Unrealisable assets under the Assets Test hardship provisions 108-04120050

A claimant will be expected to have the property/asset on the market unless:

• the property is jointly owned with a person other than the customer's partner and the other owner refuses to consent to the sale, or
• there is a legal restriction on the property being sold

In the following cases, consider disregarding the value of the property for hardship purposes based on being unable to sell:

• If:
• the property is occupied by someone other than the claimant (including an estranged or former partner), and
• the right of occupancy for that person is provided by a court order or legal agreement.

Note: in these cases, it may be the customer has only a reversionary interest see the References page which has the link

• Evidence of the right to occupy is required to be provided, such as a court order or any other legal documents

• If the property is subject to a pending property settlement
• Customer must provide evidence that they have commenced property settlement proceedings and that the subject property is part of the pending property settlement. Evidence can include, but is not limited to letter from solicitor, court documents
• If:
• the customer owns property in joint tenancy or as tenants-in-common with another party who is not a customer claiming consideration under the asset’s hardship provisions, and
• the property could not be sold without the other party's consent, and
• the other party refuses to give consent
• If the customer is eligible for Farm household Allowance
• If the asset is a jointly owned home and the person has fled the home because of domestic violence

For a customer's property to be considered unrealisable due to it being unable to be sold (it is currently on the market), the asking price must be examined to see if it is reasonable. An asking price up to 10 per cent higher than the valuation obtained by Services Australia can be accepted as reasonable. The property should not be considered as being unable to be sold until there is straightforward evidence such as the property being passed in at auction, no reasonable offers when there is a sale by tender, or no offers after some open inspections.

Is the claimant receiving or claiming a pension payment?

• Yes, see Step 2
• No, see Step 3

Unlike the test for allowance customers, the hardship test for pension customers allows a test of whether it is unreasonable to expect a customer to sell or borrow against an asset.

In the following situations it may be considered unreasonable for a pension customer to sell or borrow against an asset:

• a pension customer has a long-term attachment to a property on which he or she has lived for 20 years or more, unless he or she can subdivide and retain the portion on which the home is situated
• the property is a farm and the claimant has been a farmer for at least 20 years and still farms the property, irrespective of whether he or she has been farming the subject property for the entire period

In both the preceding situations, a period of less than 20 years may be accepted if:

• it can be established the customer would, except for unforeseen circumstances, have continued to live on the property (or in the environment) for an indefinite period, and
• for example, a couple purchased a farming property and, ten years later, the partner dies leaving a widow and children. In this case it can be accepted the widow has a long-term attachment to the property

It is also unreasonable to expect a Pension customer to sell or borrow against an asset:

• if the asset is a farm or some other business and there is a temporary but substantial reduction in income because of bushfire, drought, illness of the proprietor, or a downturn in the industry or a sector of the industry. Consideration should also be given to the fact that the temporary hardship affecting the business is likely to have reduced the value of the assets concerned. Therefore, the question of suitable valuation of the assets should be considered before the question of exercising the hardship provisions is considered
• The asset is a farm and a family member (irrespective of whether the pension customer lives on the farm or not):
• is working the family farm property efficiently or to its full capacity as a serious economic enterprise
• is dependent on it for his or her livelihood; for example, the farm activities are the main source of the family member's livelihood, and
• has been working it for at least 10 years - a period of marginally less than 10 years may be accepted where the family member has worked the property continuously since leaving school

The family member's income tax returns and financial statements for the previous 2 years may indicate if the farm is being run efficiently or to full capacity.

If a farm is being operated as a commercial concern by a person other than a family member it would be considered reasonable to expect the customer to sell the property to ease their financial situation, regardless of how long the customer has been a farmer, or the length of attachment to the property.

It is also considered unreasonable to expect a pension customer to sell or borrow against an asset if they:

• own a house which is not his or her principal home but in which an adult child, parent, brother, or sister life, and:
• the near relative has resided in the house for a substantial period (at least 10 years), or
• the near relative has previously provided care for the customer in the house, which was formerly the customer's home, or
• the customer is providing accommodation for a child with physical disability to promote the child's independent living, or
• the near relative has dependent children, and the income of the near relative and partner is not more than the permissible income free area for additional family payment

If any one of the above three conditions are met, it is also necessary to consider the financial circumstances of the near relative before concluding it would not be reasonable to expect the customer to sell the property.

• the asset is the person’s principal home, the person is temporarily overseas, and the person has been unable to return to Australia for reasons beyond their control

Could the customer borrow against the asset?

• Yes – the asset is not considered to be unrealisable
• No – the asset may be unrealisable

In assessing a customer's ability to borrow against assets, the following factors are considered:

• Their ability to meet periodic repayments
• The type of assets involved
• Whether their financial position is likely to improve in the future

A customer would only be expected to borrow from banks, finance companies and similar institutions. They would not be expected to enter into a loan agreement which required payment above the prevailing interest rates charged by such institutions on secured loans.

A customer would only be expected to approach those institutions with whom he or she normally invests, or any government body set up to assist those specific customers (for example, Rural Assistance Board).

Evidence of attempts to borrow on assets is required only where it is apparent the customer would have the capacity to meet periodic repayments or their financial position will improve in the future and therefore, may be able to obtain a loan which does not require regular repayments. Letters from accountants, solicitors or managers of financial institutions may be accepted as evidence of an inability to borrow. A customer whose business is running at a loss and who has no other income, and whose financial position is unlikely to change soon, can be accepted as being unable to borrow further funds without any further evidence.

A customer who owns substantial business assets and whose financial position will improve soon could be expected to obtain a loan by offering his or her business assets as security. They would, therefore, be required to show reasonable action has been taken to obtain a loan and has been unable to do so.