Incidental benefits allowed
Concessional primary production trusts - allowable incidental fringe benefits
Whilst handing over control, the individual and their spouse would still be able to retain a life interest in their principal residence and the right to some incidental fringe benefits, such as:
- farm produce for personal consumption,
- water, fuel, gas or electricity used in the principal home in which they retained a life interest, and
- any other non-cash benefit that is minor and provided on a basis that is infrequent and irregular.
Access to income during the deprivation period
Individual ceases to be an attributable stakeholder of a trust-receipt of remuneration or other benefits from the trust during the asset deprivation period
Section 52ZZZG VEA
Disposal preclusion period
Section 45UT VEA
If the individual and their spouse are serving a 5-year deprivation period due to the gifting of the assets of the primary production trust they will be able to access income (other than as an income beneficiary) from the private trust, up to the current income threshold of Family Tax Benefit Part A. Access to this income will be during the deprivation period only. This income could be in the form of wages or consulting fees but cannot be in the form of distributions as the individual and their spouse are no longer income or capital beneficiaries of the trust.
Example of primary production concession
Joe and Edith are retired farmers, aged 66 and 65 respectively. They have handed over operation of the farm to their son Bill. Joe and Edith are both receiving service pension. They made succession and retirement plans more than 6 years ago and transferred their farm assets to a discretionary trust. Joe and Edith are the appointors of the trust and they live in the family home, which is worth $80,000 and is part of the trust assets. The total value of the trust is $900,000. It consists of the farmland, machinery, livestock and the family home. They also have a liability against the farming property of $110,000. Their (primary production) net adjusted taxable income over the last 3 tax years is ($30,000+$25,500+$23,000) ÷3=$26,166.
While Joe and Edith are happy to give up their interest in the trust and for their son Bill to have control of and run the farm, they are concerned that he may sell the property and move into town. They decide to take advantage of the concession and retain a right of veto should Bill decide to sell. As the primary production assets of the trust are more than 70% and the net value of the primary production assets are less than $818,000 (($900,000-$110,000)-$80,000=$710,000) and the average adjusted net primary production income for the previous 3 tax years is less than the FTB Part A income threshold, Joe and Edith qualify for the concession. In addition, Joe and Edith maintain a life interest in the family home and are able to access income from the farm during their deprivation period. However, if Joe and Edith accessed this concession and gave away the trust assets before 1 January 2002, they would not be subject to the deprivation provisions. If this action is taken on or after 1 January 2002 the deprivation provisions apply to the assets they have 'gifted' to their son.