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9.6.9 Deprivation Related to Farm Transfers
Last amended: 1 June 2021
The forgone wages policy is a limited concession to assist Australian farmers to retire and hand ongoing control of the farm to the next generation. This is achieved by recognising the value of forgone wages as valuable consideration, and excluding that value from the farming interest that is given to family members when determining the payability and rate of service pension or income support supplement.
The contribution of family members can include improvements to the farm and purchase of livestock and equipment as well as forgone wages.
Wages forgone by close relative
For a pensioner's close relative's forgone wages to be treated as adequate financial consideration:
- the pensioner must legally
- own the farm, and
- transfer the farm or farm interest to the close relative, and
- the close relative must have been an employee of the farm.
A close relative is a father, mother, son, daughter, brother or sister (or their spouse).
Exception: If the person who worked on the farm does not meet the definition of close 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.
Note: In an exceptional case, the value of forgone wages may be accepted if it is clearly established that the relative had contributed to the farm contrary to a normal share farming or partnership arrangement.
What is not adequate financial consideration
The value of forgone wages is not accepted as financial consideration if:
- a pensioner sells the farm, and
- the pensioner then gives the proceeds of the sale to the relative, and
- there is no contractual agreement showing that the proceeds are for forgone wages.
Calculating wages forgone by close relative
The formula for calculating forgone wages is:
- the [glossary:Average Weekly Ordinary Time Earnings:] [glossary:(:][glossary:AWOTE:][glossary:):] figure for the date of disposal, minus
- a notional tax liability, minus
- a notional board and lodgings amount.
In applying the formula:
- notional annual tax liability is taken to be 20% of the amount by which the annual AWOTE amount exceeds $10,000, and
- notional board and lodgings is taken to be 10% of the AWOTE figure for a full time employee.
Any actual wages paid are then deducted from the calculated forgone wages.
Weekend and after school work can be included if other labour would have had to be hired to do the work if it was not done by the close relative. The AWOTE figure is used regardless of whether the close relative would have been paid a junior or adult rate. Forgone wages are not calculated for any period that the close relative was under fifteen years as this is younger than the legal school leaving age.
Unpaid care by a close relative
A close relative's unpaid care of a pensioner is accepted as financial consideration if:
- a substantial level of care was provided, and
- care was provided for a minimum of twelve months.
To determine whether a care receiver requires and is receiving a substantial level of care, one or more of the following criteria should be met:
- carer payment is being paid to a care provider in respect of the care giver, or
- the care receiver is in receipt of disability support pension or invalidity service pension and requires assistance because of their condition, or
- the care receiver is over pension age and is regarded as frail, or
- the care receiver can provide evidence that since their discharge from hospital they have required assistance, or
- the care receiver has been assessed by ACAT and is awaiting institutional admission or has been accepted for approved respite care.
The value of the care being provided is the value of equivalent assistance if it were provided through a local support agency. It includes home help, direct care, and the cost of providing food, such as meals on wheels.
Transfer of farm to third party
If a pensioner transfers a farm or farm interest to a third party, such as a trust or company, forgone wages are generally not accepted because the farm has not been transferred to the close relative.
If the trust transfers the farm to the pensioner's close relative, forgone wages cannot be accepted as financial consideration. A trust or company does not fall within the definition of a close relative.More ?
Exception: Forgone wages may be applied where all of the following conditions are met:
- the farm is transferred:
- from an individual to a trust, or
- between trusts, or between companies, or
- from a trust or company to a near relative AND
- the close relative and/or their spouse is the sole proprietor of the company or the sole beneficiary of the receiving trust. In these cases, the transfer has the same effect as if the farm was transferred to the close relative.
A delegate must be satisfied that effective ownership and control of the farm has been transferred to the close relative, that the close relative has worked for little or no wages (this could include distributions and/or dividends) and that the benefit of that labour was for the attributable stakeholder.
Information requirements when determining past contributions and forgone wages
- contributions made by the close relative to improve the farm, and/or
- periods during which wages were forgone.
In order to avoid double counting where the relative has made capital improvements during periods of unpaid employment, details should be provided about:
- any pay or consideration received by the relative, and
- any stock or equipment paid for by the relative.
If possible the pensioner should also provide other financial documentation, such as income tax returns for the pensioner or the relative, workers compensation records and receipts for capital expenditure.
Verifying past contributions to a farm, including periods of unpaid employment can be difficult where claims are backdated for many years. Delegates should aim at arriving at a forgone wage/contribution figure which fairly recognises the extent and likelihood of unpaid farm employment and other contributions made by the relative, having regard to the intent of the policy. The estimate reached should be reasonable and defendable, based on information provided by the family and through other sources.
Statutory declarations may be required for the claim
The pensioner and close relative must provide statutory declarations when claiming past contributions if:
- there is reason to doubt their statements, and
- other documentation is unavailable.
Verifying and recording property value
The value of the disposed farm, home or real estate must be recorded, even if it has no effect on their pensioner's current entitlement as the value of several disposed of assets may exceed the $10,000/$30,000 limits. It may be necessary to obtain a valuation for the deprived asset from a qualified valuation service provider. Deemed income on the disposed asset may affect payment under the income test.More ?
Assessment of the principal home when included in the transfer of the farm
When transferred with the farm, the value of the income support recipient's principal home and adjacent land is not included in the forgone 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 or right to accommodation for life.
For adequate financial consideration to be received when disposing of an asset, a person must receive value in the form of money or assets. Adequate financial consideration can be accepted when the amounts received reasonably equate to the market value of the asset. It may be necessary to obtain a valuation from a property valuation service provider.
When disposing of income, in order for adequate financial consideration to be received, the person must receive money, goods or services which approximate in value to the rate of disposed income. If a person disposes of an income producing asset and receives adequate financial consideration in money or money's worth for the asset, then it can be accepted that they have received adequate financial consideration for the disposal of both the income and the asset.
According to subsection 5P(1) of the VEA, a farm means any land that is used:
- For the purposes of a farm enterprise; or
- In connection with a farm enterprise.
In relation to deprivation related to farm transfers, past contributions of a person or their partner means:
- wages forgone while working on the farm,
- contributions made to improve the farm,
- purchase of livestock or equipment, or
- unpaid care of the pensioner.
Valuable consideration is defined as receipts not in money form but capable of being valued in money terms.
A deprived asset is an asset:
- that has been disposed of for less than its value (that is, adequate financial consideration has not been received), and
- the value of which is included in the value of the person's assets for the purpose of determining that person's rate of pension.