4.1.7 Deprivation related to farm transfers
This topic discusses:
- transfer of the farm
- sale of the farm
- forgone wages
- calculating forgone wages
- adjusting the forgone wages calculation where some wages were paid
- unpaid care by a near relative
- information requirements when claiming past contributions, and
- assessment of the principal home (4.6.3) when included in transfer of farm.
Transfer of the farm
For the forgone wages policy to be applied a farmer must transfer the title or effective control of the farm to a near relative.
Forgone wages policy applies ONLY to farms in Australia.
Explanation: The forgone wages policy is a limited concession designed to assist Australian farmers to retire and hand ongoing control of the farm to the next generation.
Transfer of the farm includes associated machinery, stock, seed etc required to operate the farm.
The value of any past contribution to the farm by the near relative is taken into account as consideration when calculating a deprivation amount.
Past contributions can be:
- wages forgone, OR
- contributions made to improve the farm, OR
- purchase of livestock and equipment, OR
- unpaid care of the person.
A near relative (1.1.N.20) includes a parent, child, brother or sister (or their partner).
Exception: IF the person who worked on the farm does not meet the definition of near relative, BUT the relationship between the retiring farmer and the person who worked on the farm is of a special familial nature, forgone wages may be applied.
Forgone wages may be applied where:
- the farm is transferred from an individual to a trust, OR
- the farm is transferred between trusts, or between companies, OR
- the farm is transferred from a trust or company to a near relative, OR
- control of the trust or company that holds the farm is passed to a near relative.
In all situations the delegate must be satisfied that ownership or effective control of the farm has been transferred to the near relative and that the near relative worked for little or no wages (could include distributions and/or dividends) and that the benefit of that labour was for the attributable stakeholder.
Sale of the farm
The value of forgone wages is NOT accepted as financial consideration if a person sells the farm and gives the proceeds to the near relative.
Explanation: Selling the farm does not facilitate intergenerational transfer of the family farm.
Exception: There may be evidence of a prior agreement that the wages were forgone on the understanding that the near relative would be compensated at a later date. An equitable charge over the property may have been established in the near relative's favour. In this case the forgone wage calculation is used to value the equitable charge.
For forgone wages to be treated as consideration:
- the near relative MUST have worked on the farm, AND
- the work must have been more than merely assisting with chores, AND
- were it not for the work undertaken by the near relative, outside labour would have had to be employed.
There is no requirement that the work was undertaken during normal business hours. The work could have been undertaken after school or on weekends.
Forgone wages does not apply where the near relative operated the farm in business with the person, or as a share farmer, or in a partnership.
Explanation: Normal market forces determine income earned if the relative was the proprietor of the business, OR entitled to a share of the profits because of share farming OR a partnership.
From January 2002 the forgone wages provisions may still be applied IF the recipient received a distribution from a company or trust AND it can be demonstrated that the distribution was part payment of wages forgone; and not because the near relative was considered to be involved in the business with an entitlement to profits; where:
- the income support recipient is an attributable stakeholder of a trust or company that owns a farm, AND
- transfers ownership or effective control of that farm to a near relative (and where appropriate their partner).
Exception: Where the income from the business, share farming or partnership was affected by events other than market forces, for example fraud, the forgone wages rules may be applied.
Calculating forgone wages
The formula for calculating forgone wages is:
- the AWOTE (1.1.A.375) figure for the date the farm was transferred, MINUS
- an amount to cover a notional tax liability, MINUS
- an amount to cover notional incidentals to take into account such things as board and lodgings, meals, use of vehicle etc.
In applying the formula:
- notional tax liability is taken to be 20% of the amount over $10,000, AND
- notional incidentals is taken to be 10% of the AWOTE figure for a full-time employee.
The amount calculated is accepted as consideration and is deducted from the deprivation amount.
The notional amount is ALWAYS deducted whether or not the near relative actually received these particular benefits.
The AWOTE figure is ALWAYS used regardless of whether the near relative would have been paid a junior or adult rate. The AWOTE figure is adjusted on a pro-rata basis where the hours worked were less than full-time. The AWOTE figure is not increased to take account of 'overtime' worked.
The AWOTE figure is listed in 'Average Weekly Earnings Australia' table 3, item 'Earnings; Persons; Full Time; Adult; Ordinary time earnings' Data series id A85002148L, published by the ABS.
AWOTE figures for February 1992 to present date are provided in the key term definition for AWOTE.
Adjusting the forgone wages calculation where some wages were paid
Where the near relative received some wages, this amount is compared with an estimate of the amount they would have had to pay for outside labour to perform the same work. The relevant percentage is then applied to the forgone wage calculation.
Example: Where the near relative was paid $100 pw and it is estimated that $400 pw would have had to be paid for outside labour, it is accepted that 25% of the forgone wage commitment has been met, therefore 75% of the forgone wage calculated is allowed.
Forgone wages are NOT calculated for any period that the near relative was UNDER 15 years.
Explanation: This is younger than the legal school leaving age.
Unpaid care by a near relative
A near relative's unpaid care of an income support recipient is accepted as financial consideration IF:
- a substantial level of care was provided, as defined in the test for CP, AND
- care was provided for a minimum of 12 months.
The care value is the amount that would have had to be paid to purchase equivalent assistance from community support agencies. It includes home help, care at home, and the cost of providing food.
Policy reference: SS Guide 3.6.4 CP - qualification & payability
Information requirements when claiming past contributions
If past contributions are valuable consideration (1.1.V.25), an income support recipient MUST provide a statement about the:
- contributions made by the near relative to improve the farm, AND/OR
- periods during which wages were forgone.
If possible the income support recipient should also provide other financial documentation.
Example: Other financial documentation includes income tax returns for the person or the relative, workers compensation records and receipts for capital expenditure.
The income support recipient AND near relative MUST provide statutory declarations IF:
- there is reason to doubt their statements, AND
- other documentation is unavailable.
Assessment of the principal home when included in transfer of farm
However, if an extended land use exemption (22.214.171.124) applies to the adjacent land, the extended land use exemption is disregarded in the foregone wages calculation.
Granny flat provisions DO reduce the effect of the deprivation (gifting) rules where income support recipients transfer their principal home to family members in return for a life interest (1.1.I.185) or right to accommodation for life.
Act reference: SSAct section 12A(2) A person has a granny flat interest …, section 198(1) A person is qualified for a CP …, section 1119 Value of asset-tested income streams that are not defined benefit income streams …