Editors --- "Exceptional circumstances relief payment: whether income from sale of wine was income from a farm enterprise" [2010] SocSecRpr 22; (2010) 12(2) Social Security Reporter, Article 8

• ZSIGMOND and SECRETARY TO THE DFHCSIA
• Background
• The issue
• Whether Zsigmond was a farmer
• Whether Zsigmond contributed a significant part of his labour and capital to the enterprise
• Whether Zsigmond derived a significant part of his income from the farm enterprise
• Formal decision

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Exceptional circumstances relief payment: whether income from sale of wine was income from a farm enterprise

ZSIGMOND and SECRETARY TO THE DFHCSIA

(2010/199)

Decided: 24th March 2010 by R. Perton

Background

Zsigmond lived and worked on a farming property in regional Victoria, producing wine and selling wine by mail order. The estate wine was produced externally to the property, and sales of wines, verjuice, sauces, chutneys and the like took place from an outlet on the property. Zsigmond, his wife and son were beneficiaries of a family trust, which operated the farm enterprise.

In March 2007 Zsigmond applied for and was granted an exceptional circumstances relief payment. On 17 February 2009 Centrelink determined that Zsigmond was no longer eligible and cancelled his payments. Zsigmond then appealed this decision unsuccessfully through internal Centrelink review and the SSAT, before appealing to the AAT.

The issue

The AAT considered whether Zsigmond was qualified for exceptional relief payment under s.8A of the Farm Household Support Act 1992 (the Act). The issues before the AAT included whether Zsigmond had a farm enterprise, whether he was a farmer, whether he contributed a significant part of his labour and capital to the farm enterprise, and whether he derived a significant part of his income from the farm enterprise. The main issue before the AAT was this latter issue of whether Zsigmond derived a significant part of his income from the farm enterprise, and in particular whether income from sale of wine could be classified as income from a farm enterprise.

Whether Zsigmond was a farmer

The AAT accepted that Zsigmond’s use of the land in growing grapes, keeping sheep and planting ironbark and other trees met the definition of a farm enterprise, and that, as a person with a right or interest in the land, Zsigmond met the definition of ‘farmer’ within the meaning of s.8A(1)(b)(i)(A) of the Act.

Whether Zsigmond contributed a significant part of his labour and capital to the enterprise

The AAT also accepted that Zsigmond met the criteria in s.8A(1)(b)(B) of the Act in that he contributed a significant part of his labour and capital to the enterprise. His evidence was that he devoted substantial time to working the farm including planting both vineyards and ironbark and other trees, and tending to sheep.

Whether Zsigmond derived a significant part of his income from the farm enterprise

The AAT found that Zsigmond as an individual tax payer drew no income from the farm enterprise, as his tax returns for the 2007 and 2008 financial years failed to show any income from the family trust which operated the farm enterprise, and instead showed income from other sources, such as a superannuation pension, bank interest, share dividends, and the exceptional circumstances relief payment. The AAT however also considered Zsigmond’s interest as an attributable stakeholder in the trust under s.1207X of the Act. The trust’s majority income for 2007 and 2008 arose out of the sale of wine and other activities of the outlet.

The AAT then examined whether income from sales of wine can be classified as income from a farm enterprise. The AAT examined whether the departmental guideline (e-ref

002.30650) that a ‘vineyard where all or most income is derived from the sale of wine is not included in the definition of a farm enterprise’ was inconsistent with the statute. The guideline drew the distinction between raw products or animals being sold as distinct from products that had been manufactured with input from farm produce.

The AAT also examined the difference in the definition of ‘farm enterprise’ in

s.3 of the Act as ‘an enterprise carried on within any of the agricultural, horticultural, pastoral, apicultural or aquacultural industries’, and the definition of primary production business in s.995-1 of the Income Tax Assessment Act 1997.

The AAT found that the departmental guideline was not inconsistent with the legislation, and found that the income generated by the trust’s outlet on the property was not income earned from a farm enterprise. In making this decision the AAT placed weight on the trust’s tax returns for 2007 and 2008 which showed that the majority of gross income arose out of the sales of wine and activities of the outlet, and which stated that all the trust’s income arose out of ‘non-primary production’.

The AAT accepted that ‘significant’ does not mean the majority of income, but examined the income from sales of sheep being $940 with livestock expenses of $477, against the business net income of around $4846 and found that this would be insufficient to be called ‘significant’.

The AAT considered a submission that the provisions in s.8A of the Act be applied to Zsigmond as a small business whose income was reduced due to the effect of exceptional circumstances on farm enterprises or those who work in that realm. The AAT found that in addition to reduced income, there was a requirement that the farmer must be experiencing difficulty in meeting living expenses. The AAT commented that there was no evidence of this for its consideration.

Formal decision

The AAT affirmed the decision under review to cancel Zsigmond’s exceptional circumstances relief payments from 17 February 2009.

[K.W.]