Assessing income for Farm Household Allowance (FHA) 002-20102102

Off farm income offset process

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$\\INTERNAL.DEPT.LOCAL\Shared\NAT\SERDELEXCEL\WORKPRODIMP\Operation Blueprint Migration\RDT Release Icons\32w\icon-hidden-attachment.png$ Historic version of 002-02050010 shows how to process off farm income offset for processing claims submitted before 16 December 2019

Contact details

Farm Household Allowance (FHA) Level 2 helpdesk and FHA Rural Network Support

External website

Department of Agriculture, Fisheries and Forestry

Services Australia website

Farm Household Allowance - select 'Eligibility & payment rates' to find information about income and assets test

Farm Assistance hotline

Document templates for Income Offset Reviews/Assessment

Table 1

Item

Description

For use when review initiated

Initial assessment of Income Offset Financial Year Review

Review of overall operating losses of the farm enterprise.

Q888 issued - Date/requested information.

Q888 - Requesting documentation text

Free Text

Please provide the below requested information for the financial year xx/xx to assist in assessing your overall operating losses of the farm enterprise. You need to provide the following information by (insert date 14 days from the date the letter is issued).

Documentation request:

Farm business Profit and Loss for the xx/xx financial year
Evidence of Off-farm income for the xx/xx financial year

Scenario 1 for overall operating losses- Partnered customer - farm business making a loss

Table 2

Income type	Farm business	Related business	Ordinary income
Cash income (before deductions)	$180,000	$350,000	-
Allowable deductions	$250,000	$300,000	-
Gross income (other sources)	-	-	$60,000 (wages and deeming)
Net position	-$70,000	$50,000	$60,000

Couple run a farm, as well as agistment (directly related business).

The farm has a cash turnover of $180,000 and deductions of $250,000. Net income is -$70,000.

The agistment has a cash turnover of $350,000 and deductions of $300,000. Net income is $50,000.

They then receive ordinary income totalling $60,000 shared equally between them ($30,000 each).

Combine the net positions of the farm business and directly related business, the farm business income is -$20,000, this will trigger the allowable reduction. The most they can reduce their ordinary income is $20,000 in total between them. This reduction of $20,000 can be apportioned between partners at whatever percentage they prefer (for example, 50/50, 70/30, 100/0, 0/100).

The assessable employment income will be reduced by the overall operating loss, the employment income would need to be reported as fortnightly income as per current reporting requirements, not as a lump sum estimate. The system will automatically apply the reduction based on net amount of the overall operating loss of the percentage for each member of the couple.

Scenario 2 for overall operation losses - Single customer - farm business making a loss

Table 3

Income type	Farm business	Ordinary Income
Cash income (before deductions)	$180,000	-
Allowable deductions	$260,000	-
Gross income (other source)	-	$70,000 (wages and deeming)
Net position	-$80,000	$70,000

Single farmer has a farm, job and cash invested

Farm has a cash turnover of $180,000, deductions of $260,000. Net income is -$80,000
Wages and deemed income are $70,000
The loss of the farm is greater than the wages, and less than $100,000 limit

Therefore, the maximum allowable reduction is $70,000 being the lessor of the 3 amounts, and the single farmer has no income to be applied to the FHA income test. The deemed income is calculated by the system and employment income would need to be reported as fortnightly income as per current reporting requirements, not as a lump sum estimate. The system will automatically apply the reduction based on net amount of the 'overall operating loss'. As the customer is single they will receive 100% of the reduction to the maximum allowable amount regardless of coding on FBI.

Scenario 3 for overall operating losses - Farm business making a profit

Table 4

Income type	Farm business	Ordinary income - unrelated business (hairdresser)
cash income (before deductions)	$120,000	-
Allowable deductions	$100,000	-
Gross income (other sources)	-	-$150,000
Net Position	$20,000	-$150,000

Farm business is making a profit of $20,000
The unrelated business is running at a loss of $150,000 so is treated as $0 for the income test
The hairdresser loss cannot be offset against the farm profit as this is not a directly related business
For the purposes of FHA, the income to be assessed for FHA is $20,000

Scenario 4 for overall operating losses - Farm business making a loss over $100,000

Table 5

Income type	Farm business	Ordinary income
Cash income (before deductions)	$120,000	-
Allowable deductions	$300,000	-
Gross income (other sources)	-	$120,000
Net Position	-$180,000	$120,000

Farm has a cash turnover of $120,000 and deductions of $300,000, net income is -$180,000 and gross wages are $120,000

Up to $100,000 of the overall operating loss can be used to reduce the assessable income
All income must be coded on the system. The system will calculate the reduction and apply the income test
The assessable ordinary income for FHA purposes after the reduction is applied is $20,000

Scenario 5 for overall operating losses - Complicated businesses

Where a business partnership exists with a person or persons other than the partner, and both or more are entitled to FHA, the overall operating loss to offset against ordinary income is determined by the agreed apportionment of the business income.

A farm enterprise is:

A four way partnership
Making a net loss of $80,000
All members of the 4 way partnership live in different households and are in receipt of FHA
Tax returns indicate that each farmer has an equal share of the farm profit or loss. This reflects that they have agreed to a 25% share of the net farm income

As the net farm income is a loss of $80,000 each member of the farm enterprise can reduce their assessable ordinary income up to $20,000. If more than one person has an equal share in the farm business, the net position of the farm business is split according to how many people were involved in the farm.

For example, if the farm has a loss of $180,000 this would be split as follows:

2 people would be 50% = -$90,000
4 people would be 25% = -$45,000

The allowable reduction applied to each individual's income would be as per their apportionment percentage recorded.

Scenario 6 for overall operating losses - customer provides new farm business estimate

A current customer has ordinary income and a farm business estimated loss of $10,000 recorded since 2018.

The customer contacts on 22 February 2020 and gives a new farm business estimate loss of $90,000.

The new farm business income estimate is applied from 22 February 2020 (date of notification).

FAQs for overall operating losses (formerly known as farm business losses)

Table 6

Item	Description
1	When did farm business losses come into effect? Overall operating losses replace the term Farm business losses from 27 September 2024. This process allowed the Net loss from a farm enterprise (including related businesses) to: be applied from 16 December 2019 replace the Off Farm Income Offset (OFIO)
2	How are overall operating losses (farm business losses) different to off farm income offset? Overall operating losses allow assessable ordinary income to be reduced by the overall operating losses of the farm enterprise. The customer does not have to apply for it. It is automatically applied to all FHA applications where the farm business runs at a loss. The reduction threshold amount for the overall operating losses is a maximum of $100,000 per couple or single customer per financial year. Under the Off Farm Income Offset, some income that was related to the farm business was treated as ordinary income, for example agistment. This is now included as related farm business income.
3	How is the overall operating losses applied to the customer application? From 14 November 2020 overall operating loss is automatically applied to customers and apportioned using the percentages are coded on the 'FBI' screen in Process Direct. This will be used to calculate the amount of assessable ordinary income that can be reduced under the FHA income test.
4	Does this apply to other social security payments? No, this is only for FHA customers. The income being assessed must be for FHA. The loss being applied must be for a farm that is a business. Losses from other unrelated non-farm businesses that an FHA customer may have cannot reduce their income. For example, if they have a hairdressing business and it incurs a loss, this cannot be used to reduce assessable income.

Related businesses

Table 7