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The Court of Appeal

 The Court of Appeal released its decision on 31 May 2019.
" I am pleased that this decision clarifies the financial entitlement of people who require rest home care.
MSD has been treating all trust income as deprived income of the trust settlors/beneficiary even though no gift ever exceeded $27000 per annum (the exempt level of gifting).
The decision confirms that the small gifts (less than $27000pa) are not acts of deprivation and the hypothetical income on the gifted capital cannot be added into the means assessment. The court also comments that bad investment decisions and  "profligacy" is not deprivation, this is contrary to the view previously held by the MSD and SSAA.
The decision clarifies that the amount of income deprived needs to be calculated based on the act that deprived the income in a logical and rational manner. MSD's policy of taking all trust income is never appropriate. If the depriving act was to gift say $100,000 then the income deprived would be the interest rate on $100,000, not the current return on whatever the $100,000 may now be invested in.
However the Court of Appeal has commented that other actions within a trust may deprive income. Care needs to be taken when any other benefit from a trust is forgone. This includes interest on loans, beneficiary distributions and powers that the settlors may have over trustees. 
The Court also confirmed that although a lender may not have charged interest on a loan they may have received other benefits such as rent free use of a house in which case, such benefits received should be set off against the interest value.
This leaves MSD with a very complicated calculation to make for the thousands of people it has wrongly reduced or denied rest home subsidies too over the last four years or more.

The Court of appeal also made two other interesting observations:
1. Profligacy is not deprivation
2. The purpose of the social security act “is to alleviate hardship”

Profligacy is not deprivation 
The SSAA told me that spending $2000 a night on a hotel was deprivation of assets or income. This appears to be a belief held by the MSD and could quite likely be applied by them as the SSAA has affirmed this principle.
Contrary to this  the COA stated " The Chief executive may use his or her discretion to require applicants to put their available resources to work to earn a reasonable income, but may not use it to punish applicants for past bad investment decisions or profligacy."
In other words, if an applicant simply spends their money, the Chief Executive may not include that money as deprived assets or potential income.

The purpose of the Act is to alleviate hardship.
The COA  stated that the MSDs discretion to include deprived assets or income is broad but not unfettered. This is because they may not include deprived assets or income if doing so would cause hardship to the applicant. This would put them in conflict with the purpose of the act which is to alleviate hardship. The result is that they may only include deprived things if the applicant can legally and practically recover the asset or income deprived.
In their words to be available means "able to be accessed or utilised".
This principle has broader application than the specifics of this case. For example if someone had gifted say $100,000 (well over the $27,000 permitted pa) the MSD would determine assets had been deprived as a matter of course. However before they may determine deprived assets, they must now ensure that the donor has the ability to recover some of the gift so as not to endure hardship.If for example the gift was to a family member who now had no means to repay the money or simply refused to do so then hardship would result. Because of the hardship,it would be wrong for MSD to include the deprived asset.