188.8.131.52 Notional Ordinary Income - Person's Farm Used by a Family Member
Notional ordinary income - person's farm used by family member
Notional ordinary income for a person's farm that is an unrealisable asset is the LOWER of:
- 2.5% of its value, OR
- the commercial lease value (1.1.C.207), OR
- the rent that the family member can reasonably be expected to pay (reasonable rent) MINUS any rent actually received by the person from the family member.
'Reasonable rent' is:
- income, MINUS MAXIMUM FTB free area for the family member and their partner (1.1.P.85),
- DIVIDED BY 2.
Note: Reasonable Rent = (Income - FTB free area) ÷ 2
Examples: A person's son and his wife are sole occupants of the farm. The annual net farm income is $19,500. The wife's annual salary is $6,000. Therefore their total income is $25,500. The maximum family income free area is, for example, $23,400 for one child. Reasonable rent is calculated as ($25,500 - $23,400) ÷ 2 which gives a result of $1,050 in reasonable rent.
- The farm is valued at $240,000. Therefore 2.5% of $240,000 = $6,000.
- The commercial lease value of the farm is $8,000 per annum.
- Reasonable rent is $1,050.
- Therefore notional ordinary income for the property is $1,050.
Act reference: SSAct section 1129 Access to financial hardship rules - pensions, section 1130B Access to financial hardship rules - pension PP (single), section 1131 Access to financial hardship rules - benefits, section 11(1)-'unrealisable asset', section 23(14) For the purposes of this Act other than…, section 8(1)-'income'
Policy reference: SS Guide 184.108.40.206 Notional Ordinary Income - Net Value of a Farm