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Never look a gift horse …

The Court of Appeal decision in MSD v Broadbent takes a considered and principled approach to whether MSD can assess “notional” income on assets that have been transferred to family trusts.  For the background to this case see Notional income knocked back. 

[Note that the decision relates to part 4 of the Social Security Act 1964 (the Act), which was repealed on 26 November 2018 and replaced by the Residential Care and Disability Support Services Act 2018, which  came into force on 26 November 2018. The amended legislation is intended to be policy neutral.]

The Court of Appeal carefully traverses the statutory regime that applies with respect to the assessment of entitlement to a residential care subsidy.  The decision is information and warrants careful reading.  However, the most significant aspect, and the fact that determined the matter, was the consideration given as to how Mrs Broadbent deprived herself of assets, and the resultant income that might be derived from the same.

Importantly, Mrs Broadbent did not gift property to trusts.  Mrs Broadbent sold property to family trusts at market value and continued to enjoy the benefit of the property that had been sold to the trusts.  She then progressively forgave the debts owing to her.  And that, gentle reader, was very significant.  Until the Court of Appeal decision all parties focused on whether MSD could assess notional income on assets gifted to trusts.  However, consideration was not given to the form of them gift, which was the forgiveness of debt.

The result was that MSD was wrong to assess notional income on assets sold to a trust for value.   MSD “cannot include any income capable of being derived from gifted assets valued at less than the excessive gifting threshold.”  See [88].    But, it was not a total defeat.   However, the approach taken by the Court of Appeal identified the real issue, which was the forgiveness of debt, and what income was deprived as a result, and when the deprivation occurred.

As noted at [89]:

“It is plain nonetheless that the controversy between the Chief Executive and Mrs Broadbent is not finally resolved by that answer. That is because, when the Authority focussed directly on income from trust assets in calculating deprived income, it was in error. It should have focussed instead on the deprived income (if any) of the debt back, that is, any interest free component. We accept Ms Aldred’s submission that the Authority probably did not have sufficient evidence before it to resolve whether the $27,000 “gifts” were deprivations at all (for example, Ms Aldred submitted there could have been no depravation (sic) in substance if the Broadbents enjoyed free accommodation — see above at [65]), and if they were, whether they were deprivations of property or income or a mix of both. It follows that when reconsidering its determination in accordance with the judgment of the High Court, the Authority must also undertake a further factual inquiry into these matters.”

So what does it mean?  The Emperor is not naked, but nor is he fully clothed.




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