Cecil and Secretary, Department of Social Services (Social services second review) [2015] AATA 877 (13 November 2015)

Division	GENERAL DIVISION	
File Number	2015/2973	
Re	Keith Cecil	
	APPLICANT	
And	Secretary, Department of Social Services	
	RESPONDENT	
Decision

Tribunal	Senior Member A C Cotter

Date	13 November 2015	
Place	Brisbane	
The decision under review is affirmed.
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Senior Member A C Cotter

Catchwords
PENSION BONUS SCHEME – Rate of annual Age Pension – Value of person’s assets –Treatment of investment loans – Calculation of entitlement to Pension Bonus

Legislation
Social Security Act 1991 (Cth) (“Act”)

REASONS FOR DECISION

Senior Member A C Cotter

13 November 2015

INTRODUCTION
1.	Although having reached the Age Pension age of 65 years in July 2009, Mr Keith Cecil continued to work until October 2014.
2.	A few years earlier, in 2011, he had lodged a registration for the Pension Bonus Scheme, which was accepted by the Department of Human Services (“DHS”). He was subsequently retrospectively registered for the scheme with effect from the date of his 65th birthday. 
3.	The scheme, which closed to new registrations in July 2014, offered a tax free lump sum payment for registered members who deferred claiming Age Pension and who had stayed in paid work. The payment amount depended on a number of factors, including the amount of basic Age Pension the person was entitled to when they eventually claimed. The amount of Age Pension payable to a person is in turn subject to income and assets tests.
4.	Just after he ceased work, Mr Cecil contacted DHS in connection with making a claim for Pension Bonus. The Financial Information Service adviser whom he saw estimated that his rate of payment of Age Pension would be approximately $706.00 per fortnight and his Pension Bonus payment would be approximately $39,782.00.  
5.	Mr Cecil subsequently lodged his claim for Age Pension and Pension Bonus. DHS granted him an Age Pension at a part rate and calculated his Pension Bonus in the amount of $22,388.60.
6.	Mr Cecil inquired of DHS about the discrepancy between the Pension Bonus payment he received and the estimate which had been calculated earlier. It was discovered from the documents that Mr Cecil lodged with his claim that a loan (then about $192,000.00) he had taken out to purchase an investment property had actually been secured by a mortgage over his principal place of residence and not the investment property itself. The principal place of residence is an exempt asset from the assets test, and so the loan was effectively not taken into account in the calculation of Age Pension and Pension Bonus. That resulted in the full value of Mr Cecil’s investment property ($300,000.00), and not just his equity in it ($108,000.00), being used in the calculation.
7.	Mr Cecil provided more information to DHS, which showed a reduction in unrelated assessed income and which resulted in two top up payments being made to him in January 2015 of $412.40 and $229.10 respectively. However, the decision concerning the treatment of his investment loan remained unchanged. Mr Cecil asked if the position would alter if he sold his investment property and paid off his loan, but was told that the top up period had by that stage expired.
8.	Subsequently, Mr Cecil sought a review of the decision concerning his Pension Bonus payment. Both an Authorised Review Officer and the then Social Security Appeals Tribunal confirmed the original decision.  Still dissatisfied with that outcome, Mr Cecil has sought a review of the latter decision by this Tribunal. Both Mr Cecil and the Secretary provided written consent for the Tribunal to review the decision on the papers provided to it, without holding a hearing. 
ISSUES FOR THE TRIBUNAL
9.	As it is accepted that Mr Cecil qualifies for the Pension Bonus, the question for me to decide is the amount of Pension Bonus payable to Mr Cecil. There seemingly being no issue with other aspects of the calculation, the central issue is whether the treatment of his investment loan was correct.
CONSIDERATION
10.	The starting point for my consideration is s 93D of the Social Security Act 1991 (Cth) (“Act”), which sets out the basis for calculating a person’s Pension Bonus. One is required to work out which of the person’s bonus periods count as qualifying bonus periods,  what the person’s overall qualifying period is, and what their pension multiple is, before working out their annual pension rate. There is no dispute that Mr Cecil accrued the maximum five full-year qualifying bonus periods. Nor is the relevant pension multiple in dispute. What remains to be determined is the rate of annual Age Pension which is used to calculate Mr Cecil’s entitlement to Pension Bonus.
11.	A person’s Age Pension rate is worked out using Pension Rate Calculator A at the end of s 1064 of the Act. Relevantly, Module G sets out the assets test. It describes how to work out the value of a person’s assets and directs the reader to s 1118 (dealing with the assets to be disregarded in valuing a person’s assets) and s 1121 (concerning the valuation of an asset that is subject to a charge or encumbrance).
12.	Section 1118(1)(a)  relevantly provides that in calculating the value of a person’s assets for the purposes of the Act, one is to disregard the value of any right or interest of the person in their principal home. On that basis, the value of Mr Cecil’s residence at Sixth Avenue, Kedron is to be disregarded.
13.	The effect of a charge or encumbrance on the value of assets is dealt with in s 1121. Subsection (1) provides that if there is a charge or encumbrance over a “particular asset” of the person, the value of the asset, for the purpose of calculating the value of the person’s assets for the purposes of the Act, is to be reduced by the value of that charge or encumbrance. That provision is qualified by subsection (3), which says that it does not apply to a charge or encumbrance over assets that are to be disregarded under s 1118.
14.	In normal circumstances, one would have expected the mortgage securing the $192,000.00 investment loan to be over the investment property itself. From Mr Cecil’s lawyers’ correspondence at the time of purchase, that appears to have been the intention. The letter anticipated that ING Bank would “proceed to stamp and register the Bill of Mortgage that they are taking by way of security over the property that you [Mr Cecil] have purchased”. That is to be contrasted with ING Bank’s Fixed Rate Loan Offer of 31 July 2003, which clearly showed that a first registered mortgage was to be taken over Mr Cecil’s Sixth Avenue, Kedron residence. Had the mortgage been taken over the investment property, s 1121(3) would have operated to reduce the value of that asset by the amount of the encumbrance, giving a value for the Act’s purposes of $108,000.00 ($300,000.00 less the amount of the encumbrance, $192,000.00).
15.	The actual position is quite different. The mortgage having been over a disregarded asset, it did not reduce the value of Mr Cecil’s assets, by reason of s 1121(3). As there was no encumbrance over the “particular asset”, being the investment property, the amount secured could not be used to reduce the value of that property; the mortgage was not over that particular asset, as clearly required by s 1121(1).  That means that the full value of the investment property ($300,000.00) was required to be taken into account.
16.	It might be suggested that, in undertaking a valuation, one can look to the intention or purpose behind the transaction, so that, in this case, the mortgage amount would be treated as referable to the investment property. Unfortunately for Mr Cecil, I do not believe such an argument is sustainable. There is no provision in the Act that enables such an inquiry to be made, let alone one which would enable effect to be given to the intended purpose. If that were the case, it would need to be in express and unequivocal terms in order to displace the clear and specific wording in s 1121(1).
17.	I therefore consider that the treatment of the mortgage amount for the purpose of the valuation was correct.
18.	Finally, a question arises as to whether Mr Cecil is able to obtain the benefit of the top up provisions in s 93K of the Act, he having since placed the investment property up for auction in March 2015.  The sale of the property would lead to the discharge of the mortgage and effectively crystallise Mr Cecil’s equity in the investment property.  That would result in a reduction in the assessed value of Mr Cecil’s assets, which would in turn lead to an increase in his pension rate. 
19.	Unfortunately, I do not believe that section assists Mr Cecil in this instance. Section 93K provides that a person whose pension rate increases within 13 weeks of their Pension Bonus start date (in Mr Cecil’s case, 7 October 2014), may be eligible for a top up of their Pension Bonus.  Even assuming that the property sold at the auction or subsequently, that would have been outside the 13 week top up period (which expired on 6 January 2015).  Regrettably, I do not believe there is any discretion to extend that period.
20.	I appreciate this decision will be disappointing and frustrating for Mr Cecil. Should he still feel aggrieved, there are other options he may be able to pursue with the Secretary. However, they are beyond the jurisdiction of this Tribunal.
CONCLUSION
21.	I consider that the treatment of the mortgage amount, for the purpose of the valuation, was correct, and that the amount of the Pension Bonus payment was correct.
22.	The decision under review is therefore affirmed.

I certify that the preceding 22 (twenty -two) paragraphs are a true copy of the reasons for the decision herein of Senior Member A C Cotter	
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Associate
Dated  13 November 2015

Date of hearing	29 September 2015	
Applicant	Hearing on Papers	
Solicitors for the Respondent	Department of Human Services