188.8.131.52 Assessable Income & Assets from Primary Production
This topic provides information about the following:
- 1 January 1992 changes to assessment for primary production (1.1.P.390),
- primary production liability,
- exempt house and adjacent land (1.1.A.58),
- private companies (1.1.C.220) and primary production,
- personal primary production assets and liabilities from private companies,
- loans and private companies,
- Farm Management Deposits scheme,
- interest subsidies from the Department of Agriculture,
- landcare grants from the Department of Agriculture, and
- industry based lump sum payments.
1 January 1992 changes to assessment for primary production
On 1 January 1992, a change was introduced to allow primary producers (1.1.P.389) to offset the value of ALL their primary production liabilities against primary production assets.
ALL assets in primary production and ALL liabilities relating to primary production are now aggregated, as if they were one asset and one liability.
Explanation: The reason for the change is that many primary producers have individual farm assets with a current market value (1.1.M.40) LESS than the level of the debt secured against them, because the debt has not reduced as quickly as the asset has depreciated. Before 1 January 1992, the asset value for those assets was maintained as nil, and the excess debt could NOT be offset against positive values assessed for other farm assets.
Act reference: SSAct section 1121A Effect of certain liabilities on value of assets used in primary production
Treatment of primary production liability
An income support recipient's share of the assets or liabilities of a primary production business structure is:
- determined by whether they would have a positive or negative balance in their capital account (1.1.C.04) if the business was wound-up, and
- considered to be a 'primary production' asset or liability, and MAY be aggregated with, or against, the value of the land.
If a couple (1.1.M.120) are the ONLY partners of a primary production enterprise, they are each considered to share half of the net primary production assets and liabilities.
Exempt house & adjacent land
Exempt house and adjacent land is NOT considered to be an asset used in the business of primary production. Therefore, if part of the liability of the primary producer relates to their house and adjacent land, that portion of the liability is removed for assessment purposes.
Example: The income support recipient owns a farm property.
|Home and adjacent land||$70,000|
|Mortgage over the whole property||$50,000|
|The primary production asset||
gross value is $130,000
($200,000 − $70,000)
|The proportion of mortgage liability which is attributable to the primary production asset||
($130,000 × $50,000) ÷ $200,000
|The net primary production asset to be added to other primary production assets for assessment purposes||
($130,000 − $32,500)
Private companies & primary production
A private company is accepted as being a 'primary production' company if its main activity is primary production.
Personal primary production assets & liabilities
The following table describes the circumstances in which an income support recipient, who is a shareholder in a private primary production company, is assessed as having PERSONAL primary production assets and liabilities.
|If…||Then the income support recipient's personal primary production…|
|the class of shares held by the income support recipient entitles them to participate in capital distribution when the company is wound-up,||ASSET is the value of their shares, using the net asset backing method.|
|the private company's liabilities exceeds the value of its assets, that is, it has a 'net liability',||LIABILITY is the value of their share of the deficit, using the net asset backing method.|
Policy reference: SS Guide 184.108.40.206 Other Trust Matters pre-01/01/2002
Loans & private companies
The following table describes when borrowings from, or loans to, private companies are personal primary production assets and liabilities.
|If an income support recipient…||Then the value is…|
|borrows money from a primary production company for primary production,||a personal primary production liability.|
|borrows money from a primary production company for other purposes,||NOT a personal primary production liability.|
|loans money to a primary production company,||
Farm Management Deposits scheme
The Farm Management Deposits scheme (see Farm Management Deposits on the Department of Agriculture website) was launched on 2 March 1999 and replaces the Income Equalisation Deposits and Farm Management Bonds schemes. The entire amount of farming profit is taken into account as income in the initial year (i.e. including the amount deposited in the scheme). A withdrawal from the scheme is not assessed as income. The deposits are the personal assets of the farmer and are subject to the deeming provisions.
Explanation: The purpose of the scheme is to allow primary producers to stabilise before tax incomes alleviating tax disadvantages from fluctuating incomes.
Act reference: Taxation Laws Amendment (Farm Management Deposits) Act 1998
Policy reference: SS Guide 220.127.116.11 Assessment of income for sole traders & partnerships, 18.104.22.168 Assessment of business deductions & losses for sole traders & partnerships, 22.214.171.124 Assessment of Assets for Sole Traders, 126.96.36.199 Assessment of Assets for Partnerships
Interest rate subsidies
Interest rate subsidies from the Department of Agriculture are exempt income under SSAct section 8(8)(c).
Landcare grants from the Department of Agriculture are usually made to Landcare Groups for projects that will benefit the community (e.g. improvements to catchment areas). However, some grants are paid to individuals. Grants to individuals are income.
Industry based lump sum payments
An industry based lump sum payment MAY be conditional upon the income support recipient discontinuing any involvement in that industry. These lump sum amounts ARE treated as income for 52 weeks from the date they are entitled to be received.
Explanation: A lump sum amount may be received by an income support recipient because of their association with a particular industry.
Example: Payments under the Pork Producers Exit Payment.
Exception: Some industry based lump sum payments ARE NOT treated as income as they have an SSAct section 8(11) exemption, usually granted on the basis that a recipient is required to exit an entire industry.
Example: A dairy farmer must exit farming, not just dairying.
Note: Both the Australian and state governments may provide payments from schemes with similar names. To avoid incorrect assessments, full details of the scheme name and the government involved should be obtained.
Act reference: SSAct section 8 Income test definitions, section 1073 Certain amounts taken to be received over 12 months, section 8(11) An amount received by a person is an exempt lump sum if…, section 1075 Permissible reductions of business income
Income Tax Assessment Act 1997 section 8 - 1, section 290 - 60
Policy reference: SS Guide 188.8.131.52 Income Exempt from Assessment - Specifically Approved, 184.108.40.206 Income Exempt from Assessment - s 8(11) Exempt Lump Sums, 220.127.116.11 General provisions for income from employment