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 farm business losses

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 farm business losses. 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 farm business losses- Partnered customer - farm business making a loss

Table 2

Income type	Farm business	Directly related business	Employment income
Cash income (before deductions)	$180,000	$350,000	-
Allowable deductions	$250,000	$300,000	-
Gross income (other sources)	-	-	$60,000
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 non-farm 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 non-farm 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 to $40,000, the employment income would need to be reported as fortnightly income as per current reporting requirements, not as a lump sum estimate.

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

Table 3

Income type	Farm business	Wages
Cash income (before deductions)	$180,000	-
Allowable deductions	$260,000	-
Gross income (other source)	-	$70,000
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 income are $70,000
The loss of the farm is greater than the wages, and less than $100,000 limit

Therefore, all assessable income from wages are reduced by $70,000, and the single farmer has no income to be applied to the FHA income test.

Scenario 3 for farm business losses - Farm business making a profit

Table 4

Income type	Farm business	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
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 farm business losses - Farm business making a loss over $100,000

Table 5

Income type	Farm business	Wages
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 farm business loss can be used to reduce the assessable income
The assessable wages income for FHA purposes is $20,000

Scenario 5 for farm business losses - Complicated businesses

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 farm business losses - customer provides new farm business estimate

A current customer has non-farm income with a farm business estimate 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 farm business losses

Table 6

Item	Description
1	When did farm business losses come into effect? Farm business losses will: be applied from 16 December 2019 replace the off farm income offset
2	How is farm business losses different to off farm income offset? Farm business losses allows assessable non-farm income to be reduced by the farm business losses. The customer does not have to apply for it. It is applied to all FHA applications where the farm business runs at a loss. The reduction threshold amount for farm business losses is $100,000 per couple per financial year. Under the off farm income offset, some income that was related to the farm business was treated as non-farm income, for example agistment. This is now included as farm business income.
3	How is the farm business losses applied to the customer application? From 14 November 2020 Farm Business Loss apportionment percentages are coded on the 'FBI' screen in Process Direct. This will be used to calculate the amount of assessable non-farm income that can be reduced for 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 non-farm related businesses that a 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.

Directly related businesses

Table 7

Item

Description

Principles for directly related businesses

The business must be associated with the farm business.

When doing the other activity how are you describing yourself?
Is there an association with your farm business?

There must be a significant level of labour provided in the other business or creation of items for the other business.

What level of labour is provided in the other business? This needs to be significant to be directly related
What level of labour is placed into the creation of materials for the other business? This needs to be significant to be directly related
Were the items used in the other business found items that could be found anywhere? This is not a related business
Is the majority of the produce from the farm? For instance in a restaurant, only 20% of produce is from somewhere else

There must be a significant value added for a business to be considered directly related

Does the other business add value to farm business produce?
Does the other business add value using farm business equipment?
Do you simply value add to other products/produce not from the farm business? This is not a related business

Scenarios

Unrelated business:

Farm business has a vehicle used for farm business. This vehicle is also used for a hair dressing business conducted off site of the farm business
Farm business is operated from a property with a building (that is, the house) on it. A room in the building is used to supply hair dressing services
Farm business is operated from a property with a building (that is, the house) on it. A room in the building is used to supply handmade craft using materials not from the farm property
Farm business has a delivery truck used in the farm business. This delivery truck is also used in supply of produce from the farm to a restaurant owned by the partner
Farm business has a truck used in the farm business. This truck is also used in the transportation of goods purchased from suppliers to a restaurant owned by the partner
Farmer rents out the farm land, commonly known as lease income. The farmer does not use any parts of the land for farming activities
Farmer rents out the farm land to another person to undertake farming activities. The owner of the farm land does not use this section of land for their own business activities, however continues to use the remainder of the property for farm activities

Related business:

Farm business is operated from a property with a building (that is, the house) on it. A room in the building is used to supply handmade craft using materials from the farm property and the material from the property is produced by the farm business - not simply materials that could be found anywhere
Farm business grows olives on the farm, along with other produce, which is sold to the public. The olives harvested are not sold but pressed and made into oil and other products and sold through a separate business
Farm business owns a harvester. This harvester is also used in a contracting business working on properties off site to the farm enterprise
Farm business has a delivery truck used in the farm business. This delivery truck is also used in supply of produce from the farm to a restaurant owned by the partner and 80% of product used in the restaurant are sourced from the farm enterprise
Farm business has a truck used in the farm business. This truck is also used in supply fresh eggs from the farm to purchasers in town
Farmer rents out part the farm land for the placement of wind turbines on the property. The farmer continues to use this land for livestock

Operational Information