Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
2002-2003-2004
THE
PARLIAMENT OF THE COMMONWEALTH OF
AUSTRALIA
HOUSE OF
REPRESENTATIVES
FAMILY
AND COMMUNITY SERVICES AND VETERANS’ AFFAIRS LEGISLATION AMENDMENT (SUGAR
REFORM) BILL
2004
EXPLANATORY
MEMORANDUM
(Circulated
by the authority of the Minister for Family
and Community
Services,
Senator the Hon Kay
Patterson)
FAMILY AND COMMUNITY
SERVICES AND VETERANS’ AFFAIRS LEGISLATION AMENDMENT (SUGAR REFORM) BILL
2004
This Bill gives effect to one aspect of the
Government’s comprehensive range of initiatives to help the nation’s
sugar industry that were announced by the Prime Minister on
29 April 2004.
Many sugarcane
industry stakeholders have emphasised the need to ensure that sugarcane farms
can more readily be handed from one generation to the next. Amendments will be
made to the social security law and the Veterans’ Entitlements Act
1986 to provide for a 3 year window of opportunity during which the
intergenerational transfer of sugarcane farms (by persons of pension age) will
be exempt from the usual ‘gifting’ rules.
(social security)
2004-05 |
$2.6m |
2005-06 |
$3.7m |
2006-07 |
$5.9m |
2007-08 |
$6.7m |
(veterans’ entitlements)
2004-05 |
$0.6m |
2005-06 |
$0.8m |
2006-07 |
$1.2m |
2007-08 |
$1.4m |
FAMILY AND COMMUNITY SERVICES AND VETERANS’ AFFAIRS LEGISLATION AMENDMENT (SUGAR REFORM) BILL 2004
NOTES ON CLAUSES
Clause 1 sets out how the Act is to be cited,
that is, the Family and Community Services and Veterans’ Affairs
Legislation Amendment (Sugar Reform)
Act 2004.
Clause 2 provides
that the Act commences on the day on which it receives the Royal
Assent.
Clause 3 provides that each Act
that is specified in a Schedule is amended or repealed as set out in that
Schedule.
This Explanatory Memorandum uses the
following abbreviations:
• ‘Social
Security Act’ means the Social Security Act
1991;
• ‘Social Security
Administration Act’ means the Social Security (Administration) Act
1999; and
• ‘Veterans’
Entitlements Act’ means the Veterans’ Entitlements Act
1986.
Schedule 1 – Amendment of the
Social Security Act 1991
This Schedule provides for a 3 year window of opportunity
during which the intergenerational transfer of sugarcane farms (by persons of
pension age) will be exempt from the usual ‘gifting’
rules.
Many sugarcane industry stakeholders have emphasised
the need to ensure that sugarcane farms can more readily be handed from one
generation to the next. Accordingly, the Government will make changes to the
social security law and the Veterans’ Entitlements Act 1986 which
will facilitate intergenerational transfer in the sugarcane industry. Such a
scheme has the potential to support sugarcane growers dealing with challenge and
change while, at the same time, increasing the involvement of young people in
setting the future directions of the sugar
industry.
Under the Social Security Act, there
are limits to the assets a person can hold without those assets affecting their
entitlement to social security payments and may preclude a person from payments
altogether. Further, a person who gives away an asset is treated, for a
5 year period, as if the person still owned the asset when assessing
entitlement to social security payments. The operation of these provisions can
make it difficult for farmers endeavouring to retire and access social security
payments as well as presenting an impediment to the intergenerational transfer
of the family farm.
The amendments will provide
a 3 year window during which qualified sugarcane farmers (and their partners)
will be able to transfer their farm to eligible descendants (ie children and
grandchildren who have had an active involvement in farming for at least 3 years
prior to the transfer) without the usual gifting rules applying in respect of
that transfer.
Key features of the scheme
include:
• the net value of the farm
enterprise must not exceed $500,000;
• the
sugarcane grower (or partner, where applicable) must either be pension age (or
veteran pension age where applicable) or will reach that age in the 3 year
window;
• the sugarcane growers’ (and
partners’ where applicable) income from all sources over the previous
three financial years must be less than the applicable maximum annual rate of
pension for that same period;
• the transfer
must be by way of gift and must divest the sugarcane grower (and partner where
applicable) of all interests in sugarcane farming (excluding the family
home);
• during the 3 years prior to the
transfer, the eligible descendant must have been actively involved in the
sugarcane farm enterprise;
• the retiring
farmer must have owned the property for at least 15 years or been actively
involved in farming for at least 20 years and acquired an eligible interest
in a sugarcane farm before 29 April
2004;
• the scheme will apply only to
transfers occurring after the passage of the
legislation;
• where the requirements of the
scheme are met, the usual gifting rules will not apply to the transfer of the
sugarcane farm enterprise and relevant sugarcane farm assets (although the usual
rules will apply in respect of all other assets and income).
Explanation of changes
Amendments to the Social Security Act
1991
Item 1 inserts a reference
to new Part 3.14B into the Reader’s
Guide.
Item 2 inserts new subsection
12A(2B). Under the scheme, where a farm is transferred in accordance with the
new provisions, it will be possible for the farmer to retain a life interest in
the principal home on the farm. The effect of the new subsection is to make
that life interest immune from the application of the social security law
provisions relating to "granny flat"
interests.
Item 3 inserts new section
17B which sets out certain definitions relevant to the operation of the scheme.
Various terms that were relevant for the purposes of the previous Retirement
Assistance for Farmers scheme (see Part 3.14A of the Social Security Act)
are also relied upon for the purposes of this scheme (for example, the term
‘eligible descendant’).
As
the focus of the new scheme is assistance for sugarcane growers, the terms
‘sugarcane farm’, ‘sugarcane farm
enterprise’ and ‘relevant sugarcane farm asset’ are
specifically defined.
Paragraph (a) of the
definition of a ‘sugarcane farm enterprise’ states that it
means a farm enterprise (which is a defined term in section 17A) where a
majority of the enterprise is undertaken for the purposes of growing commercial
quantities of sugarcane. This definition recognises that a proportion of a farm
enterprise might involve growing produce other than sugarcane. However,
provided the majority of the enterprise is undertaken for growing sugarcane, it
is intended that the benefit of the scheme should be available. The definition
also makes it clear that the enterprise must involve growing sugarcane.
Accordingly, an enterprise that essentially involves (for example) only contract
planting or harvesting will not satisfy the definition of sugarcane farm
enterprise and will not be able to attract the benefits of the
scheme.
Paragraph (b) provides that a farm
enterprise might still be a sugarcane farm enterprise even though a majority of
the enterprise is not undertaken for the purposes of growing commercial
quantities of sugarcane if:
• a
significant proportion of the enterprise is undertaken for the purposes of
growing commercial quantities of sugarcane;
and
• the Secretary has determined that there
are special circumstances that mean the enterprise should be treated as a
sugarcane farm enterprise. The determination must be in accordance with any
guidelines made by the Secretary.
While
paragraph (b) still requires that a significant proportion of the enterprise
involves growing commercial quantities of sugarcane, it provides the Secretary
with flexibility in appropriate cases to allow people to have access to the
scheme who would not otherwise have been able to benefit from the scheme if a
rigid definition was applied. For example, an enterprise might historically
have involved 80% sugarcane growing while the remainder of the enterprise was
undertaken for other produce. With the downturn in the world sugar market, the
farmer might have recently made a commercial decision to adjust that mix of
production, with sugarcane growing reduced to only 45% of the enterprise. While
the Secretary would need to consider all relevant factors prior to making a
determination, considerations like those above would be relevant in reaching a
decision.
The term ‘sugarcane
farm’ is defined as meaning a farm (which is a defined term in section
17A) that is used predominantly for the purposes of a sugarcane farm enterprise.
Again, this definition recognises that not 100% of the farm might be directed to
sugarcane farming. However, provided that that is the predominant purpose, the
farm will meet the definition of a ‘sugarcane
farm’.
A ‘relevant sugarcane
farm asset’ is any relevant farm asset (which is a defined term in
section 17A) that is a produce of, or is used for the purposes of, a sugarcane
farm enterprise.
In broad terms, the scheme
operates where a ‘qualifying sugarcane farmer’ has
‘transferred’ his or her ‘eligible
interest’ in a sugarcane farm to an ‘eligible
descendant’. A ‘transfer’ in relation to an
eligible interest in a sugarcane farm has the meaning given by subsections (7),
(8), (10), (11) and (12). A transfer in relation to an eligible interest in a
relevant sugarcane farm asset has the meaning given by subsections (9), (11) and
(12).
According to subsection 17B(2), a person
is an ‘eligible former partner of a qualifying sugarcane
farmer’ if:
(a) the person
was, but no longer is (for whatever reason), the partner of another person;
and
(b) on the day on which the person ceased to be
the partner of the other person, that other person was a qualifying sugarcane
farmer; and
(c) after ceasing to be the partner of
the other person, the person has not again become a member of a couple;
and
(d) the person has an eligible interest in a
sugarcane farm or sugarcane farms in which the other person had an eligible
interest.
The scheme requires, among other
things, a long term association with the farming industry in Australia, either
through ongoing, long term involvement with particular farm property or through
current involvement with a sugarcane farm enterprise combined with long term
involvement in farming. The term ‘qualifying sugarcane
farmer’ is used to describe a person who can demonstrate the required
association.
Subsection 17B(3) defines a
qualifying sugarcane farmer firstly as a person who currently has, for at least
15 years continuously, an eligible interest in a farm and the farm is, and has
been for at least the last 2 years, a sugarcane farm. The farm must have been a
sugarcane farm at all times since 29 April 2004 (ie the date of the
announcement of the scheme by the Prime Minister). Further, during a period of
15 years, the person or their partner must have contributed a significant part
of his/her labour and capital to the development of a farm (or farms) and have
derived a significant part of his/her income from that farm (or farms). During
at least the last 2 years, the contribution of labour and capital as well as the
derived income must relate to sugarcane
farms.
Subsection 17B(4) alternatively defines
a ‘qualifying sugarcane farmer’ as a person who, before
29 April 2004, has acquired an eligible interest in a sugarcane farm
(or sugarcane farms) and the person, their partner or their former partner has
been involved in farming for at least 20 years or for periods totalling 20
years. Persons will be taken to have been involved in farming for the purposes
of subsection (4) if they have contributed a significant part of their labour to
farm enterprises and have derived a significant part of their income from farm
enterprises. During at least the last 2 years, the contribution of labour
and capital as well as the derived income must relate to sugarcane farm
enterprises.
A significant concept for the
purposes of the scheme is the concept of an ‘eligible
interest’ in a sugarcane farm (and/or any relevant sugarcane farm
assets). Subsection 17B(5) states a person has such an eligible interest
if:
(a) the person has a legal estate or
interest in the farm; or
(b) the person has a
transferable legal right or a transferable licence to occupy the farm for a
particular purpose of the farm enterprise;
or
(c) as the mortgagor of a legal estate or
interest in the farm (being an estate or interest that is not registered under a
relevant State land law), the person has an equitable estate or interest in the
farm; or
(d) the person is a shareholder in a
proprietary company that has a legal estate or interest in the farm;
or
(e) the value of the person’s assets
includes an amount calculated (in accordance with section 1208E) by reference to
the value of the sugarcane farm.
Section 1208E
which is referred to in paragraph (e) is contained in Part 3.18 of the Social
Security Act. That Part was inserted by the Social Security and
Veterans’ Entitlements Legislation Amendment (Private Trusts and Private
Companies – Integrity of Means Testing) Act 2000. The explanatory
memorandum to that Act described the effect of the amendments as
follows:
This measure aims to ensure that
customers who hold their assets in private companies or private trusts receive
comparable treatment under the means test to those customers who hold their
assets directly. The assets and income of the structure will be attributed to
the person or persons who control the company or trust, or to the person or
persons who were the source of the capital or corpus of the company or
trust.
Where section 1208E applies, its
broad effect is that, for social security purposes, the value of a
person’s assets includes an amount equal to the amount attributed to the
person in respect of assets owned by a company or trust. The purpose of
paragraph 17B(5)(e) is to cover those situations where the assets that make up
the sugarcane farm enterprise (and related farm assets) are held in a private
company or private trust. Where the value of a person’s assets includes
an amount calculated (in accordance with section 1208E) by reference to the
value of a sugarcane farm, the person has an ‘eligible
interest’ in the sugarcane farm.
The
purpose of the Note is to make it clear that, provided that the other
requirements of the scheme are satisfied, it does not matter that the transfer
was undertaken prior to the person lodging a claim for a social security
payment. That is, an actual determination under section 1208E in relation to a
claim is not required before a person can have an ‘eligible
interest’ as contemplated by paragraph
17B(5)(e).
For the purposes of what constitutes
an ‘eligible interest’ in a relevant sugarcane farm asset,
paragraphs 17B(6)(a), (b) and (c) respectively mirror paragraphs 17B(5)(a), (d)
and (e).
Subsections 17B(7) to (13) deal with
the issue of when will an eligible interest that a person has in a sugarcane
farm or sugarcane farm asset be treated as having been
‘transferred’. The intention behind these various provisions
is to avoid any potential for it to appear that a transfer of an eligible
interest has been undertaken (thereby attracting the benefit of the scheme) when
in fact the control/ownership of the sugarcane farm enterprise has not passed
from the qualifying sugarcane farmer to an eligible descendant (or
descendants).
Subsection (7) provides that,
subject to subsections (8), (10), (11) and (12), the eligible interest that a
person has in a sugarcane farm is transferred to another person only if the
eligible interest ceases to be vested in the person and becomes vested in that
other person. To avoid any doubt, subsection (8) states that if a person who
transfers a legal estate or interest in a sugarcane farm to another person is,
under a relevant State land law, registered as being the proprietor of that
estate or interest, the legal estate or interest is taken not to have become
vested in the other person until the transfer is registered in accordance with
that law.
Subsection (9) provides that an
eligible interest that a person has in a relevant sugarcane farm asset is
transferred to another person only if the eligible interest ceases to be vested
in the person and becomes vested in that other
person.
According to subsection (10), if, as a
mortgagor of a legal estate or interest in a sugarcane farm, a person has an
eligible interest in the farm, the person is taken to have transferred that
eligible interest to another person only if the person has become registered as
the proprietor of the legal estate or interest under a relevant State land law
and has then transferred that legal estate or interest to the other person.
This subsection is intended to provide for the transfer of a sugarcane farm held
under old system title which is subject to a mortgage. Its purpose is to
prevent "sham" transfers whereby transactions purporting to be deeds of transfer
are entered into, provided as evidence of a transfer, but are not completed in
fact. The effect of the subsection is to require the mortgagor to convert the
land to the Torrens system (thereby acquiring legal title) and then transfer
that legal estate or interest to the eligible
descendant.
According to subsection (11), if a
person has an eligible interest in a sugarcane farm or a relevant sugarcane farm
asset because the person is a shareholder in a proprietary company that has a
legal estate or interest in the farm (or a legal interest in the relevant farm
asset), the person is taken to have transferred to another person his/her
eligible interest in the farm or relevant farm assets only if the person has
acquired the company's legal estate or interest in the farm (or the company's
legal interest in the relevant farm asset) and has then transferred it to the
other person.
Subsection (12) is concerned with
situations where the person’s eligible interest arises in the
circumstances covered by paragraph 17B(5)(e) or paragraph 17B(6)(c), namely, the
qualifying sugarcane farmer would be attributed with the value of assets owned
by a trust or company and at least a part of those assets include a sugarcane
farm enterprise and/or relevant farm
assets.
Subsection (12) is expressed in
sufficiently broad terms so as to allow for the various arrangements under which
a person whose eligible interest arises in this specific manner could divest
themselves of that interest and appropriately attract the benefit of the scheme.
For example, rather than the interest remaining part of the assets of a company
or trust, the transferor might choose to acquire the legal estate or interest
from the company/trust and then transfer it to the eligible descendant(s). The
critical issue is to establish whether, in line with the rationale underlying
this measure, the qualifying sugarcane farmer is divested of all interests in
sugarcane farm enterprises and whether an eligible descendant (or descendants)
has acquired those interests.
In order for the
person to be divested of the eligible interest relevant to subsection (12),
the transferor could no longer be an attributable stakeholder of any company or
trust whose assets included those giving rise to the eligible interest that is
the subject of the transfer. The transferor could no longer hold any interest
in those assets. However, the means by which the qualifying sugarcane farmer
could do this are various and can depend on the nature of the farmer’s
relationship to the company or trust (eg. in relation to a trust, he or she
might be a settlor, trustee, beneficiary or some combination of those). The
appropriate means might also depend on such matters as whether the eligible
interests constitute the sole assets of a company or trust or whether they
constitute merely a part of those assets.
In
one scenario, the farmer may have been the settlor and the trust includes a
power to revoke or otherwise terminate the trust, including an express statement
that, on the exercise of that power, the assets of the trust revest in the
settlor. If that power was exercised, the farmer may chose to undertake the
transfer by passing the revested legal estate directly to an eligible
descendant. Alternatively, after the revesting, the farmer might choose to
again rely on a trust structure for the purposes of the transfer. The diversity
of scenarios that might arise makes it impossible to exhaustively identify the
different approaches that would be sufficient to meet the requirement as to
‘divesting’ but the critical consideration is whether it is clear
that the farmer no longer has any interest in, nor can exert control in relation
to, the sugarcane farm enterprise.
It is also
necessary to show that the eligible descendant (or descendants) gains an
interest of a value that is referable to the full value of the eligible interest
divested. Part 3.14B would not apply if a person other than an eligible
descendant can be taken to have acquired an interest in the sugarcane farm
enterprise as a result of the transfer.
Again,
the diversity of approaches available when undertaking the transfer here make it
impossible to exhaustively list the methods by which this requirement would be
satisfied. However, what must be evident is that the relevant eligible interest
has been acquired by an eligible descendant (or eligible descendants). One
example of where that would be satisfied is where, following the transfer, the
sugarcane farm enterprise constituted at least part of the assets of a company
or trust and an eligible descendant’s asset attribution percentage in
relation to that company or trust (ie as contemplated under Part 3.18) would be
100%. Similarly, if, prior to the transfer, the qualifying sugarcane farmer had
an attribution percentage of 100% but, after the transfer, two eligible
descendants each had an attribution percentage of 50%, the interest gained would
be referable to the full value of the interest
divested.
As both subsections 17B(11) and (12)
may be concerned with situations where the person is a shareholder in a
proprietary company that has a legal estate or interest in the sugarcane farm
(or sugarcane farm assets), subsection (13) makes it clear that the
person’s eligible interest will be taken to have been transferred if the
requirements of either subsection (11) or subsection (12) are
satisfied.
The definition of the term
‘pension age’ in section 23 of the Social Security Act provides that
when that term is used in Part 3.14A in relation to a person who is a veteran
(within the meaning of the Veterans’ Entitlements Act), it has the meaning
that it has in section 5QA of that Act. In all other cases, it has the meaning
given by subsections (5A), (5B), (5C) or (5D) of the Social Security Act. The
effect of Item 4 is to apply that approach to the meaning of that term in
Part 3.14B.
Item 5 adds a Note to
subsection 1074(2) (which relates to business income) concerning the
concept of the sugarcane farmers' income test. Its effect is to alert readers
of that subsection to the fact that different provisions apply when working out
a person's ordinary income from a sugarcane farm in order to find out whether a
person satisfies the sugarcane farmers' income test for the purposes of Part
3.14B.
Item 6 adds a Note concerning the
concept of the sugarcane farmers' income test to subsection 1075(1) which
relates to permissible reductions for business income. Its effect is to alert
readers of that subsection to the fact that different provisions apply when
working out a person's ordinary income from a sugarcane farm in order to find
out whether a person satisfies the sugarcane farmers' income test for the
purposes of Part 3.14B.
Item 7 adds a
Note concerning the concept of the sugarcane farmers' income test to
subsection 1076(1) which relates to deemed income from financial assets for
single persons. The effect of the note is to advise readers that the provisions
relating to deemed income from financial assets are inapplicable when applying
the sugarcane farmers' income test.
Item
8 adds a Note concerning the concept of the sugarcane farmers' income test
to subsection 1077(1) which relates to deemed income from financial assets
for members of pensioner couples. The effect of the note is to advise readers
that the provisions relating to deemed income from financial assets are
inapplicable when applying the sugarcane farmers' income
test.
Item 9 adds a Note concerning the
concept of the sugarcane farmers' income test to subsection 1078(1) which
relates to deemed income from financial assets for members of non-pensioner
couples. The effect of the note is to advise readers that the provisions
relating to deemed income from financial assets are inapplicable when applying
the sugarcane farmers' income test.
Item
10 adds a Note concerning the concept of the sugarcane farmers' income test
to subsection 1083(1) which relates to the actual returns on financial
assets. The note advises that, in applying the sugarcane farmers' income test,
actual returns on financial assets are to be treated as ordinary
income.
Item 11 adds a Note to
subsection 1123(1) which is concerned with conduct constituting a disposal of
assets. The effect of the note is to alert readers that, where there is a
divestment of property which satisfies the provisions of the retirement
assistance for sugarcane farmers scheme, that transfer of property is not to be
taken as a disposal of assets.
Item 12
inserts new Part 3.14B into the Social Security Act.
Section 1185M sets out the purpose of Part
3.14B.
Section 1185N is concerned with
the concepts of the ‘RASF commencement day’ and the
‘RASF closing day’. Subsection (1) provides that the RASF
commencement day is the day on which Part 3.14B commences and, subject to
any determination made under subsection 1185N(2), the RASF closing day is 3
years after the RASF commencement
day.
Subsection (2) provides that the Minister
may, by written determination, change the RASF closing day to a later day. This
approach allows flexibility in relation to the duration of the scheme and
reflects the fact that changes were required to the primary legislation dealing
with the previous scheme (see Part 3.14A) to allow farmers who had been
unable to complete the transfer (but who were otherwise qualified for the
scheme) extra time to finalise the transfer. Subsection (3) ensures that any
proposal to change the closing day will be subject to Parliamentary scrutiny by
providing that a determination under subsection (2) is a disallowable
instrument.
Section 1185P is concerned
with the concept of the ‘applicable cut-off day’. In basic
terms, this is the day by which the relevant transfer must be completed in order
for Part 3.14B to apply (see for example the effect of
paragraph 1185R(1)(a) in this context). The general rule, contained in
paragraph (b), is that the applicable cut-off is the RASF closing day. However,
where:
(i) the transfer was not completed
before the RASF closing day; and
(ii) a
pre-assessment request was lodged within 28 days after the RASF closing day;
and
(iii) an affirmative response is given to that
request
the applicable cut-off day is the first
day after the end of the period of 13 weeks beginning on the day on which
the request was responded to.
Section
1185Q
New subsection 1185Q(1) provides a
definition of a pre-assessment request for the purposes of Part 3.14B of the
Social Security Act. A pre-assessment request is a written request by a person,
for advice about whether Part 3.14B would apply to the person, or to the
person’s partner, if the proposed transfer of the farm were to take place.
The request must set out sufficient information to enable advice to be given in
relation to whether the Part would apply to the person in the event that the
proposed transfer takes place.
New subsection
1185Q(2) provides that, for the purposes of subsection (1), an e-mail will not
be accepted as a written request.
The effect of
new subsection 1185Q(3) is that, if a person contacts the Department or Agency
by telephone, fax, e-mail or in person, and the person follows up that initial
contact by lodging a pre-assessment request within 21 days after the day of
the initial contact, then the day of lodgement of the pre-assessment request is
taken to be the day of the person’s initial contact with the Department or
Agency.
New subsection 1185Q(4) sets out, for
the purposes of Part 3.14B, the only circumstances that will be considered to be
an affirmative response from the Department or Agency to the pre-assessment
request lodged by the person. For the purposes of this Part, a person is taken
to have received an affirmative response to a pre-assessment request only if the
Secretary or an officer of the Agency gives the person a dated written response
containing advice to the effect that Part 3.14B would apply to the person, or to
the person’s partner, in the event that the proposed transfer of the farm
were to take place.
New subsection 1185Q(5)
provides that the Department or Agency is taken to have responded to the
pre-assessment request on the date specified in the notice as the date on which
the notice was issued.
Section
1185R
New subsection 1185R(1) provides
that, subject to subsection (3), Part 3.14B applies to a person
if:
(a) at any time after the RASF commencement
day but before the applicable cut-off date, the person, being a qualifying
sugarcane farmer (see subsections 17B(3) and (4) above), transfers by way of
gift to one, or more than one, eligible descendant (either solely or jointly to
the eligible descendant and his or her
partner):
(i) his/her eligible interest (see
subsections 17B(5) and (6) above) in the sugarcane farm or farms in which he/she
had such an interest; and
(ii) all the eligible
interests that he/she had in relevant sugarcane farm assets;
and
(b) the person, or (if a member of a
couple), the person or his/her partner has reached pension age or will reach
pension age before the RASF closing day;
and
(c) the total net value (see section 1185S) of
the sugarcane farm or farms and the relevant sugarcane farm assets, in which the
person has eligible interests does not exceed $500,000;
and
(d) during the 3 years prior to the transfer,
the eligible descendant (or each of the eligible descendants) either had been
actively involved (see subsection 1185R(4) below) with any of the farms or,
in the opinion of the Secretary, would have been so involved but for exceptional
circumstances beyond his/her control; and
(e) if
the person is a member of a couple, the person's partner does not have an
eligible interest in any sugarcane farm or relevant sugarcane farm asset;
and
(f) the person satisfies the sugarcane
farmers’ income test (see section 1185Y
below).
New subsection 1185R(2) deals with the
circumstances in which Part 3.14B applies to a person who is an eligible former
partner of a qualifying sugarcane farmer (see subsection 17B(2) above).
The conditions that are required to be satisfied under subsection (2) correspond
with those specified in subsection (1) (although, for subsection (2), it
must be the eligible former partner that must have reached pension age or will
reach that age before the RASF closing
day).
New subsection 1185R(3) provides that
Part 3.14B does not apply if, immediately before the transfer, the eligible
descendant had an eligible interest (acquired after 29 April 2004) in
the sugarcane farms or assets and any part of the consideration given for that
interest was the wages forgone by the eligible descendant while an employee on
any of the farms. The purpose of this provision is to prevent, after the
commencement of Part 3.14B, the use of policy provisions relating to forgone
wages as well as the RAFS provisions.
Where a
trust is a concessional primary production trust in relation to a person, the
person may have the power to appoint the trustee in certain circumstances or the
power to veto or direct the decisions of the trustee in relation to certain
matters. However, where a trust is a concessional primary production trust in
relation to a person, the effect of Part 3.18 of the Social Security Act is that
the person cannot be an attributable stakeholder of that trust and the person
cannot be attributed a percentage of the assets of the trust. This measure has
both welfare and adjustment objectives and that latter objective might be
undermined if the transferor retained powers that restricted the options that
might otherwise be considered by the transferee. Accordingly, subsection
1185R(4) provides that Part 3.14B does not apply to a person if, immediately
after the transfer, the relevant eligible interest is held by a trust that is a
concessional primary production trust in relation to the
transferor.
New subsection 1185R(5) deals with
the issue of whether a person has been ‘actively involved with a
sugarcane farm’. This is relevant to the question of whether an
eligible descendant is able to demonstrate sufficient involvement with the farm
for the purposes of paragraphs 1185R(1)(d) and (2)(d). A person is taken to
have been actively involved with a sugarcane farm during a particular period if,
during the period, the person:
(a) contributed
a significant part of his/her labour to the development of the farm;
or
(b) has undertaken studies or training that,
in the opinion of the Secretary, is relevant to the development or management of
the farm.
Paragraph (b) recognises the fact
that members of the younger generation may undertake courses such as
agricultural degrees or management courses specifically with the intention of
gaining skills relevant to increasing the viability of sugarcane farm
enterprises.
Section
1185S
In order for Part 3.14B to apply to a
person, the ‘total net value’ of the sugarcane farm or farms
as well as the relevant sugarcane farm assets cannot exceed $500,000 (see
paragraphs 1185R(1)(c) and (2)(c) above). It is not the total net value of the
person’s eligible interest that is relevant in this context but rather the
total net value of the farm (or farms) and relevant assets. Subsection 1185S(1)
provides the following formula for working out the total net
value:
Market value of sugarcane farm assets
less Sugarcane farm debts
The term
‘market value of sugarcane farm assets’ means the total of
the market values of the sugarcane farm (or farms) and relevant assets
immediately before the transfer of the eligible interests. The term
‘sugarcane farm debts‘ means the total of any amounts that
had been borrowed for the purposes of undertaking a sugarcane farm enterprise
and which had not been repaid prior to the
transfer.
The Note at the end of subsection
1185S(1) makes it clear that the total net value is not affected by the number
of persons who have interests in the sugarcane farm (or farms) and relevant
sugarcane farm assets.
Subsection 1185S(2)
provides that subsection (1) has effect subject to subsections (3), (4) and
(5).
Subsection 1185S(3) provides that, if
immediately before the transfer, the transferee had an eligible interest in the
sugarcane farm or sugarcane farm assets, the total net value of the sugarcane
farm or relevant sugarcane farm assets is the amount worked out pursuant to the
formula in subsection (1) less the value of the transferee's eligible interest
at that time.
Subsection 1185S(4) deals with
situations where, at some time after 29 April 2004, the transferor
entered into a transaction or transactions the effect of which was that the
total net value of the farm, farms or relevant farm assets immediately before
the transfer is less than it would have been if the person had not entered into
the transaction or transactions. In those situations, the effect of subsection
(4) when determining the total net value is basically that those transactions
are treated as though they had not
occurred.
New subsection 1185S(5) deals with
the situation where a person, on transferring his/her eligible interest in a
sugarcane farm, retains a life interest or a freehold title or a leasehold
interest in the dwelling house and adjacent land that constitutes the person's
principal home. In those circumstances, the person is taken to have transferred
the whole of his/her eligible interest and, in assessing the market value of the
farm for the purposes of subsection (1), the value of the dwelling house
and the adjacent private land that has been retained is disregarded. This
subsection effectively extends the concession available to all recipients of
social security payments whereby the value of the principal home is disregarded
in determining the value of the person's assets.
Section
1185T
The effect of new paragraph
1185T(1)(a) is that, where new Part 3.14B applies to a person because of
subsection 1185R(1), the transfer of an eligible interest is not taken to be a
disposal of assets within the meaning of section 1123. New
paragraph 1185T(1)(b) provides that, if the person's partner has also
transferred by way of gift any eligible interest to an eligible descendant of
the person, that transfer is not taken to be a disposal of assets within the
meaning of section 1123.
New subsection
1185T(1) is subject to the provisos contained in new subsections 1185T(4)
and (6). The broad effect of subsection 1185T(4) is that if when the transfer
was completed (being a transfer in relation to which the applicable cut-off day
was the RASF closing day) neither the person nor his/her partner had reached
pension age, then new subsection 1185T(1) only applies after one of them reaches
that age (which, pursuant to paragraph 1185R(1)(b), must occur no later
than the RASF closing day). This reflects the policy intention of encouraging
pension age farmers to retire from the
industry.
New subsections 1185T(2) and (5) deal
with the situation of transfers by eligible former partners of qualifying
sugarcane farmers. Their combined effect corresponds with the effect of
subsection 1185T(1) and (4) except that it is only transfers by the eligible
former partners themselves that is not taken to be a disposal of assets and it
is only the age of the eligible former partner that is
relevant.
Subsection 1185T(3) makes it clear
subsections (1) and (2) apply despite sections 1208L and 1208M. The effect
of those latter provisions is that a disposal of assets is taken to have
occurred in the specified circumstances. As the intention of this measure is
for that outcome to be avoided where the relevant asset is a sugarcane farm
enterprise (and other conditions are met), subsection (3) ensures that, where
applicable, the provisions of Part 3.14B prevail over sections 1208L and
1208M.
Subsection 1185T(6) deals with the
interaction of the Pension Bonus scheme and the new measure. Its effect is
that, in working out the rate of pension that will be used to calculate the
amount of bonus payable, subsections 1185T(1) and (2) are to be disregarded
(ie a transfer that satisfies the provisions of Part 3.14B is still
regarded as a disposal of an asset for the purposes of calculating the pension
bonus).
The combined effect of sections 1185U to 1185X is as
follows.
Where a person (or a person's partner)
to whom this Part applies is:
• of
pension age; and
• receiving a social
security payment; and
• the value of the
transferred eligible interests has been included in the value of the person's
assets, or the partner's assets, when calculating the rate of the person's
social security payment;
then the person may
request that the value of the transferred interest be disregarded under this
Part; and that the social security payment be paid at the applicable increased
rate.
If the person wants the social security
payment to be paid at the increased rate the person must make a request to that
effect and that request must be in writing and in accordance with a form
approved by the Secretary.
New subsection
1185X(1) provides that where a person makes a request and the Secretary is
satisfied that the rate of payment is less than the increased rate referred to
in section 1185V, then the Secretary is to determine that the request for the
increased rate is to be granted.
New subsection
1185X(2) details how to calculate the date that the determination takes effect.
If the person makes the request during the period of 13 weeks that starts on the
day on which the transfer was completed, the determination takes effect on the
day on which the transfer was completed. In all other cases, the determination
takes effect on the day on which the request was made.
Section 1185Y
To be eligible, the farmer's total income from
all sources over the previous 3 financial years must have been less than
the applicable pension rate (ie single/married rate). This calculation takes
into account the following
factors:
• income is based on the 3
preceding financial years and is averaged over that period. For members of a
couple, the income of both partners is
calculated;
• farm income is assessed
separately from non-farm income. Assessment of farm income involves deducting
the cost of running the business from the gross income. The calculation of farm
income is different from the approach used in calculating non-farm income in
that, when calculating farm income, off-setting profit and losses is capable of
producing a negative balance in respect of any given financial
year;
• farm income and non-farm income,
having been separately calculated, are added together. If the farm income
produces a negative result, this can be used to off-set any non-farm income at
this point;
• certain payments are not
treated as income for the purposes of the farmers’ income test, for
example, income support payments paid under the Social Security Act or the
Veterans’ Entitlements Act and payments under the Farm Household
Support Act 1992;
• if a person was a
member of a couple at any time during the 3 year period, the applicable pension
rate is an amount equal to twice the maximum basic rate for a partnered
person;
• income will be measured according
to the definitions currently contained in the Social Security Act, except for
the provisions that deem income on financial assets. In the case of any income
from financial assets, the actual income from those assets will be assessed for
the purposes of determining a farmer's eligibility for this
scheme.
The Table appearing in new subsection
1185Y(1) sets out the steps to be followed in working out whether the farmers'
income test is satisfied.
Step 1 - Use
subsection (2) to work out the amount of the person's ordinary income (other
than income from farming) for each of the preceding 3 financial years prior to
the applicable completion day. If the person was a member of a couple on the
applicable completion day, work out the amount of the partner's ordinary income
(other than income from farming) for each of the 3 years. The total of the
amounts obtained is called the person's total non-farm
income.
Step 2 - Use subsection (3) to work out
the person's ordinary income from farming for each of the 3 years. If the
person was a member of a couple on the applicable completion day, work out the
amount of the partner's ordinary income from farming for each of the 3 years.
Add all positive amounts for both the person and the person's partner and deduct
from that total the amounts of any negative income. The result may be either
positive or negative and is called the ‘total farm
income’.
Step 3 - Work out the
person's total income for the 3 years by, if the total farm income is a positive
amount, adding that amount to the amount of the farmer's total non-farm income
or, if the person's total farm income is a negative amount, by deducting that
amount from the amount of the person's total non-farm
income.
Step 4 - Use subsection (4) to work out
the maximum basic rate of age pension applicable to the person. Multiply this
rate by 3. The result is the person's ‘maximum basic
entitlement’.
Step 5 - If the
person's total income for the 3 years is less than the person's maximum basic
entitlement, the person satisfies the farmers’ income test. If it equals
or exceeds the person's maximum basic entitlement, the person does not satisfy
the test.
New subsection 1185Y(2) provides
that, in working out a person's ordinary income from all sources other than
farming, the provisions of Part 3.10 (other than Division 1B which deals
with deemed income from financial assets - see Items 7 to 9 above) apply
to the person as if any reference in Division 1A to a tax year was instead a
reference to that financial year. Any return on a financial asset that has been
received by the person during the financial year is taken to be the ordinary
income of the person (see Item 10
above).
New subsection 1185Y(3) deals with
calculating the person's ordinary income from farming and states that the
following provisions have effect:
(a) the
provisions of Part 3.10 (other than Division 1B which deals with deemed income
from financial assets - see Items 7 to 9 above). Any reference in
subsection 1074(1) to a tax year is taken as referring to that financial year.
Subsection 1074(2) (which deals with business losses) and section 1075 (which
deals with permissible reductions of business income) are treated as if they
were omitted;
(b) actual returns on financial
assets received in a financial year that relate to a farm or relevant farm
assets are treated as ordinary income of the person from
farming;
(c) if, at the end of the financial
year, the value of all trading stock on hand that relates to a farm is less than
the value of all such trading stock on hand at the beginning of that financial
year - the amount of the difference is to be deducted from the person's ordinary
income from farming for that financial year that is income in the form of
profits;
(d) there is also to be deducted from
the person's ordinary income from
farming:
(i) losses and outgoings that relate
to a business of primary production and are allowable deductions under section
8-1 of the Income Tax Assessment Act 1997;
and
(ii) depreciation for the cost of
depreciating assets that are used in a business of primary production and are
allowable deductions under Subdivisions 40-A to 40-E (inclusive) or Division 328
of the Income Tax Assessment Act 1997;
and
(iii) contributions that are allowable
deductions under sections 82AAC, 82AAD, 82AADA and 82AAF of the Income
Tax Assessment Act 1936;
(e) if a negative
result is obtained after applying paragraphs (c) and (d) – the person's
ordinary income from farming for the financial year is a negative
income;
(f) if paragraph (e) does not apply
– the person's ordinary income from farming for the financial year is a
positive income.
New subsection 1185Y(4) deals
with the method of calculating a person's maximum basic rate for age pension.
According to paragraph 1185Y(4)(a), if a person was a member of a couple at any
time during the 3 years immediately preceding the applicable completion day (see
definitions below), the maximum basic rate of age pension applicable to the
person is an amount equal to twice the sum
of:
(i) the amount that was, on the applicable
completion day, the maximum basic rate for a partnered person under
Module B of Pension Rate Calculator A in section 1064;
and
(ii) the amount that was, on the applicable
completion day, the person’s pension
supplement.
Paragraph (b) provides that, where
paragraph (a) is not applicable, the maximum basic rate of age pension
applicable to the person is an amount equal to the sum of the amount that was,
on the applicable completion day, the maximum basic rate for a person who is not
a member of a couple and the amount that was the person’s pension
supplement on that day.
Subsection (5) contains
definitions relevant to the sugarcane farmers’ income
test.
The ‘applicable completion
day’ means the earlier
of:
• the day on which the transfer was
completed; and
• the RASF closing
day.
The term ‘income’ has
its usual meaning under the social security law except that payments under the
Veterans’ Entitlements Act and the Farm Household Support Act 1992
are not treated as income for the purposes of sugarcane farmers’ income
test.
The term ‘ordinary income from
farming’ is also defined. It means the ordinary income of the person
arising from any farm, farms or relevant farm assets in which the
person has an interest. That is, for the purposes of the sugarcane
farmers’ income test, it is not just the income from sugarcane farming
that is treated as income from farming.
Social Security (Administration) Act
1999
Schedule 2 to the Social Security
Administration Act is concerned with rules for working out what a person’s
‘start date’ is in relation to a claim for social security payment.
Part 3 of Schedule 2 sets out certain specific situations in which a
person’s start date can be backdated. Item 1 adds new section 14A
into Part 3 of Schedule 2. It is concerned with situations where a person (or
their partner) has reached pension age; Part 3.14B applies to the person (or the
person’s partner); and the person makes a claim for a social security
payment within 13 weeks following the transfer of the sugarcane farm or relevant
sugarcane farm assets. In those situations, the person’s start date is
the later of either:
• the day on which
the transfer was completed; or
• the day on
which the person becomes qualified for the social security
payment.
Schedule 3 – Amendment to the Veterans’ Entitlements Act 1986
This Schedule amends the Veterans’ Entitlements
Act to provide for a 3 year window of opportunity during which the
intergenerational transfer of sugarcane farms (by persons of retirement age)
will be exempt from the usual ‘gifting rules’. These amendments
largely duplicate the Schedule 1 amendments to the Social Security
Act.
Many sugarcane industry stakeholders have emphasised
the need to ensure that sugarcane farms can more readily be handed from one
generation to the next. Accordingly, the Government will make changes to the
social security law and the Veterans’ Entitlements Act which will
facilitate intergenerational transfer in the sugarcane industry. Such a scheme
has the potential to support sugarcane growers dealing with challenge and change
while, at the same time, increasing the involvement of young people in setting
the future directions of the sugar
industry.
Under the Veterans’
Entitlements Act, there are limits to the assets a person can hold without those
assets affecting their entitlement to service pension or income support
supplement and may preclude a person from payments altogether. Further, a
person who gives away an asset is treated, for a 5 year period, as if the
person still owned the asset when assessing entitlement to a service pension or
income support supplement. The operation of these provisions can make it
difficult for farmers endeavouring to retire and access veterans’
entitlements payments as well as presenting an impediment to the
intergenerational transfer of the family
farm.
The amendments will provide a 3 year
window during which qualified sugarcane farmers (and their partners) will be
able to transfer their farm to eligible descendants (ie children and
grandchildren who have had an active involvement in farming for at least 3 years
prior to the transfer) without the usual gifting rules applying in respect of
that transfer.
Key features of the scheme
include:
• the net value of the farm
enterprise must not exceed $500,000;
• the
sugarcane grower (or partner, where applicable) must either be retirement age or
will reach that age in the 3 year
window;
• the sugarcane growers’ (and
partners’ where applicable) income from all sources over the previous
three financial years must be less than the applicable maximum annual rate of
pension for that same period;
• the transfer
must be by way of gift and must divest the sugarcane grower (and partner where
applicable) of all interests in sugarcane farming (excluding the family
home);
• during the 3 years prior to the
transfer, the eligible descendant must have been actively involved in the
sugarcane farm enterprise;
• the retiring
farmer must have owned the property for at least 15 years or been actively
involved in farming for at least 20 years and acquired an eligible interest
in a sugarcane farm before 29 April
2004;
• the scheme will apply only to
transfers occurring after the passage of the
legislation;
• where the requirements of the
scheme are met, the usual gifting rules will not apply to the transfer of the
sugarcane farm enterprise and relevant sugarcane farm assets (although the usual
rules will apply in respect of all other assets and income).
Explanation of changes
The amendments to the Veterans’ Entitlements Act
contained in Schedule 3, largely duplicate the amendments to the social security
law contained in Schedules 1 and 2.
Item
1 inserts the new terms used in the new Division, in alphabetical order,
into the index of definitions in section 5 of the Veterans’ Entitlements
Act.
Item 2 inserts new subsection
5MA(2B). Under the scheme, where a farm is transferred in accordance with the
new provisions, it will be possible for the farmer to retain a life interest in
the principal home on the farm. The effect of the new subsection is to make
that life interest immune from the application of the provisions relating to
"granny flat" interests.
Item 3 inserts
new section 5PAA which sets out certain definitions relevant to the operation of
the scheme. Various terms that were relevant for the purposes of the previous
Retirement Assistance for Farmers scheme (see Division 8 of Part IIIB of the
Veterans’ Entitlements Act) are also relied upon for the purposes of this
scheme (for example, the term ‘eligible
descendant’).
The terms and the
associated definitions in new section 5PAA duplicate those contained in Item 3
of Schedule 1 for new section 17B of the Social Security Act, except for minor
nomenclative differences. For example, under the Veterans’ Entitlements
Act , guidelines and determinations referred to in the definition of
sugarcane farm enterprise are made by the Repatriation Commission,
instead of the Secretary as is the case under the Social Security
Act.
Item 4 adds a Note to
subsection 46B(2) (which relates to business income). The amendment has
the equivalent effect of Item 5 of Schedule
1.
Item 5 adds a Note concerning the
concept of the sugarcane farmers' income test to subsection 46C(1) which
relates to permissible reductions for business income. The amendment has the
equivalent effect of Item 6 of Schedule
1.
Item 6 adds a Note concerning the
concept of the sugarcane farmers' income test to subsection 46D(1) which
relates to deemed income from financial assets for single persons. The
amendment has the equivalent effect of Item 7 of Schedule
1.
Item 7 adds a Note concerning the
concept of the sugarcane farmers' income test to subsection 46E(1) which
relates to deemed income from financial assets for members of a couple. The
amendment has the equivalent effect of Item 8 of Schedule
1.
Item 8 adds a Note concerning the
concept of the sugarcane farmers' income test to subsection 46K(1) which
relates to the actual returns on financial assets. The amendment has the
equivalent effect of Item 10 of Schedule
1.
Item 9 inserts new Division 8A into
the Veterans’ Entitlements Act. Under the Veterans’ Entitlements
Act, the new Division is relevant to claims for, or requests for increase in,
service pension or income support supplement.
Section 49L sets out the purpose of Division
8A. The section is the Veterans’ Entitlements Act equivalent of section
1185M of Schedule 1.
Section 49M is the
Veterans’ Entitlements Act equivalent of section 1185N of Schedule 1
concerned with the concepts of the ‘RASF commencement day’
and the ‘RASF closing
day’.
Section 49N is the
Veterans’ Entitlements Act equivalent of section 1185P of Schedule 1
concerned with the concept of the ‘applicable cut-off
day’.
Section 49P is the
Veterans’ Entitlements Act equivalent of section 1185Q of Schedule 1 which
provides a definition of a pre-assessment
request.
Section 49Q is the
Veterans’ Entitlements Act equivalent of section 1185R of Schedule 1 and
provides for the circumstances under which new Division 8A applies to a transfer
of a sugarcane farm. Under the Veterans’ Entitlements Act a person must
be “retirement age”, rather than “pension age” as
applies under the Social Security Act. “Retirement age” is defined
in subsection 5Q(1) of the Veterans’ Entitlements
Act.
Section 49R is the Veterans’
Entitlements Act equivalent of section 1185S of Schedule 1.
Section 49S is the Veterans’ Entitlements
Act equivalent of section 1185T of Schedule 1.
Section 49T is the Veterans’ Entitlements Act
equivalent of section 14A of Schedule 2 and provides the provisional
commencement date in relation to a claim for service pension or income support
supplement.
Section 49T provides that,
where:
• a person, or the person’s
partner, has reached retirement age;
and
• Division 8A applies to the person, or
the person’s partner; and
• the person
makes a claim for service pension or income support supplement within 13 weeks
following the transfer of the sugarcane farm or relevant sugarcane farm
assets;
the person’s provisional
commencement day is the later of
either:
• the day on which the transfer
was completed; or
• the day on which the
person becomes qualified for the service pension or income support
supplement.
By default,
where:
• a person, or the person’s
partner, has reached retirement age;
and
• Division 8A applies to the person, or
the person’s partner; and
• the person
makes a claim for service pension or income support supplement more than 13
weeks after the transfer of the sugarcane farm or relevant sugarcane
farm assets;
the usual commencement day
provisions apply, as per subsections 36B, 37B, 38B and 45C of the
Veterans’ Entitlements Act. Thus, the person’s commencement day is
the day on which the person claimed, or is taken to have claimed, the pension or
supplement.
Subdivision D – Requests
for increase in rate of service pension or income support
supplement
Sections 49U to 49X are
the Veterans’ Entitlements Act equivalent of sections 1185U to 1185X of
Schedule 1. Under the Veterans’ Entitlements Act a person, or a
person’s partner, must be of “retirement age”, rather than
“pension age” as applies under the Social Security Act.
“Retirement age” is defined in subsection 5Q(1) of the
Veterans’ Entitlements Act.
Under the
Veterans’ Entitlements Act, the Repatriation Commission, rather than the
Secretary, performs the functions required by the provisions, such as
determining that a request for an increase is to be granted under
subsection 49X(1).
Section 49Y is the Veterans’ Entitlements
Act equivalent of section 1185Y of Schedule
1.
Item 10 adds a Note to subsection
52E(1) which is concerned with conduct constituting a disposal of assets. The
amendment has the equivalent effect of Item 11 of Schedule 1.