4.7.4.20 Primary Production Aggregation Assessment for Sole Traders & Partnerships
Summary
This topic provides information on aggregation assessment for primary producers who are:
Policy reference: SS Guide 4.7.4.30 Primary Production Aggregation Assessment for Companies & Trusts
When the aggregation rules apply
When the main business activity undertaken by a company (1.1.C.220) is primary production (1.1.P.389) activities, the 'aggregation rules' of section 1121A of the Act apply. These rules over-ride the general provision of section 1121 of the Act, concerning deduction of liabilities secured against assets.
Act reference: SSAct section 1121 Effect of charge or encumbrance on value of assets, section 1121A Effect of certain liabilities on value of assets used in primary production
Sole traders
If a farm is run by a sole trader, the aggregation assessment involves:
- adding all the sole trader's primary production assets (see explanation 1),
- adding all the sole trader's primary production liabilities (1.1.P.390) (see explanation 2), and
- deducting the value of the total primary production liabilities from the value of the total primary production assets to give the sole trader's NET primary production assets.
Explanation 1: This excludes the income support recipient's principal home and exempt adjacent land (1.1.A.58).
Explanation 2: This excludes liabilities relating to non-primary production assets such as the principal home and exempt adjacent land.
Example:
| Item | Value |
|---|---|
| Whole property ('mixed asset') | $450,000 |
| Home and exempt adjacent land | $150,000 |
| Primary production asset | $300,000
($450,000 − $150,000) |
| Liability related to the whole farm property | $240,000 |
The proportion of the liability that is a primary production liability is: [the liability on the whole property × (the value of the mixed asset - value of home and exempt adjacent land )] divide by the value of the mixed asset. OR [240,000 × (450,000 − 150,000)] divide by 450,000 = $160,000.
If there are no other primary production assets or liabilities related to them, the net primary production asset is $300,000 minus $160,000, or $140,000 which would be maintained as the net primary production asset.
Act reference: SSAct section 11A(1) Principal home
Partnerships
A partner's share of the partnership assets or liabilities is determined by the balance of their capital accounts (1.1.C.04), as described in the following table.
| If the income support recipient's capital account has a… | Then that value is an assessable primary production… |
|---|---|
| positive value, | asset. |
| negative value, or deficit, | liability. |
Partnership liability
If a partnership liability is secured against mixed assets privately owned by the income support recipient, and which are encumbered, the value of the liability that relates to the non-primary production part of that asset is NOT included in the aggregation assessment.
Example: An encumbered mixed asset may be mortgaged.
The partnership balance sheet is adjusted to arrive at a capital account figure for aggregation assessment.
Adjustment of the partnership balance sheet
The table below describes the action required to adjust the partnership balance sheet for aggregation purposes.
| Step | Action |
|---|---|
| 1 |
Calculate the primary production portion of the liability related to the mixed asset, as follows: [total liability related to the mixed asset × (value of mixed asset - value of principal home and exempt adjacent land)] divide by value of mixed asset. |
| 2 |
Adjust the partnership balance sheet. Result: You have determined the new net primary production asset or liability from the partnership. |
| 3 | Aggregate the new balance in the income support recipient's partnership capital account with any other primary production assets or liabilities they have. |