Sambell

APPLICANT

And Secretary, Department of Social Services

RESPONDENT

DECISION

Tribunal: Senior Member D. J. Morris

Date: 8 October 2018

Place: Melbourne

The Tribunal affirms the decision under review.



........................................................................
Senior Member D. J. Morris

Catchwords

SOCIAL SECURITY – age pension – assets test – disposal of property – whether disposal should be disregarded – hardship test – whether severe financial hardship would result – discretion not enlivened – decision affirmed.

Legislation

Social Security Act 1947 (Cth)(rep)

Social Security Act 1991 (Cth), ss 11, 55, 1064, 1123, 1124, 1126AC, 1129

Cases

Groth v Secretary, Department of Social Security [1995] FCA 1708

Re Ford and Ethel Reynolds and Secretary to the Department of Social Security [1986] AATA 120

REASONS FOR DECISION

Senior Member D. J. Morris

8 October 2018

1. The Applicant, Mr Neil Sambell, has brought to the Tribunal for review a decision by an Authorised Review Officer (ARO) of the Department of Human Services (the Department) dated 29 May 2017. That decision rejected Mr Sambell’s application for consideration under the assets test hardship rules for the purposes of determining the rate of his age pension.
2. The hearing was held on 5 July 2018. Mr Sambell represented himself, made submissions and was cross-examined by Ms Ailsa Bramley, a legal officer of the Department. The Tribunal took into account documents (T-documents) and supplementary documents (ST-documents) lodged by the Department in compliance with section 37 of the Administrative Appeals Tribunal Act 1975. The Tribunal also took into account Statements of Facts, Issues and Contentions lodged by the Applicant (Exhibit A1) and the Respondent (Exhibit R1), and the following documents: Notice of Acquisition of an interest in land, received by the Tribunal on 2 July 2018 (Exhibit A2); the Applicant’s submission tendered on 3 July 2018; Amended Notice pursuant to section 196 of the Social Security (Administration) Act 1999 to Mrs Luan Sambell (Exhibit R2); and Extracts of the current Guide to Social Security Law, handed up 3 July 2018 (Exhibit R3).

Background

3. Mr Sambell has received the age pension since December 2008. On 13 July 2016 Mr Sambell contacted the Department and advised that he had gifted 10 per cent of a property he owned (described in these reasons as ‘the investment property’) to a third party.
4. On 26 October 2016 Mr Sambell was sent a letter (T3, p 8) from the Department advising him of changes to the assets test used for calculating the rate of age pension. Amongst other things, the letter stated that “your assets test rate of pension will be reduced if your assets exceed... $453,500 for a partnered homeowner.”
5. On 3 December 2016 the Department issued Mr Sambell a notice (T4, p 11) advising him of his rate of age pension for the periods commencing on 23 November 2016, 7 December 2016 and 21 December 2016 and further advised that the information used for calculating his regular payment of the age pension was based on a total combined assets figure of $810,097. Mr Sambell’s age pension paid on 22 December 2016 was $224.84 per fortnight and this letter advised that from 19 January 2017 it would be $37.00 per fortnight (see also T45, p 134).
6. On 13 January 2017 Mr Sambell lodged a Claim for consideration under hardship form with the Department (T6, p 16). With the claim was a copy of the Certificate of Title of the investment property (T6, p 19), which indicated the property was held by tenants in common as follows: the Applicant (12 per cent), his wife Mrs Luan Sambell (78 per cent); and their adult daughter, Miss Luana Sambell (10 per cent).
7. On 15 February 2017 the Department issued a notice to Mr Sambell (T7, p 36) advising that his Claim for consideration under hardship had been rejected and stated:

After carefully considering your individual circumstances, a decision has been made that your claim for Age Pension under the hardship provisions of the assets test has not been successful.

Your claim has been rejected because of the gift you made of 10% of your property. In reaching this decision, the following factors were taken into account. If you deprive yourself of an asset you are not considered to be eligible to be paid under the asset hardship provisions. The deprivation can only be disregarded if your severe financial hardship is not a direct result of the gift and you would have been eligible under the hardship provisions if the gift had not occurred. It has been determined that you would not have been eligible under the hardship provisions if the gift had not occurred as you would have had 100% ownership of the property and there would have been no reason why the property could not be sold. So the gift cannot be disregarded meaning you are not eligible under the financial hardship provisions.

The Social Security Act 1991 states that an asset may be disregarded if:

• you are unable to sell or borrow against the asset, or it would be unreasonable for you to do so; and
• you would suffer severe financial hardship if your asset is not disregarded.

8. On 12 May 2017 Mr Sambell requested a review of the officer’s decision and on 29 May 2017, as mentioned above, an ARO affirmed the original decision (T12, p 56).
9. Mr Sambell sought review of the ARO decision by the Social Services and Child Support Division of the Tribunal (AAT1). That hearing took place on 7 December 2017 and affirmed the ARO decision. On 17 February 2018 Mr Sambell requested a review by the General Division of the Tribunal, which is this hearing.

The relevant law

10. Eligibility for age pension and the rate at which it is paid is governed by the Social Security Act 1991 (the Act). Section 55 of the Act sets out that the rate of age pension is worked out under the rate calculator in section 1064. In section 1064, the rate calculator provides that a person is paid under either the income test in Module E, or the assets test in Module G, whichever results in the lesser amount.
11. Section 1064 provides that where a person is a member of a couple, the value of the person’s assets is 50 per cent of the sum of the person’s assets and the assets of the person’s partner.
12. It was not in dispute between the parties that at the date Mr Sambell lodged the Claim for consideration under hardship form, 13 January 2017, he was both partnered and a homeowner. From 1 January 2017 the rate of pension was reduced under the assets test when the value of a partnered homeowner’s assets (such as Mr Sambell’s) exceeds $375,000.

The Respondent’s contentions

13. The Respondent contended that, apart from the investment property, Mr Sambell’s assets as at the date he lodged the Claim for consideration under hardship form comprised:

Household and personal effects - $5,000.00

Motor vehicle - $3,600.00

Savings account bank 1 - $541.00

Savings account bank 2 - $349.00

Managed superannuation investments - $26.00

Total: - $9,167.00

In his written submissions before the hearing, Mr Sambell did not dispute this calculation.

14. Mr Sambell also did not dispute the Secretary’s contention that he gifted an interest in the investment property to his daughter in July 2016 and that the gift amounted to 10 per cent interest in that property.
15. The Respondent submitted that section 1123 of the Act provides that a person has disposed of an asset if they have engaged in a course of conduct that disposes of some of the person’s assets and the person receives no consideration in money or money’s worth for the disposal, and that section 1124 of the Act goes on to require that the value of a disposed asset be included in the assessment of value of the person’s assets.
16. The Respondent submitted that as the value of the investment property is $810,000, the 10 per cent of the property gifted by Mr Sambell to his daughter is valued at $81,000. But, because of the operation of section 1126AC of the Act, which allows a person who is a member of a couple to dispose of assets to the value of $10,000 a year, the amount to be maintained as a gift in the assessment of the Applicant’s assets is, therefore, $71,000.
17. The Respondent therefore contended that the value of Mr and Mrs Sambell’s combined assets is $809,167, being made up of $9,167 in personal assets; 90 per cent of the value of the investment property, $729,000, and $71,000, the value of the gift.
18. The hardship rules are set out in Division 3 of the Act. Section 1129 states:

Access to financial hardship rules – pensions

(1) If:

(a) either:

(i) a social security pension is not payable to a person because of the application of an assets test; or

(ii) a person's social security pension rate is determined by the application of an assets test; and

(b) either:

(i) sections 1108 and 1109 (disposal of income) and 1124A, 1125, 1125A, 1126, 1126AA, 1126AB, 1126AC, 1126AD and 1126E (so far as section 1126E relates to sections 1126AA, 1126AB, 1126AC and 1126AD) (disposal of assets) do not apply to the person; or

(ii) the Secretary determines that the application of those sections to the person should, for the purposes of this section, be disregarded; and

(c) the person, or the person's partner, has an unrealisable asset; and

(d) the person lodges with the Department, in a form approved by the Secretary, a request that this section apply to the person; and

(e) the Secretary is satisfied that the person would suffer severe financial hardship if this section did not apply to the person;

the Secretary must determine that this section applies to the person.

19. The Respondent contended that as section 1126AC of the Act applies to Mr Sambell’s circumstances, he cannot satisfy section 1129(1)(b)(i) of the Act.
20. Mr Sambell said in his letter attached to the Claim for hardship consideration form (T6, p 20) that the reasons that resulted in the percentages of ownership of the investment property in relation to the tenants in common were:

to restrict future liability for capital gains tax by lifting the cost base – principally for our daughter, should she wish to sell ‘the property’ after she inherits it and

to give our daughter first-hand experience in the responsibilities of property ownership and being a landlord of rental property.

21. Ms Bramley said that the Secretary did not accept that there were, in the words in Mr Sambell’s written submission (A1, p 2), special and unusual circumstances that necessitated the quick disposal of the subject asset...
22. The Respondent contended that ownership of the investment property remains with Mr Sambell and his immediate family and that disregarding the disposition would be tantamount to retaining the property for the ultimate benefit of the Applicant’s daughter.
23. The Respondent submitted that there is nothing unfair in expecting the Applicant to fully utilise his assets and the assets of Mrs Sambell to contribute to his own support; and that the reasons advanced by Mr Sambell for the gifting do not warrant the exercise of the discretion to disregard the disposition.
24. The Respondent submitted that because, in her submission, the disposition should not be disregarded there is then no need to go on to consider whether the investment property is ‘unrealisable’ or whether Mr Sambell would be in ‘severe financial hardship’ if he was not granted hardship under the hardship provisions.
25. The Respondent argued that Mr and Mrs Sambell have been on the reduced rate of pension since 2017 and there was no evidence before the Tribunal that they have suffered severe financial hardship or that their financial situation has deteriorated.

The Applicant’s contentions

26. Mr Sambell conceded that deprivation of the investment property has occurred but contended that he satisfies the criteria for the deprivation to be disregarded by the Secretary of the Department.
27. He said that he and his wife have had the intention for more than 20 years to bequeath the investment property to their only child, now an adult. Mr Sambell wrote (A1, p 3):

Deprivation did not occur as special or unusual circumstances necessitated the immediate transfer of the subject gift. The transfer had to be processed as soon as possible following the transfer by the Applicant’s wife of 22% to the Applicant. If delayed, further capital appreciation would have resulted in capital gains tax being assessed, which was an outcome that was to be avoided or limited as far as possible. Furthermore, the Applicant wishes to take prompt action at that time while he was still familiar with the conveyancing procedure.

28. Mr Sambell contended that his financial hardship was not a direct result of the subject gift, but resulted from the change in the assets test that became effective on 1 January 2017 which resulted in him being ineligible to continue receiving the full rate of age pension.

The Applicant’s evidence

29. Mr Sambell said that he has owned the investment property since around 1981. The title of the property was originally only in his name but after he married in the late 1990s he transferred the property to his wife’s name as a method of splitting their income.
30. He said the investment property was originally his and his wife’s principal place of residence but in November 1996 soon after their daughter was born they moved out and into their current residence, which is a short walk away in the same suburb. Mr Sambell said that the property has been rented out from soon after they moved out at the end of 1996.
31. Mr Sambell said his wife transferred 22 per cent of the property to him in 2016 just before the last federal election because of political discussion in the media about possible changes to capital gains rules.
32. Mr Sambell was asked, in making his decision to transfer part of the property to his daughter, whether he sought advice on the impact this might have on his age pension. He said that he did not ask for advice because he was ‘quite aware of the deprivation rules’. Mr Sambell confirmed to the Tribunal that he was an accountant before retiring from full-time work.
33. Mr Sambell told the Tribunal that there was no mortgage on the investment property and that he and his wife did not have a mortgage on their principal place of residence. He agreed that his wife receives a carer allowance of around $120 per week and that Mrs Sambell reaches age pension age in January 2019.
34. In answer to a question from the Tribunal, Mr Sambell said he receives about $18,000 a year in rent from the investment property, after associated expenses have been deducted.

Consideration

35. Mr Sambell said that none of he, his wife or his daughter wish to sell the investment property. He provided letters to the Tribunal from each of the tenants in common confirming this.
36. In regard to Mr Sambell’s contention that the circumstances of him and his wife gifting 10 per cent of the investment property to their daughter are ‘special and unusual’, in his written submissions handed up at the hearing, Mr Sambell wrote:

Initially, I considered that a way to improve our cash flow would be to sell 10% of the property to our daughter and receive monthly payments from her. The family including our daughter agreed in principle to this proposal. This would improve the Applicant’s cash flow and there would be considerable benefits for our daughter’s development. Our daughter has been made a trustee of our SMSF which also has developmental benefits. However, as part of the conveyancing procedure the State Revenue Office required 2 pages of details of the Contract of Sale and also required a copy of the contract. As there was no written contract and as I did not have time to prepare one, I then decided I would gift our daughter a 10% share of the property. On 13 July, 2016, Centrelink were advised of the gift as required. The gift was therefore a consequence of the SRO requiring details and a copy of the contract of sale. Treating the transfer as a gift was the most expedient method of registering the transfer with the SRO. Consequently, these circumstances would qualify as “special and unusual circumstances” referred to in the Respondent’s contentions...

37. In Groth v Secretary, Department of Social Security [1995] FCA 1708 Kiefel J considered the meaning of the phrase “special circumstances”. Her Honour said at [545]:

The phrase ‘special circumstances’, it has been said, although imprecise is sufficiently understood not to require judicial gloss: Beadle’s case [Beadle v Director-General of Social Security] (at ALR 229 ALD 674), and for present purposes it is sufficient to observe that it would require something to distinguish Mr Groth’s case from others, to take it out of the usual or ordinary case. That was, I consider, the only enquiry to be undertaken in this case. It would of course follow that if one were to conclude that something unfair, unintended or unjust had occurred that there must be some feature out of the ordinary.

38. On the Applicant’s own evidence, in his submissions and at the hearing, the decisions he, his wife and daughter took in relationship to the shared ownership of the investment property were wholly within their power. The decisions were not forced upon them by an external factor over which they had no control. In short, the Applicant and his wife took the decision to restrict Miss Sambell’s liability for capital gains tax in the future and, secondly, to give her some experience in owning part of a rental property.
39. The Tribunal is not satisfied that the Applicant has made out a case for the Secretary to exercise the discretion to disregard the dispossession of the investment property. On his own evidence, Mr Sambell deprived himself of an asset by giving his daughter an interest in the investment property for no consideration, thereby falling within the provisions of section 1123(1)(b)(i) of the Act. As mentioned above, $71,000 (i.e. 10 per cent of the $810,000 value of the investment property being $81,000 minus the amount of $10,000 allowable under section 1149AC of the Act for a member of a couple to dispose of an asset in a year) is maintained in the assessment of Mr Sambell’s assets for the purposes of rate of age pension.
40. There is nothing before the Tribunal to convince me that the asset is unrealisable in the terms set out in section 11 of the Act. It is a personal choice that the Applicant and his wife have made to retain the investment property, which is their right. Member Longo observed at AAT1 that there were no cogent reasons submitted by the Applicant to him that would make it unreasonable to sell or to borrow against the value of the investment property. After consideration of the Applicant’s submissions at this hearing, that is also my conclusion.
41. The Tribunal makes clear that, even if it had concluded (which it has not) that the discretion was enlivened, Mr Sambell has not made out a case that severe financial hardship will arise. The term ‘severe financial hardship’ in section 1129(i)(e) of the Act is not further defined in the Act but the term has been considered by the Tribunal on many previous occasions. The Tribunal considered the phrase in relation to the Social Security Act 1947 (rep) in Re Ford and Ethel Reynolds and Secretary to the Department of Social Security [1986] AATA 120, at [29] and [31]:

However the applicants must also satisfy the Tribunal that they would suffer “severe financial hardship” if s. 6AD did not apply to them. That expression is not defined. The pensions benefits and allowances which the Act provides for persons who fulfil the requirements of the Act are clearly designed (inter alia) to avoid severe financial hardship to persons who would otherwise be without adequate means of support. The level of pension or benefit payable to different persons in different circumstances is a recognition by Parliament of the amount which is considered to be appropriate for that purpose from time to time. The decision to introduce the assets test was the implementation of a policy not to subsidise the income of some persons who had sufficient resources of their own. If those resources in fact produce an income in excess of the maximum pension payable to an aged person it will be difficult for such a person to demonstrate “severe financial hardship”. It may be possible if his or her reasonable living expenses are unusually high for some exceptional reason. But in the ordinary case “severe financial hardship”: is a condition that is more likely to be demonstrated by a person whose income is materially less than the current maximum pension.

42. There is no particular characteristic in Mr Sambell’s personal circumstances that would incline me to conclude that Mr and Mrs Sambell are without adequate means of support. Mr Sambell’s evidence is that he owns his own residence outright; he and his wife also own the investment property, with a small percentage held by their daughter, outright. Mrs Sambell receives a part-pension and a carer allowance. She does not currently work but, on Mr Sambell’s evidence, has not yet retired from the workforce. They receive, on his evidence, $18,000 a year nett income from the investment property. Mr Sambell told the Tribunal that they have drawn some $30,000 to $40,000 from his wife’s accessible superannuation for household expenses. Taken all together, the Applicant and his wife, because of the level of their combined assets (principally the investment property) are in a much more advantageous financial position than many other recipients of the age pension.
43. As the letter to Mr Sambell from the Department in October 2016 set out, only persons with significant assets other than their home will have their pension rate reduced because it is recognised that such persons have a greater capacity to support themselves. There is nothing in the Applicant’s submissions which has led me to the conclusion that Mr Sambell is not a person with such a greater capacity.
44. The Tribunal finds that the amount of Mr Sambell’s combined assets as at 1 January 2017 was correctly assessed at $810,097 and therefore the rate of the Applicant’s pension was correctly assessed on the basis of these assets. The Tribunal also finds that the discretion in section 1129 of the Act is not enlivened.

DECISION

45. The Tribunal affirms the decision under review.

I certify that the preceding 45 (forty - five) paragraphs are a true copy of the reasons for the decision herein of Senior Member D. J. Morris

..........................[sgd]..........................................
Associate

Dated: 8 October 2018

Date of hearing:	3 July 2018
Applicant:	Self-represented
Advocate for the Respondent:	Ms Ailsa Bramley, Department of Human Services FOI & Litigation