4.6.8.70 Determining the Effective Use of the Land

Summary

This topic discusses:

  • how the effective use determination is made,…
  • circumstances where the effective land use test will be met,
  • using the land to its potential to generate an income,
  • how productive land can be used to its potential,
  • not using the land because it has no, or limited, potential to generate an income,
  • where the only productive use of the land is subdivision,
  • determining the capacity of the income support recipient to effectively use the land, and
  • how the amalgamation of titles affects the effective use of the land.

How the effective use determination is made

A range of factors will be taken into consideration to determine if the income support recipient is making effective use of the land. The delegate is required to weigh up these factors, given all the circumstances of the person, in deciding if a person is making effective use of the land.

The factors to be taken into consideration include:

  • where the block is located,
  • the size of the block of land,
  • the person's family situation,
  • the person's health,
  • whether the land contains a dwelling-house occupied by a family member of the person, or a child of a family member of the person, receiving an income support payment,
  • whether the land is being used to support:
    • a family member of the person, or
    • a child of a family member of the person,
  • any current commercial use of the land,
  • any potential commercial use of the land,
  • whether the person's capacity to make commercial use of the land is diminished because the person, or the person's partner, has responsibility for the care of another person,
  • whether the block of land is an amalgamation of 2 or more blocks and, if so:
    • when the amalgamation occurred, and
    • whether the amalgamation reduced the potential for the land to produce personal income or to support the person,
  • environmental issues relating to the land, and
  • any other matter that the delegate considers relevant.

In cases where the delegate is unsure if an income support recipient is making effective use of the land, the case should be referred to the DSS Means Test Policy Helpdesk for advice.

Guidance is provided below to assist the delegate in making a decision.

Act reference: SSAct section 11A(7) In determining whether a person is making effective use of the land…

Circumstances where the effective land use test will be satisfied

Circumstances where the income support recipient will satisfy the effective land use test by considering the factors above include:

  • where the land is being used to its potential to generate an income, or
  • where the land is not being used because it has no, or limited, potential to generate an income.

Using the land to its potential to generate an income

The following will be discussed:

  • how to determine the potential of the land to generate an income,
  • the amount of land that could be used,
  • past income generated from the land,
  • estimate of the potential of the land to generate an income,
  • valuation of the potential of the land to generate an income, and
  • circumstances that MAY satisfy the effective land use test.

How to determine the potential of the land to generate an income

In considering the potential of the land to generate an income the following will be taken into consideration:

  • the amount of land that could be used, AND
  • the past income generated from the land, AND
  • the income support recipients future estimate of the potential of the land to generate and income, OR
  • a professional valuation of the potential of the land to generate an income.

Amount of land that could be used

It would be considered reasonable for the land of 2 hectares surrounding the principal home to be used for private and domestic purposes.

Only land that has a potential to produce (i.e. productive land) can be put to use. It is not expected that an income support recipient will be able to use all of their productive land at the one time. This is particularly the case for farming properties, where land management practices will only enable a portion (depending on the type of primary production industry) to be used in one season.

Discretion should be used, based on the circumstances of the income support recipient, land management practices in the area and seasonal conditions in determining the amount of productive land that is required to be put to use.

If an income support recipient is using an amount of productive land that is considered satisfactory then the whole area of land on one title document (subject to other criteria being met) may be exempt.

Example: Joe has a 60-hectare property one title document, of which 50 hectares is productive land. If Joe is using 30 hectares of productive land, in line with land management practices in the area, then he will meet the requirement relating to the amount of land to be used. Provided Joe is working the 30 hectares to its potential then he will meet the effective land use test and the whole 60-hectare property will be exempt (provided other criteria are met).

If an income support recipient is using an amount of productive land that is not considered satisfactory then they will fail the effective land use test.

Example: Joe is using 15 hectares of 50 hectares of productive land. This is below standard land management practices in the area and no reason exists, such as Joe's capacity, for the land not to be used. In this case Joe will fail the effective land use test. Joe can have 2 hectares of land exempt under the private land use test.

Past income generated from the land

The income support recipient is required to provide some evidence of the income generated from working the land in the recent past.

Example: Financial statements showing the income generated from the land over the past few years.

Estimate of the potential of land to generate an income

The income support recipient is required to provide an estimate of the amount of income that could be generated from using the land to its potential over the next 12 months. This estimate is required to be backed up with some evidence.

Example: Past income generated from the land, a copy of a lease agreement, or correspondence from a local agricultural adviser identifying the potential of the land to generate an income.

In most instances the income support recipients estimate should be accepted. The only exceptions include:

  • cases where the income support recipient does not provide any evidence, AND
  • where doubt exists about the correctness of the estimate provided.

Example: Instances where a significant discrepancy exists between income generated in the past and the income support recipient's estimate that cannot be explained.

Valuation of the potential of the land to generate an income

In the exceptions above, a professionally qualified valuer should undertake an assessment of the commercial lease value of the land. The commercial lease value means the income, which might be derived from the commercial use of the asset (e.g. plant and machinery).

Circumstances that may satisfy the effective land use test

Circumstances under which the income support recipient MAY satisfy the effective land use test include:

  • the income support recipient working the land to its potential, OR
  • a family member working the land to its potential, OR
  • the income support recipient is 'taking action' to use the land to capacity.

How productive land can be used to its potential

The income support recipient can show they are making effective use of the land if they, or someone else, is:

  • working the land to its potential, OR
  • working the land to less than its potential but still generating an income that is reasonable considering the capacity of the income support recipient.

Income support recipient working the land to its potential

The income support recipient may be able to work the property to its potential by himself/herself, or with outside assistance.

If the income support recipient is gradually slowing down but is still making an income, but the income is progressively less (due to their capacity), then they will satisfy the effective land use test.

The actual income generated by the income support recipient from making productive use of the land will be taken into consideration as part of the income test.

Family member working the land to its potential

When a family member is working the land to its potential, and the income generated from the land is a main source of income for the family, then the effective land use test will be satisfied. The income support recipient must provide correspondence from the family member confirming the arrangement.

Example: The family member writing a letter confirming the arrangement, including the amount of land to be used and an estimate of income to be generated.

If the income generated is not passed to the income support recipient then the income will NOT be taken into consideration as part of the income test.

Taking action to use the land to its potential

When the income support recipient is unable to work the land, or to have a family member work the land, they will fail the effective land use test if they do not 'take action' to make arrangements for the land to be used to its potential. The main way this can occur is through leasing the land.

The income support recipient must provide a copy of the lease agreement between himself/herself and the lessee, which identifies the amount of land to be used and the estimated amount of income generated from the lease.

The income support recipient's capacity to take action to use the land to its potential should be taken into consideration. Refer to the section below titled 'Determining the capacity of the income support recipient to effectively use the land'.

The actual income generated from the land as a result of the lease arrangement will be included as part of the income support recipient's income test.

The income support recipient can provide evidence that they have 'taken action' even though they have been unable to get an arrangement in place. In this case the effective land use test will be satisfied.

Example: The farming area is marginal and there is a lack of farmers in the area that would be interested in leasing the land. In this circumstance if the income support recipient provided evidence that they have taken action, such as advertising the leasing opportunity in the local community news, they will meet the effective land use test.

If the income support recipient subsequently leases the land they must notify Centrelink and have their circumstances reassessed under the income test.

Circumstances that do NOT satisfy the effective land use test

Circumstances under which the income support recipient will NOT satisfy the effective land use test include:

  • the income support recipient working productive land, but not to its potential, AND
  • the income support recipient not working productive land.

Income support recipient working productive land, but not to its potential

If a decline in working the land (for reasons other than seasonal conditions) has led to significantly less income than could potentially be made the income support recipient would NOT satisfy the effective land use test.

Example: Up until the last few years 400 head of cattle were being run from the property, however in similar circumstances the farmer now runs 40 head of cattle. In this situation it would generally be expected that the income support recipient should 'take action', such as making arrangements for leasing the land, for it to be used to its potential.

The income support recipient's capacity to make arrangements, such as leasing the land, should also be taken into consideration. Refer to the section below titled 'Determining the capacity of the income support recipient to effectively use the land'.

The income support recipient who is working productive land, but not to its potential, should be given a period of 3 months to take action to use the land to its potential.

Income support recipient is not working productive land

If the income support recipient is not making any attempt to work land that has potential to generate an income then they would NOT satisfy the effective land use test. The income support recipient can access the 2 hectare and under provision under the private land use test.

Not using the land because it has limited or no potential to generate an income

In some rural and rural residential areas land has limited potential to generate an income, either in the long term or the short term.

Unable to generate an income in the long term

The land may be unable to generate an income in the long term because of the relatively small size and nature of the land.

Example: A small block of land that is rocky and covered in bush.

The land may be unable to generate an income in the long term because of an environmental constraint.

Example: The land is protected by law from use due to an endangered flora or fauna being on the land.

The income support recipient should explain why they are unable to generate an income from the land where it has limited or no potential to generate an income.

Unable to generate an income in the short term (12 months)

The land may have been able to generate an income in the past but has been unable to generate an income in the next 12 months due to matters outside the control of the income support recipient.

Example: Previously cropping farmland that has not produced an income over the past 12 months due to severe frost.

In these cases some evidence of the reason for the farm not being able to produce should be provided.

Example: This could include a statement from the farmer outlining the situation.

Exceptional circumstances (EC) declarations

In drought situations, where the Australian Government Minister for Agriculture, Fisheries and Forestry has made EC declarations, or if a 'prima facie' case against the EC criteria has been demonstrated, the income support recipient will be considered to have satisfied the effective land use test.

The income support recipient must NOT be in receipt of income support assistance through EC relief payments. The income support recipient may choose to receive Age instead to take advantage of the concession instead of receiving income support assistance through EC.

Where the only productive use of the land is subdivision

In rural farming areas the income support recipient will not be required to subdivide to satisfy the effective land use test.

Generally, in rural residential areas the income support recipient will not be required to subdivide to satisfy the effective land use test.

If the income support recipient lives in smaller more built up rural/urban residential area and residential development is the only realistic potential commercial use of the land, then the income support recipient may fail the effective land use test if they do not subdivide. The following should be taken into consideration in making the effective land use test decision:

  • the size of the block in relation to other blocks in the area,
  • if the market interest is favourable for blocks in the area,
  • if local government regulations enable subdivision, and
  • if the person has the capacity to subdivide.

Example: A person has a 5-hectare property and average blocks in the area are under one hectare. If market interest exists for subdividable blocks, the land is zoned so it can be subdivided, and the person has capacity to arrange for subdivision to occur, then subdivision will be required to meet the effective land use test.

Acceptable reasons not to subdivide

If the income support recipient has an acceptable reason for not wanting to subdivide the land then the effective land use test will be satisfied.

An acceptable reason can include the income support recipient lacking the capacity to arrange for subdivision to occur. Refer to the section below titled 'Determining the capacity of the income support recipient to effectively use the land'.

Example: A block is large for the area, market interest is high and the land is zoned so it can be subdivided. The income support recipient does not have available funds to pay for the costs of subdivision and has a health condition that would make it difficult to arrange for subdivision. The capacity of the income support recipient would be an acceptable reason to show that the land should not be subdivided.

Simply wanting to keep the land for lifestyle purposes is NOT considered to be an acceptable reason and the income support recipient will NOT meet the effective land use test.

Determining the capacity of the income support recipient to effectively use the land

In certain circumstances it may be unreasonable to expect the income support recipient to either work the land, or take action to work the land to its potential. In these circumstances it must be apparent that the lack of capacity of the income support recipient prevents them from doing so. In these circumstances the effective land use test will be satisfied.

In other circumstances the capacity of the income support recipient may mean that they are unable to work the land to its full potential, but are still generating an income that is reasonable. In these circumstances the partial capacity of the income support recipient will be taken into consideration in determining if the effective land use test will be satisfied.

Factors, or a combination of factors, that could be taken into consideration when determining the capacity of an income support recipient to effectively use the land include:

Factors to consider in determining a person's capacity Explanation & Examples
Financial If the person's financial circumstances mean that they lack capacity, or have reduced capacity to effectively use the land.

Example: The person does not have the money to pay for the costs of subdivision.

Note: This does not mean that if an income support recipient does not have the financial capacity to work the land then they will meet the effective land use test.

Example: If the person is unable to afford to sow a crop, then the person would be expected to take action to lease the land for someone else to sow a crop, where potential exists.

Health If the person's physical or mental health condition means that they lack capacity, or have reduced capacity to effectively use the land

Example: If the health condition has a major bearing on the individual's ability to make rational decisions required to make effective use of the land.

Caring responsibilities The person's caring responsibilities may mean that they lack the capacity, or have reduced capacity to effectively use the land.

Example: A person has full-time caring responsibilities for a family member living in the home.

In situations where the income support recipient has caring responsibilities this DOES NOT mean that they automatically meet the effective land use test. While the carer will be unable to work the land, they may still have the capacity to arrange for someone else to make use of their land.

Other details If there is some doubt as to whether the income support recipient lacks the capacity (full or partial) to effectively use the land then the income support recipient should be given the benefit of the doubt.

How the amalgamation of titles affects the effective use of the land

One of the factors to be taken into consideration in determining whether an income support recipient is making effective use of the land is where the block of land is an amalgamation of 2 or more blocks.

The general principal is that income support recipients are expected to use the land (including selling the land held on separate titles) to support themselves.

The amalgamation of titles may prevent income support recipients from selling land (that was previously on a separate title) to support themselves. If this occurs the income support recipient may fail the effective land use test.

In cases where an amalgamation of titles has occurred the following should be taken into consideration to determine if the effective land use test is satisfied:

  • when the amalgamation occurred, and
  • whether the amalgamation reduced the potential for the land to support the person, i.e. the land on the separate title can no longer be sold.

Amalgamation prior to 9 May 2006

If the income support recipient amalgamated titles before the budget announcement then the amalgamation would NOT prevent the income support recipient from satisfying the effective land use test.

Amalgamation after 9 May 2006

If the income support recipient amalgamated titles after the budget announcement then the amalgamation WILL have an impact on the effective land use test. If the amalgamation means that the income support recipient:

  • can no longer support themselves from the land (i.e. cannot sell the land) then the effective land use test will NOT be met, and
  • improves their ability to support themselves by generating more income from amalgamating the blocks then this WILL not prevent them from satisfying the effective land use test.

Reviewing the effective use determination

Effective use determinations should be reviewed annually.

Exception: Where an income support recipient has been assessed as being unable to generate an income in the long term a review is not warranted.

Last reviewed: 11 August 2014