Eligibility and payability for Farm Household Allowance (FHA) 002-02040000

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Description

1

Examples of a farm enterprise include:

• beekeeper (apiarist) who sells honey, either retail or wholesale
• Apiarists may demonstrate a right or interest in the land where they keep their hives if they have an arrangement to keep the hives in a particular area. This may be a verbal arrangement and evidence (usually in the form of a Statutory Declaration or a letter signed by the land owner) must be provided
• If their hives are located in a State forest, a permit is issued by the relevant State authority.
  Note: it is common place in the industry for apiarists to place hives owned by one another in the area covered by the permit. In these cases, it is only necessary for the apiarist to demonstrate they have an agreement with the permit holder. This may take the form of a Statutory Declaration
• farmer who grows hay, chaffs it, and sells it
• feral goat herder who manages the goats on their property
• horse breeding (for whatever purpose)
• Income derived from horse breeding should be considered income from farming, but income from related activities such as the training of horses, or derived through the racing of horses, would not be considered income from farming because this is not income derived from the rearing of livestock
• production nursery where plants are grown and sold regardless of to whom
• These nurseries grow plants and do not just buy them, pot them up and sell them on. An eligible production nursery may also sell other products such as decorative pots, water features etc.
• These products are not part of the primary production and must be separated to assess qualification (right or interest in the land, income, capital, and labour) and eligibility (income/expenses for primary production and non-primary production and assessable assets)
• turf farmer, regardless of how they sell the product
• vegetable farmer, regardless of how they sell the product

2

Not included in the definition of a farm enterprise:

• nursery which buys in plants and sells them and may also sell other products which are not primary production, for example, water features
• pig contractor where pigs are taken on contract and the person is paid per unit per week to feed and keep them until ready for sale
• person who buys or harvests other farmers' hay, bails, or chaffs it and sells it
• race horse owner who trains and races horses
• forestry is not considered to be an activity falling within agricultural, horticultural, pastoral, apicultural and aquacultural industries

3

Agistment

There are several different types of agistment, and the assessment of agistment is different for determining eligibility compared to the income test.

FHA NCL assessment: for FHA claims agistment income alone does not meet the qualification requirements for FHA. The customer would also be required to have other regular source/s of farm income during a normal farming period. Eligibility may need to be assessed over several financial years if the latest ITR shows primarily agistment income.

Income assessment: agistment income is considered to be a farm related income for FHA FBL purposes. This is because the agistment business cannot exist without the farm enterprise.

Consider the existence of an agistment enterprise as above when determining if the farmer meets the FHA eligibility criteria. If the farmer qualifies for FHA, income from the agistment enterprise is considered and assessed as farm related business income.

It is important each case be assessed on its merits, especially when more than one form of animal husbandry is being practiced.

Types of agistment include:

Leasing

If an agister leases their farm land to another for their use with their livestock, the agister is considered to be operating a farm business.

Agistment

If a farmer also agists their land and is paid a fixed price per head per week to allow another person's stock to graze their property, they are considered to have a source of farm related business, as the agistment income could not exist without the farm enterprise land.

Although contracts can vary from enterprise to enterprise, generally the risk is carried by the owner of the stock and the price received by the agister is usually unaffected by the management decisions (if any) that they make.

Note: agistment income alone does not meet the qualification requirements for FHA

Contract Feeding

This is quite similar to agistment, although there is usually a higher workload associated with earning the income. The agister is provided with the stock, the instructions on how to care for them, and in many cases the feed. They are paid in a similar way to a salary, generally based on time to take the animals from one phase of growth to another. This arrangement is not common but is in place for pig contractors and can also happen in the meat-bird industry and occasionally cattle feed-lotting.

As the risks and management decisions are carried by the owner of the stock, the agister contributes significant labour and provides feed and land to maintain the livestock that is owned by the farm enterprise, it is considered farm related business income.

Unit Feeding

The agister is provided with the animals (normally pigs) and also provides the food, shelter, and medicines, The agister is paid on a combined timetable/performance basis, for example, 80% alive with weight range from X to Y at 2 months, 3 months and so forth. The agister is considered to be providing a contract feeding service, and therefore is considered as farm related business income.

Backgrounding

The agister is provided with stock (for example, heifer dairy cows) and is paid to return them to the owner at a certain weight and in a certain condition.

The agister is contracting their services to the owner of the stock and uses farm enterprise assets to undertake the work and therefore, considered farm business income.

The length of time taken to get the animals to the pre-agreed condition can vary due to a combination of the seasons and the agister's decisions. Note: backgrounding is considered as an eligible source of farm income when determining FHA eligibility.

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Mixed enterprise

Examples:

• citrus orchard that grows and sells fruit and also produces and sells citrus juice
• dairy farm that uses raw materials to make cheese
• vineyard that grows grapes and also produces and sells wine

If a farmer has a mixed enterprise (such as in the citrus orchard example above), the business operations must be separated to determine what components of the business are considered a farm enterprise and what is not.

The orchard itself is considered a farm enterprise as it falls within the horticultural industry. The income earned from the sale of citrus fruit would be considered primary production income. However, the production of fruit juice falls within the processing or manufacturing industry and is therefore not considered a farm enterprise.

In determining eligibility for FHA, consideration must be given to the commercial purpose and character of the farm enterprise and the contribution of significant labour and capital to the farm enterprise compared with the farmer's other activities.

Similarly, dairy farming falls within the pastoral industry and is therefore considered a farm enterprise. The manufacturing of dairy produce from raw materials produced by the business is considered to fall within the pastoral industry. This means the dairy farm remains a farm enterprise in its own right.

In determining eligibility of the farmer for FHA, special consideration must be given to the commercial purpose and character of the farm enterprise (dairy farm) and the contribution of labour and capital by the farmer to the farm enterprise compared with other activities.

A determination will need to be made to assess whether the wine production company is considered a directly related business under farm business losses.

Once eligibility as a farmer has been established, apply farm business losses. See Assessing income for Farm Household Allowance.

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Scenario

1

Grape grower

Danny is a grape grower and grows grapes for consumption or wine production, he also sells a percentage of the harvest to Christine who produces wine.

Danny is considered to be a farmer. Growing and selling the grapes falls within the horticulture industry and so Danny's business is considered a farm enterprise.

The production of wine falls within the processing or manufacturing industry and is therefore not considered a farm enterprise. A determination will need to be made to assess whether the wine production company is considered a directly related business. See Assessing income for Farm Household Allowance (FHA).

Christine is a business operator.

2

Hay growing and selling

Emily purchases hay from Lincoln and then chaffs it up and sells it on to farmers in the region. Emily is a business operator.

The hay grower, Lincoln, is considered to be involved in a farming enterprise.

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Scenario

1

Farmer meets the significant labour test

George purchases a farm as an investment and leases the land to Susan who uses it for dairy farming. Susan works on the farm full-time. As the farm becomes more successful, Peter is hired to assist with day-to-day running of the farm and equipment maintenance. Peter and Susan have an arrangement where Susan pays Peter a share of the farm income as remuneration for labour.

• Susan would likely be an eligible farmer due to contributing a significant part of labour and capital to the enterprise. Susan's lease is an example of a formal agreement which demonstrates a right or interest in the land
• George holds a right/interest in the land through ownership but does not contribute labour or further capital to the enterprise
• Peter receives remuneration for labour and is an employee, but is also unlikely to contribute significant capital to the farm enterprise

2

Farmer does not meet the significant labour test

A person has a one-third share of a vineyard and only contributes labour to the vineyard for a few days each year. They are paid a wage for their labour like other vineyard employees.

Compared to their principal occupation as a mechanic, this person does not contribute a significant part of their labour to the farm enterprise, so would not be eligible for FHA.

3

Farmer meets the significant capital test

Martha has contributed capital to a farm enterprise through taking on a beneficiary loan liability. As this liability amount is significant in comparison to other capital owned by the farm enterpriser, Martha is deemed to have contributed significant capital to the enterprise.

4

Farmer does not meet the significant capital test

Jim is involved in a share farming enterprise. Jim's capital contribution to the enterprise is a motorbike.

The value of the motorbike alone would not be significant in relation to the other assets a commercial farm enterprise would be expected to hold. Unless Jim holds other farming assets, the 'significant' capital criteria would not be met.