FEDERAL COURT OF AUSTRALIA

Secretary, Department of Employment, Education, Training &

Youth Affairs v Ovari [2000] FCA 323

SOCIAL SECURITY – AUSTUDY – assets tests – principal home partly used for business purposes – portion of outgoings allowed as deduction for income tax purposes – whether full value to be excluded for purposes of assets test

WORDS AND PHRASES – “principal home”

AUSTUDY Regulations reg 15(1)

Ronpibon Tin No Liability v Federal Commissioner of Taxation (1949) 78 CLR 47, 55, 58-59 mentioned

Re Di Primio v Secretary, Department of Social Security (1993) 31 ALD 233 mentioned

SECRETARY, DEPARTMENT OF EMPLOYMENT, EDUATION, TRAINING AND YOUTH AFFAIRS v A F AND Z L OVARI

NO. A 88 of 1999

O’CONNOR, HEEREY and FINKELSTEIN JJ

6 APRIL 2000

MELBOURNE (HEARD IN CANBERRA)

ON APPEAL FROM GYLES J

THE COURT ORDERS THAT:

1.                  The appeal is dismissed.

2.                  The appellant pay the respondents’ costs, including reserved costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

ON APPEAL FROM GYLES J

REASONS FOR JUDGMENT

THE COURT:

1                     This appeal from a judge of this Court (Gyles J) is concerned with the respondents’ eligibility for benefits under the AUSTUDY scheme for the year 1996.  The respondents’ family home (their “principal home” within the meaning of the AUSTUDY regulations) was also used for business purposes and the Commissioner of Taxation had allowed 53.33 per cent of outgoings as a deduction.  His Honour had to consider whether the Administrative Appeals Tribunal (“AAT”) was correct in excluding from the value of the respondents’ family assets for the purpose of the AUSTUDY assets test only 46.67 per cent of the value of the home rather than its full value.

2                     Other issues were argued before his Honour, and still more issues before the AAT.  But if the principal home issue is resolved in the respondents’ favour it is common ground that their family assets will not exceed in value the maximum of $393,750 prescribed by the regulations.  For the reasons hereafter appearing, we accept the respondents’ contentions.  It is thus unnecessary to consider the other issues.

Background facts

3                     The respondents are brothers.  In December 1995 and January 1996 respectively they applied for continuation of AUSTUDY benefits.  AUSTUDY is a scheme for the provision of benefits to students.  It is authorised by Pt II of the Student and Youth Assistance Act 1973 (Cth) (“the Act”).  The scheme itself is established by the AUSTUDY Regulations (“the regulations”). 

4                     The applications were rejected by Delegates of the Secretary of the Department (then called Department of Employment, Education and Training).  This decision was affirmed by another Delegate.  An appeal to the Social Security Appeals Tribunal (“SSAT”) was successful.  However following the SSAT decision the Secretary on 29 January 1997 advised that as a result of further information he had determined that the respondents were ineligible for AUSTUDY because the estimated net market value of the family’s combined assets exceeded the relevant amount.  It is the decision of 29 January 1997 which was the subject of the AAT appeal. 

5                     The Ovari family home is situated at 13 Victor Street, Monash, a suburb of Canberra.  The site area is 923.2m².  On the land there is a house of brick veneer and concrete tile construction with four bedrooms, double garage and “flat/rumpus” underneath.  The AAT made a finding that the value of the property was $205,000.  The AAT said:

“There is no dispute that the Monash property is used as the Ovari family residence and as the business premises of AGAZO International.  The Department accepts that 53.33% of the value of the property should be regarded as a business asset, consistent with taxation acceptance of such an apportionment, and the Tribunal finds accordingly.  The Monash property is a business asset in the sum of $109,326.50.”

6                     After taking into account other assets, the AAT found the Ovari family assets totalled $400,613.31, a sum which exceeded the prescribed limit of $393,750.  The decision of the AAT accordingly was that neither respondent was entitled to AUSTUDY in 1996.

Legislation

7                     Under s 7(1) of the Act the Secretary may grant a benefit subject to and in accordance with that section and the regulations.  Section 7 prescribes various pre-requisites as to courses of study etc.  None of these matters are in dispute. 

8                     Regulation 13 of the regulations provides:

“13.  Do assets affect AUSTUDY?

13.  (1)  A student qualifying for a kind of living allowance listed in the following table cannot get AUSTUDY if the value of assets as described in regulations 14-19 (inclusive) is more than the maximum value set out opposite the kind of living allowance in the table.”

For present purposes the relevant figure in the table is $393,750. 

9                     Regulations 14 and 15 provide:

“14.  What is included in assets?

14.  (1)  Assets are any kind of property, whether in Australia or elsewhere, unless they are excluded by regulations 15-18.

 (2)  if a person disposed of an asset in the last 5 years for unreasonably low or no value:

(a)     it is included in the person’s assets; and

(b)     its value is taken as its value when the person disposed of it less what he or she got for it;

but this rule does not apply to assets disposed of before 23 August 1988.

(3)  If a person reduced the value of an asset directly or indirectly, the value of the asset is taken to be its value before the person acted (except where the person reduces the value of a business by reducing the extent to which he or she works in the business).

(4)  A person’s assets include any money owed to the person, but do not include any interest on the money that is not yet due.

(5)  A person’s assets include:

(a)     any benefit that the person is entitled to directly or indirectly out of the assets of a trust; and

(b)     any asset of a trust that the person can deal with directly or indirectly to his or her advantage; and

(c)     any interest in the assets of a trust that has been assigned to someone else but the person can directly or indirectly control.

15     What is excluded from assets?  (a)  principal home

15.  (1)  The principal home includes:

(a)     any land around the home used primarily for private and domestic purposes if the land and the ground floor of the home are 2 hectares or less; or

(b)     a garage or storeroom of a flat or home unit that is used primarily for private or domestic purposes.

(2)  Any right or interest in a person’s principal home is not included in the person’s assets.

(3)  No account is taken of an amount from the sale of a person’s principal home that he or she is likely to use within 12 months of the sale to buy another principal home.”

Decision of the primary judge

10                  His Honour said:

“12.  In my opinion, once a property is found to be the principal home of the relevant person, then no right or interest which that person has in that home is to be included in that person’s assets for the purposes of the assets test.  It is not to the point that business activities may be conducted from the home.  Indeed, there is no particular reason why business activities are inconsistent with, or detract from, the function of a house as a home.  The AAT found that the property was used as the Ovari family residence, and this is simply another way of saying that it is their principal home.  It should also be noted that AGAZO International was a partnership between family members, if that be relevant.  Furthermore, the finding of the AAT must have been inevitable, as the valuer’s description of the property shows it to be a typical family home and garden for parents and two student children in the suburbs of Canberra.

13.  The AAT seems to have been influenced by the fact that the partnership claimed 53.33% of expenses such as repairs, electricity, rates and insurance in relation to the property as business expenses pursuant to s 51 of the Income Tax Assessment Act 1936 (Cth).  In my opinion, this is not a proper basis for considering the issue which arises under reg 15.  Apportionment of business expenses is, for the purposes of s 51 of the Income Tax Assessment Act 1936 (Cth), commonplace, but that is a quite separate statutory regime and another field of discourse altogether.” 

11                  His Honour concluded that the AAT had misdirected itself as to the proper construction and application of Reg 15. 

Conclusion on appeal

12                  In our respectful view, his Honour was correct.  The term “principal home” as such is not defined in the regulations.  Regulation 15(1) only deals with some specific situations in which there might be some room for argument as to the physical extent of the “principal home”.  It could not be doubted that a suburban residence of the kind described was a home of the respondents’ family.  The  adjective “principal” is directed to excluding holiday homes and the like.  No such suggestion is raised in the present case.

13                  Therefore the Monash property is an asset (“any kind of property”) but once identified as the “principal home” it is to be excluded by reg 15 from the family assets for the purposes of the AUSTUDY assets test.  Provided the property in question is properly characterised as a principal home, the regulations do not provide for apportionment by reference to any non-domestic uses to which the home may be put.  This is in contrast with the specific provision in s 51(1) of the Income Tax Assessment Act 1936  (Cth) where the words “to the extent to which” have been held to authorise and require apportionment:  Ronpibon Tin No Liability v Federal Commissioner of Taxation (1949) 78 CLR 47, 55, 58-59.

14                  The regulations are concerned with the value of assets.  To the extent that a person or a person’s family has assets, such assets can be turned into money and the person is less in need of taxpayer-funded financial support for study.  The regulations fix an arbitrary limit under which a person may have assets and still receive support.  Thus the focus is on value, that is to say the money equivalent of assets. 

15                  There was no evidence, nor did the AAT find, that the market value of the Monash property was increased or decreased by the fact that it was partly used for business purposes.  Given the nature of the property, such a variation seems inherently unlikely.  Nor was there any evidence or finding that some physical part of the property was exclusively used for business purposes. 

16                  As his Honour noted, there are cases such as that dealt with by the AAT in Re Di Primio v Secretary, Department of Social Security (1993) 31 ALD 233 which involve somewhat unusual premises, but they turn on their own facts.

17                  Counsel for the appellant argued that the respondents’ construction would lead to anomalies. A hypothetical example was given of two doctors, one of whom practises from home and the other who has a less expensive home but also a surgery at separate premises.  It was said to be anomalous that a home including surgery should be excluded from assets in the case of the first doctor, but not the separate surgery in the case of the second.  We do not see this as anomalous.  Different circumstances lead to different results.  To take another example, a family might choose to live in a rented house and invest money which would otherwise have been used to buy a home.  The family’s investments would be included as assets for AUSTUDY purposes.  The result is not anomalous.  It simply reflects longstanding social and political policy also manifested in many other areas – capital gains tax being but one example – that a family home has a special importance beyond its value as an economic asset. 

18                  The appeal will be dismissed with costs, including reserved costs.

Associate:

Dated:              6 April 2000