FEDERAL COURT OF AUSTRALIA Schulz v Repatriation Commission [2004] FCA 718 SOCIAL WELFARE – veterans' entitlements – income support pension – eligibility – appeal from Administrative Appeals Tribunal – where Tribunal found the combined value of the assets of the applicants to be above the limit which would permit payment of the pension – whether value of a loan by the applicants to a trust should be exempt – whether the loan was used to fund the purchase of an asset which was exempt by reason of s52 of the Veterans' Entitlements Act 1986 (Cth) Veterans' Entitlements Act 1986(Cth)s 45S; s 5Q; Sch 6, Pt 2; Sch 6, Module F2; s 5L; 5J; s 52(1)(b); s 52 Schulz v Secretary, Department of Family and Community Services [2003] AATA 770 Cons JOHN SCHULZ AND RUTH AGNES SCHULZ v REPATRIATION COMMISSION Q 127 OF 2003 KIEFEL J BRISBANE 10 JUNE 2004 IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY Q127 OF 2003 ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL BETWEEN: JOHN SCHULZ AND RUTH AGNES SCHULZ APPLICANTS AND: REPATRIATION COMMISSION RESPONDENT JUDGE: KIEFEL J DATE OF ORDER: 10 JUNE 2004 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The appeal is dismissed. 2. The applicants pay the respondent's costs on the appeal. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY Q127 OF 2003 ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL BETWEEN: JOHN SCHULZ AND RUTH AGNES SCHULZ APPLICANTS AND: REPATRIATION COMMISSION RESPONDENT JUDGE: KIEFEL J DATE: 10 JUNE 2004 PLACE: BRISBANE REASONS FOR JUDGMENT 1 On 19 March 2002 the applicants made an application for an income support pension under the Veterans' Entitlements Act 1986 ('the Act'). On 8 August 2003 the Administrative Appeals Tribunal affirmed the respondent's decision that the male applicant was not eligible for payment of the pension because the combined value of his and his wife's assets had been calculated to be above the limit which would permit payment. The asset which had this result was a loan from the applicants to the Schulz Family Trust ('the Trust') of $329,573.52 which remained unpaid. 2 The facts were set out by the Tribunal in a related decision: Schulz v Secretary, Department of Family and Community Services [2003] AATA 770. The Trust was settled on 22 December 1997. The corporate trustee was Penfold Lupton Pty Ltd. The male applicant was the sole director and shareholder of the company and he was a primary beneficiary in the discretionary trust. The accounts of the Trustee at 30 June 2001 showed that the Trust owed the applicants the sum mentioned. 3 The major part of the debt arose in this way. The Trust purchased a property in Maroochydore in 1997. The applicants lived in it from July 2000 to August 2002 when it was sold. When another property in Maroochydore, also owned by the applicants, was sold in August 2000 the proceeds of that sale were loaned by the male applicant to the Trust to enable it to redeem the amount owed to its bank on the trust property. That accounts for a large part of the loan recorded in the trustee's accounts. The balance arose at an earlier time, but it is not disputed that the total sum was owed. In August 2002 the Trust repaid the applicant the amount of the loan. 4 Whilst occupying the trust property the applicants notionally paid a weekly rent of $200 per week. It was recorded at the end of each financial year in the trust accounts as a deduction from the amount owed by the Trust to them. 5 Section 45S of the Act provides that the rate of an income support supplement is to be calculated in accordance with the Rate Calculator. The Rate Calculator is defined in s 5Q of the Act as the Rate Calculator in Part 2 of Schedule 6. It is there provided that a calculation has to be made to ascertain whether the value of a person's assets exceeds their assets value limit. A note defines 'assets value limit' as the maximum value of assets the person can have without affecting the person's pension rate. Module F2 of the Schedule has regard to the assets of the person and their partner's assets in calculating the value of the couple's assets. Section 5L of the Act defines 'asset' as property or money. Section 5J defines a 'financial asset' as a financial investment, and the latter term is defined by the section to include 'a loan that has not been repaid in full'. 6 The focus of the appeal is upon s 52(1)(b) of the Act which provides: (1) In calculating the value of a person's assets for the purpose of this Act… disregard the following: … (b) if the person is a member of a couple - the value of any right or interest of the person in one residence that is the principal home of the person, of the person's partner or of both of them that is a right or interest that gives the person or the person's partner reasonable security of tenure in the home; …'. 7 The Tribunal noted the male applicant's argument to be that the value of the loan should be exempt because it was used to fund the purchase of an asset which was exempt by reason of s 52. On the appeal the male applicant submitted that the unwritten lease from the Trust had a value equal to the amount of the loan. This conclusion could be reached, it was said, because it was the amount paid by the Trust when the lease was surrendered. I do not understand the Tribunal to have considered this argument. There would not however appear to be any proper basis for it in fact. There is no evidence that the parties gave the lease such a value. It would appear to have been a lease for no fixed term, with rent at the rate of $200 per week recorded as paid annually in arrears. There is nothing to suggest a correlation between the loan and the lease, except that the latter provided a basis for a deduction from the amount owed. The amount paid by the Trust to purchase a new home for the applicants in August 2002 in the name of the applicants would properly be regarded as a repayment of the loan. 8 The Tribunal acknowledged that the applicants had some interest in the property rented arising from the informal lease. Further, it considered that the applicants had security of tenure in the sense that the male applicant controlled the actions of the landlord. The Tribunal was however of the view that the asset in question was the debt due by the Trust to the applicants. Pursuant to the transaction between the Trust and the male applicant the Trust had the monies and he had a right to repayment. It stood separately and apart from any interest on the applicants' part in the house property. 9 I can detect no error in the Tribunal's reasoning. The rights that the applicants had in the property were those of tenants. They included a right of occupation and ancillary rights. Even if they were secure in their tenancy this could not convert the nature of those rights to an interest of which s 52(1)(b) speaks, namely a valuable interest in the house property itself. The debt due to the Trust was not an asset to which the subsection referred. 10 The Tribunal also mentioned, in passing, that if the debt had been secured the security arrangement might confer an interest in the property, but that was not the case here. The male applicant submitted that the debt was secured because he controlled matters. The submission misunderstands the nature of a security interest. Further, it would not seem to me that a security interest would come within s 52(1)(b). It is not necessary to further consider the Tribunal's observations in this regard. 11 The appeal should be dismissed. I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kiefel. Associate: Dated: 10 June 2004 The Applicant: In Person Counsel for the Respondent: Ms E Ford Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 5 May 2004 Date of Judgment: 10 June 2004