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

Item

Description

1

Farm enterprise examples

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 commonplace 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
• animal 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
  • Income derived from animal breeding should be considered income for primary production, however, the customer would also need to meet all other criteria to be eligible
• 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 a farm enterprise definition

The definition of a farm enterprise does not include:

• 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
• racehorse 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 is also 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 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 farmland 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.

4

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, consider 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 must 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.

Item

Scenario

1

Grape grower

Danny is a grape grower and grows grapes for consumption or wine production. A percentage of the harvest is sold to Christine who produces wine.

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

Christine uses the purchased grapes to produce wine which falls within the processing or manufacturing industry and is therefore not considered a farm enterprise. A determination must 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

Value-add

Mark is a grape grower and grows grapes to produce wine.

Mark is considered a farmer. Growing grapes is an eligible primary production activity for FHA. Producing wine from his own agricultural product is considered value-add. Where significant commercial purpose and character cannot be determined by considering other factors such as the size and scale of the farm (number of acres of grape vines farmed), the value of the grapes used in the wine production may need to be calculated.

Acres of grape vines x average tone per acres x average market price per tonne.

Mark has 35 acres of grape vines, averages 4 tonnes of grapes per acre. Current market price is $580 per tonne. The estimated revenue if the grapes were sold instead of making wine would be 35 x 4 x 580 = $81,200

Mark sells the wine produced from the grapes that he has grown and harvested. The income from the wine sales will be considered related income under the income test.

Exception:

Mark only has 5 acres of grape vines, and purchases grapes from others to produce his wine. As Mark only has 5 acres himself and averages 4 tonnes of grapes per acre at current market price $580 per tonne. The estimated revenue if the grapes were sold instead of making wine would be 5 x 4 x 580 = $11,600. In this circumstance, Mark is not considered commercial to meet FHA definition of a farmer.

3

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.

Item

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 does not meet the significant labour test

A person is declining in health and requires assistance with day-to-day tasks. They are restricted to their home and unable to travel independently. They may be receiving either home care or residential care. Their incapacity is not temporary.

This person does not contribute a significant part of their labour to the farm enterprise, so would not be eligible for FHA.

*Not all permanent incapacity, or care situations prevent a person being able to contribute significant labour. Consider:

• Are they able to perform daily farm tasks?
• What is the actual labour the person contributes?

Further discussions may be required if it appears their circumstances conflict with the significant labour they contribute.

4

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.

5

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.

Item

Scenario

1

Farm enterprise does meet the significant commercial purpose or character - eligible

Gianni has had an average annual turnover exceeding $60,000 gross for the past 12 years. Due to recent weather events, Gianni's annual turnover for the last financial year was $45,000. With a continued improvement in the weather conditions, Gianni expects to once again exceed $60,000 gross in turnover.

As the farm has been affected by unusual weather events and the financial history shows it is reasonable to expect the farm could achieve the gross annual threshold in a reasonable timeframe, Gianni meets the significant commercial purpose or character requirement.

2

Farm enterprise does not meet the significant commercial purpose or character - not eligible

Jarrah has a farm enterprise with an average gross annual turnover of $40,000 for the past 5 years. They also have a $25,000 income from contracting giving them a combined total is $65,000.

When considering commercial purpose or character, the assessment only includes income from the primary production such as cattle sales, grain sales etc. Jarrah's income from contracting is not included in the turnover assessment.

Jarrah's primary production income does not exceed the $60,000 gross turnover threshold.

When assessing, consider if it is reasonable to expect Jarrah to reach the $60,000 gross turnover threshold.

The farm is currently operating at capacity and there are no plans to increase productive capacity. Jarrah expects the farm enterprise to continue with roughly the same gross income of $40,000.

Jarrah would not meet the significant commercial purpose or character requirement. The annual primary production gross annual turnover is under $60,000 and it is not reasonable to expect this to exceed the turnover amount.

3

Farm enterprise does meet the significant commercial purpose or character - eligible

Jesse farms on 250 hectares, usually farming between 200 and 250 head of cattle. Due to recent weather events Jesse scaled back the farm enterprise to only 50 head of cattle. Jesse expects it will take 1 year to get to 150 and a further 2-3 years to be back at 250 head of cattle. Currently, this is well below the usual scale and size for the farm to have significant commercial purpose and character and the farm did not meet the gross turnover of $60,000 in the last financial year.

Consider the farm enterprise's historical performance, the impact of the weather events and Jesse's plans to rebuild to the normal cattle head count in the assessment.

It is reasonable to expect that Jesse will be able to achieve a commercial level of production in a reasonable timeframe. In this case, Jesse meets the significant commercial purpose or character requirement.

4

Farm enterprise does not meet the significant commercial purpose or character - not eligible

Nullah has 5 beehives and sells honey at a stall at the front gate. The amount of honey produced varies each week and is unreliable. Nullah sells each jar of honey for $5, however due to the number of beehives, this does not exceed the gross annual turnover of $60,000. Nullah does not expect to increase the number of beehives or sales in the future.

Due to the size and scale of the enterprise and it is not reasonable to expect that Nullah can achieve a commercial level of production.

Nullah does not meet the significant commercial purpose or character requirement.

5

Reasonable period

Darren was a beef farmer in his younger years but following the Millenium drought, he gave up the farm operations and has instead worked in town for 10 years. He used his farmland for agistment of other farmers' livestock and occasionally produced hay for sale. He planned on slowly buying into livestock again, however, did not want to accrue significant debt to pay for re-stocking. His business plan suggested that in the first year he would buy 5 young calves and mostly rely on natural increase from then on, to get to a herd size of 40 head in 5 years. After the initial 5 years, he expects to start receiving small profits from occasional sale of new calves. However, the profits will not become sufficient to sustain both the farm operations and meet the household needs for at least another 7 years.

This example does not demonstrate achieving profitable operation within a reasonable period.

6

Share farming - eligible

Jim contributes farming resources to a farm enterprise in return for a share of the profits. The overall revenue of the farm enterprise is $80,000. Jim's agreed share is 50% ($40,000).

When considering the farm revenue for Jim's portion and assessing whether the farm enterprise meets the significant commercial purpose or character the overall revenue for the farm enterprise must be assessed, not just Jim's share.

In this case, Jim meets the significant commercial purpose or character requirement as the total revenue of the farm enterprise exceeds $60,000.