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13257 Cat. No. 97 2724 8 ISBN 0644
518014
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
SOCIAL SECURITY AND VETERANS' AFFAIRS LEGISLATION AMENDMENT (RETIREMENT ASSISTANCE FOR FARMERS) BILL 1998
EXPLANATORY MEMORANDUM
(Circulated by authority of Senator the Hon Jocelyn Newman, Minister for Social Security)
SOCIAL SECURITY AND VETERANS' AFFAIRS LEGISLATION AMENDMENT (RETIREMENT ASSISTANCE FOR FARMERS) BILL 1998
OUTLINE AND FINANCIAL IMPACT STATEMENT
This Bill gives effect to one of the key measures of the Integrated
Rural Policy Package (titled "Agriculture - Advancing Australia") which was
announced by the Prime Minister in September 1997.
The legislation
involved is the Social Security Act 1991 and the Veterans'
Entitlements Act 1986.
Schedule 1 - Amendment of the Social Security Act 1991
Schedule 1 introduces a three year "window of opportunity", ending
on 15 September 2000, during which age pension age farmers and their
partners will be able to transfer their farm and farm assets, up to a maximum of
$500,000, to the next generation without affecting their access to the age
pension. Similarly, a non-pension age partner may qualify for one of a number
of other social security payments (such as Partner Allowance) without having the
value of the transferred interest affect access to that payment.
To be
eligible, farmers will have to:
· show a long term involvement on
the farm (or in farming);
· have an average income of less than the
applicable age pension rate over the 3 years prior to the transfer (from
both farm and non-farm activities);
· be of age pension age or will
reach that age before 15 September 2000. For farmers who are members of a
couple, at least one member of the couple must either be of age pension age or
will reach that age before 15 September 2000.
The person of the younger
generation, to whom the farm and assets are transferred, will need to show
he/she had been actively involved with the farm during the last 3 years
before the transfer.
Farmers will need to meet all other age pension
eligibility criteria in order to qualify for payment of that pension.
The
Retirement Assistance for Farmers Scheme (RAFS) is part of the "Agriculture -
Advancing Australia" package which is a key element of the current Government's
overall strategy to build the competitiveness, sustainability and profitability
of the rural sector. It will meet both welfare and adjustment objectives by
assisting farmers to transfer the family farm to the younger generation and to
retire from farming with dignity. The current gifting provisions mean that
people may be excluded from receiving a social security pension or allowance, or
have their rate of payment reduced, for a period of five years, if they give
away assets of more than $10,000 per year. Without adequate succession
planning, some farm families face difficulties because farm businesses capable
of supporting only one family are required to provide a living for two or more
families. Through the introduction of RAFS, the Government has acted on the
Special Rural Task Force's recommendation of a moratorium on the gifting
provisions. This measure will remove a significant impediment to the
inter-generational transfer of the family farm.
Date of effect: 15
September 1997
Financial impact: 1997 - 98 $10.227m
(costs)
(net outlays) 1998 - 99 $ 7.9m (costs)
1999 - 00 $11.119m
(costs)
2000 - 01 $10.906m (costs)
Schedule 2 - Amendment of the Veterans' Entitlements Act 1986
Schedule 2 amends the Veterans'
Entitlements Act 1986 by inserting provisions for the Retirement
Assistance for Farmers Scheme. These amendments largely mirror the Schedule
1 amendments to the Social Security Act 1991 as the Scheme
applies equally to both the veteran community and the general community. These
provisions provide veterans and their partners with a "window of opportunity"
for an inter-generational transfer of the farm and farm assets without that
transfer affecting their eligibility for a Veterans' Affairs income support
payment.
Date of effect: 15 September
1997
Financial impact: 1997 - 98 $1.546m
(costs)
(net outlays) 1998 - 99 $1.232m (costs)
1999 - 00 $1.736m
(costs)
2000 - 01 $1.726m (costs)
PRELIMINARY
Clause 1 of the Social Security and Veterans' Affairs Legislation
Amendment (Retirement Assistance for Farmers) Bill 1998 sets out how the
amending Act is to be cited.
Clause 2 specifies that the Act is
taken to have commenced on 15 September 1997.
Clause 3 provides
that each Act that is specified in a Schedule to the Social Security and
Veterans' Affairs Legislation Amendment (Retirement Assistance for Farmers) Bill
1998 is amended or repealed in accordance with the applicable items in those
Schedules.
Schedule 1 - Amendment of the Social Security Act 1991
1. Summary of proposed changes
Amendments made by this Schedule introduce, from 15 September 1997, a
three year "window of opportunity" during which age pension age farmers will be
able to transfer their farm and farm assets (where the net value of the farm and
farm assets does not exceed $500,000) to the younger generation without the
value of the transferred interest and assets affecting the farmer's entitlement,
or his/her partner's entitlement, to social security payments. The scheme is
also open to farmers who transferred farms in the 5 years preceding September
1997. This measure will remove a significant impediment to the
inter-generational transfer of the family farm.
2. Background
Under the Social Security Act 1991 (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 even preclude a person from payment altogether. These provisions, combined
with the current gifting provisions, have presented a major difficulty for
farmers endeavouring to retire and access social security payments as well as
presenting a significant impediment to the inter-generational transfer of the
family farm. Some farm families live in hardship because farm businesses
capable of supporting only one family are required to provide a living for two
or more families.
In recognition of these difficulties, the Special Rural
Task Force recommended that a short term moratorium on the gifting provisions be
introduced to allow farmers of pension age to transfer the family farm without
that transfer of assets affecting entitlement to age pension. Through the
introduction of the Retirement Assistance for Farmers scheme (RAFS), the
Government has acted on that recommendation.
3. Clause and schedule involved in the changes
Clause 2: provides that the amendments made by Schedule 1
are taken to have commenced on 15 September 1997.
Schedule 1 - Amendment of the Social Security Act 1991
Item 1: amends section 3 (index).
Items 2 and
3: amend subsections 9(1) (investment income definitions) and inserts new
subsection 9(4).
Item 4: inserts a new subsection
12A(2A).
Item 5: inserts a new section 17A.
Item
6: substitutes a new definition of 'pension age' in subsection
23(1).
Item 7: adds a note at the end of subsection
1074(2).
Item 8: adds a note at the end of subsection
1075(1).
Item 9: adds a note at the end of subsection
1076(1).
Item 10: adds a note at the end of subsection
1077(1).
Item 11: adds a note at the end of subsection
1078(1).
Item 12: adds a note at the end of subsection
1083(1).
Item 13: adds a note at the end of subsection
1123(1).
Items 14: inserts new Part 3.14A - Retirement assistance
for farmers - which deals with the transfer of farms and relevant farm assets to
family members of a younger generation. It provides that, if the conditions of
the Part are met, the value of any such interests transferred by a farmer or
his/her partner (or former partner) will be disregarded in
determining:
(a) whether a social security payment is payable;
or
(b) at what rate a social security payment is payable.
4. Explanation of the changes
This Schedule introduces a scheme under which farmers (or, where
applicable, their partners) will be able to transfer their farm and farm assets
to family members of the younger generation and that transfer will not be
regarded as a disposition of assets for the purposes of assessing whether a
social security payment is payable to the farmer (or his/her partner where
applicable) and will be also disregarded in calculating the rate at which any
such payment is payable.
Item 1 inserts new terms, defined in this
Schedule, into the index in section 3.
Items 2 and 3 insert a new
definition of the term "deprived asset". For the purposes of the Social
Security Act, an asset is a deprived asset if a person has disposed of the asset
and the value of the asset is included in the value of the person's assets by
section 1124A, 1125, 1125A or 1126.
Item 4 inserts new
subsection 12A(2A). 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 5 inserts new section
17A which deals with the definitions of new terms relevant to the operation of
the new scheme.
A major purpose of the scheme is to facilitate
inter-generational transfers of farm property. This objective is recognised by
the requirement that the farms and farm assets be transferred to eligible
descendants. "Eligible descendant" is defined in subsection 17A(1).
Paragraphs 17A(1)(a) and (b) state that an eligible descendant is a child, step
child or adopted child, or a descendant in direct line of such a child. As
family relations and structures may take many forms, paragraph 17A(1)(c) confers
on the Secretary the discretion to treat any other person as an eligible
descendant. This power could be exercised, for example, to allow a nephew or
niece of a person who has no children to be treated as an eligible
descendant.
The term "eligible former partner of a qualifying
farmer" is defined in subsection 17A(2).
The concept of a
"farm" has been defined as meaning any land used for the purposes of a
farm enterprise or in connection with a farm enterprise. This reflects the
policy objective that persons intending to access the scheme must have divested
all their legal interest in the property and assets associated with the farm
enterprise. A "farm enterprise" is defined as an enterprise carried on
within any of the agricultural, horticultural, pastoral or aquacultural
industries.
"Proprietary company" has the meaning that it has in
the Corporations Law.
The term "qualifying farmer" is defined in
subsections 17A(3) and (4).
The term "qualifying interest" is
defined in subsections 17A(5) and (6).
To be eligible under the scheme,
farmers are required to divest not only the farm land but also all relevant farm
assets. The term "relevant farm asset" is defined as any livestock,
crop, plant or equipment that is a produce of, or is used for the purposes of,
the farm enterprise.
The scheme is to apply to both old system land and
land held under the Torrens system. To achieve this aim, reference is made to
"relevant State land law", which is defined to mean the Real
Property Act 1900 of New South Wales and the equivalent Acts for the
various other States and Territories.
A "transfer" in relation to
a qualifying interest in a farm has the meaning given by subsections (7), (8),
(10) and (11). A transfer in relation to a qualifying interest in a relevant
farm asset has the meaning given by subsections (9) and (11).
According
to subsection 17A(2), a person is an "eligible former partner of a qualifying
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 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 a qualifying interest in a farm or farms in which the other person
had a qualifying interest.
The scheme requires, amongst other things, a
long term association with the farming industry in Australia, either through
long term ownership of farm property or through current ownership (acquired
before 15 September 1997) of farm property combined with long term involvement
in farming. The term "qualifying farmer" is used to describe a person
who can demonstrate that association. Subsection 17A(3) defines a qualifying
farmer as a person who currently has, for at least 15 years continuously, a
qualifying interest in a farm and, during a period of 15 years, the person or
their partner has contributed a significant part of his/her labour and capital
to the development of the farm and has derived a significant part of his/her
income from the farm. Subsection 17A(4) defines a qualifying farmer as a person
who, before 15 September 1997, has acquired a qualifying interest in a
farm/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.
In order to be eligible under the scheme a person must have
a "qualifying interest" in the farm and any relevant farm assets.
Subsection 17A(5) states a person has a qualifying interest in a farm if the
person:
(a) has a legal estate or interest in the farm; or
(b) 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), has an equitable estate or interest
in the farm; or
(d) is a shareholder in a proprietary company that has a
legal estate or interest in the farm.
Subsection 17A(6) states a person
has a "qualifying interest" in a relevant farm asset if the person has a
legal interest in the asset or is a shareholder in a proprietary company that
has a legal estate or interest in the farm asset.
Subsections 17A(7) to
(11) deal with the issue of when will a qualifying interest, that a person has
in a farm or farm asset, be treated as having been "transferred".
Subsection (7) provides that, subject to subsections (8) (10) and (11), the
qualifying interest that a person has in a farm is transferred to another person
only if the qualifying 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 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 according with that
law.
Subsection (9) provides that a qualifying interest that a person has
in a relevant farm asset is transferred to another person only if the qualifying
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 farm, a person has a qualifying interest in the farm,
the person is taken to have transferred that qualifying 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 farm/farms held under old system title which are
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
a qualifying interest in a farm or a relevant 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 qualifying 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.
Item 6
repeals the definition of "pension age" in subsection 23(1) and
substitutes a new definition. According to the new definition, when the term
pension age is used in Part 3.14A in relation to a person who is a veteran
(within the meaning of the Veterans' Entitlement Act 1986
(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.
Item 7 adds a note concerning the concept of the farmers'
income test to subsection 1074(2) which relates to business income. Its
effect is to alert readers of that subsection that different provisions apply
when working out a person's ordinary income from a farm in order to find out
whether a person satisfies the farmers' income test for the purposes of Part
3.14A.
Item 8 adds a note concerning the concept of the farmers'
income test to subsection 1075(1) which relates to permissible reductions
for business income. Its effect is to alert readers of that subsection that
different provisions apply when working out a person's ordinary income from a
farm in order to find out whether a person satisfies the farmers' income test
for the purposes of Part 3.14A.
Item 9 adds a note concerning the
concept of the 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 farmers' income
test.
Item 10 adds a note concerning the concept of the 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 farmers' income test.
Item
11 adds a note concerning the concept of the 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 farmers' income test.
Item 12 adds
a note concerning the concept of the farmers' income test to
subsection 1083(1) which relates to the actual returns on financial assets.
The note advises that, in applying the farmers' income test, actual returns on
financial assets are to be treated as ordinary income.
Item 13
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 RAFS, that
transfer of property is not to be taken as a disposal of assets.
Item
14 inserts new Part 3.14A dealing with certain farm transactions:
New Part 3.14A - Retirement assistance for farmers
New Division 1 - General
New section 1185A - Purpose of Part
New section 1185A states that the purpose of new Part 3.14A is to provide
that, where the conditions of the Part are satisfied, the value of transferred
farms and farm assets will be disregarded in determining:
(a) whether a
social security payment is payable; or
(b) at what rate a social security
payment is payable.
New section 1185B - Part to apply to certain transfers of estates in farms etc
New subsection 1185B(1) provides that, subject to subsection (3), Part
3.14A applies to a person if:
(a) at any time after 14 September 1992 but
before 15 September 2000, the person, being a qualifying farmer (see subsections
17A(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 qualifying interest (see subsections 17A(5)
and (6) above) in the farm or farms in which he/she had such an interest;
and
(ii) all the qualifying interests that he/she had in relevant farm
assets; and
(b) the person, or (if a member of a couple), the person or
his/her partner has reached age pension age or will reach age pension age before
15 September 2000; and
(c) the total value for the purposes of
this section of the farm or farms and the relevant farm assets (see subsection
(4) below), 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 1185B(5) 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 a legal
estate in the farm or farms or a legal interest in any relevant farm asset;
and
(f) the person satisfies the farmers income test (see section 1185K
below).
New subsection 1185B(2) deals with the circumstances in which
Part 3.14A applies to a person who is an eligible former partner of a qualifying
farmer (see subsection 17A(2) above). Subject to subsection (3), the
conditions that are required to be satisfied under subsection (2) correspond
with those specified in subsection (1) above with the sole exception that, for
subsection (2), it must be the eligible former partner that must have reached
age pension age or will reach that age by
15 September 2000.
New subsection 1185B(3) provides that Part
3.14A does not apply if, immediately before the transfer, the eligible
descendant referred to in subsections 1185B(1) and (2) had a qualifying interest
(acquired after 14 September 1997) in the farms or the farm 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 3.14A, the use of policy
provisions relating to forgone wages as well as the RAFS provisions.
New
paragraph 1185B(4)(a) provides that, if paragraph 1185B(4)(b) does not apply,
the "value for the purposes of section 1185B" of the farm or relevant
farm assets is its value when the transfer is completed. Paragraph (b) provides
that, if immediately before the transfer, the transferee had a qualifying
interest in the farm or farm assets, the value for the purposes of section 1185B
of the farm or relevant farm assets is its value when the transfer is completed
less the value of the transferee's qualifying interest.
New subsection
1185B(5) deals with the issue of whether a person has been "actively involved
with the farm". This is relevant to the question of whether an eligible
descendant is able to demonstrate sufficient involvement with the farm. A
person is taken to have been actively involved with a 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
enterprise.
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 farm enterprises.
New section 1185C - How to assess the value of farms etc subject to a transfer
Value of farm affected by previous transaction
Subsection 1185C(1) deals with the situation where a transfer of the kind
referred to in subsections 1185B(1) or (2) is completed after 14 September 1997.
In those circumstances, if, at any time before the transfer but after 14
September 1997, the person making the transfer entered into a transaction as a
result of which the value of the farm or farms prior to the transfer is less
than the value the farms would have had at that time if the transaction had not
occurred (the unreduced value), then, for the purposes of section 1185B, the
value of the farm is taken to be that unreduced value. The new subsection
contains a similar provision about assessing the value of relevant farm
assets.
Life interest retained in principal home on farm
New subsection 1185C(2) deals with the situation where a person, on
transferring his/her qualifying interest in a 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, for the
purposes of section 1185B, the person is taken to have transferred the whole of
his/her qualifying interest and, in assessing the value of the farm, the value
of the dwelling house and the adjacent private land that has been retained is
disregarded. This subsection also 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.
General rule
New subsection 1185C(3) provides that, subject to the other provisions of
section 1185C, the value of a farm and any relevant farm assets is
calculated in accordance with current section 1121A which deals with the effect
of certain liabilities on the value of assets used in primary
production.
New Division 2 - Modification of provisions relating to assets test
New section 1185D - Transfer of estate in farm etc not a disposal of assets
The effect of new paragraph 1185D(1)(a) is that, where new Part 3.14A
applies to a person because of subsection 1185B(1), the transfer of a qualifying
interest is not taken to be a disposal of assets within the meaning of section
1123. New paragraph 1185D(1)(b) provides that, if the person's partner has
also transferred by way of gift any qualifying 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 1185D(1) is subject to
the proviso contained in new subsection 1185D(3). According to 1185D(3),
if, when the transfer referred to in paragraph (a) was completed or (where the
transfer was completed before 15 September 1997) on 15 September 1997,
neither the person nor his/her partner had reached age pension age, then new
subsection 1185D(1) only applies after one of them reaches that age. This
reflects the policy intention of encouraging pension age farmers to retire from
the industry.
New subsections 1185D(2) and (4) deal with the situation of
transfers by eligible former partners of qualifying farmers. Their combined
effect corresponds with the effect of subsection 1185D(1) and (3) 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 1185D(5) deals with the interaction of the
Pension Bonus scheme and the Retirement Assistance for Farmers scheme. Its
effect is that, in working out the rate of pension that will be used to
calculate the amount of bonus payable, subsections 1185D(1) and (2) are to
be disregarded (ie a transfer that satisfies the provisions of RAFS is still
regarded as a disposal of an asset for the purposes of calculating the pension
bonus).
New Division 3 - Claims for social security payment
New section 1185E - Provisional commencement day
New section 1185E deals with the issue of calculating
the provisional commencement day (PCD) in relation to claims for social security
payments where the person seeks to rely on the provisions of Part 3.14A. Under
the scheme, several dates are relevant to the issue of when social security
payments should commence. First, as the scheme is to be taken to have commenced
on 15 September 1997, the PCD cannot be earlier than that date. Second, as the
scheme is intended to encourage farmers of age pension age to retire from the
industry, it is a fundamental part of the scheme that a person cannot rely on
the scheme until the farmer (or his/her partner if a member of a couple) has
reached age pension age and, accordingly, the PCD under the scheme cannot be
prior to the date where either the person or the person's partner has reached
that age. Third, when relying on the scheme, the PCD cannot be a date that is
earlier in time than the date of the actual divestment. Finally, as claimants
will have to satisfy the normal qualification criteria relevant to the payment
type being claimed, the PCD cannot be a date prior to the date on which the
person is qualified for that payment.
The Bill
provides that if a person, or a person's partner, has reached age pension age
and Part 3.14A applies due to a transfer of a qualifying interest by the person,
or the person's partner, and the person makes a claim for a social security
payment, then the person's PCD is calculated according to new section 1185E. If
the transfer was completed before 15 September 1997 and the person makes the
claim before 15 September 1998, the person's PCD is 15 September 1997 or
the day on which the person becomes qualified for the social security payment,
whichever is the latter. If the transfer was completed after 14 September 1997
but before 15 September 1998 and the person makes a claim before 15 September
1998, then the PCD is the day on which the transfer was completed or the day on
which the person becomes qualified for the social security payment, whichever is
the later. Where the transfer is completed after 14 September 1998 but before
15 September 2000 and the person makes the claim during the period of 3 months
that starts on the day on which the transfer was completed, then the PCD is the
day on which the transfer was completed or the day on which the person becomes
qualified for the social security payment, whichever is the later. In all other
cases, the PCD is the day the person makes the claim.
New Division 4 - Requests for increase in rate of social security payment
It is intended that, where a person (or a person's partner) to whom this
Part applies is:
· of age pension age; and
· receiving a
social security payment; and
· the value of the transferred
qualifying 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.
New Section 1185F - Application
New section 1185F provides that new Division 4 applies if:
(a) a
person, or a person's partner, has reached age pension age; and
(b) Part
3.14A applies because of a transfer of qualifying interests by the person, or
the person's partner; and
(c) the person is receiving a social security
payment; and
(d) the value of the qualifying 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.
New Section 1185G - Request for increase
The effect of new section 1185G is that if:
· a person's rate
of payment is less than it would be, or would have been, if the value of the
transferred qualifying interests of the person, or the person's partner, had
been disregarded in calculating the person's rate of payment;
and
· the person wants payment to be made at the increased
rate;
then the person must make a request to be paid at the increased
rate.
New Section 1185H - Form of request
New section 1185H provides that a request under
section 1185G must be in writing and in accordance with a form approved by the
Secretary.
New Section 1185J - Determination of request
New subsection 1185J(1) provides that where a person makes a request
under section 1185G and the Secretary is satisfied that the rate of payment
is less than the increased rate referred to in section 1185G, then the Secretary
is to determine that the request for the increased rate is to be
granted.
New subsection 1185J(2) details how to calculate the date that
the determination takes effect. If the transfer was completed before 15
September 1998 and the person makes the request before that day, the
determination takes effect on 15 September 1997 or the day on which the transfer
was completed, whichever is later. If the transfer was completed after 14
September 1998 but before 15 September 2000 and the person makes the request
during the period of 3 months that starts on the day on which the transfer is
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.
New Division 5 - Farmers' income test
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, namely, income support payments
paid under the Social Security Act or the Veterans' Entitlements Act, family
payment, AUSTUDY, 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.
New Section 1185K - Does a person satisfy the farmers' income test
How to work out whether the farmers' income test is satisfied
New subsection 1185K(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 transfer.
If the person was a member of a couple on the day the transfer was completed,
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 day the transfer was completed, 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 farmer's income test. If it equals or exceeds the person's
maximum basic entitlement, the person does not satisfy the test.
Person's ordinary income from all sources other than farming
New subsection 1185K(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 9 to 11 above) apply to the person. A reference in Division 1A to
a tax year is taken to mean 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 7
above).
Person's ordinary income from farming
New subsection 1185K(3) deals with calculating the person's ordinary
income from farming and states 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 9 to 11
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 farm and are allowable deductions for the purposes of section
51 of the Income Tax Assessment Act 1936 or section 8-1 of the
Income Tax Assessment Act 1997; and
(ii) depreciation that
relates to a relevant farm asset and is an allowable deduction for the purposes
of subsection 54(1) of the Income Tax Assessment Act 1936 or
Division 42 of the Income Tax Assessment Act 1997;
and
(iii) amounts that relate to a farm or a relevant farm asset and are
allowable deductions under subsection 82AAC(1) 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.
Person's maximum basic rate for age pension
New subsection 1185K(4) deals with the method of calculating a person's
maximum basic rate for age pension. According to paragraph 1185K(4)(a), if a
person was a member of a couple at any time during the 3 years immediately
preceding the operative day (see definitions below), the maximum basic rate of
age pension applicable to the person is an amount equal to twice the maximum
basic rate for a partnered person under Module B of Pension Rate Calculator A in
section 1064. 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 amount that was, on the operative day (see definitions
below), the maximum basic rate for a person who is not a member of a couple
under Module B of Pension Rate Calculator A in section 1064.
Definitions
New subsection 1185K(5) provides that in section
1185K:
income, in relation to a person, has the same meaning as in
subsection 8(1), except that, in addition to any amount that is not income of
the person because of subsection 8(4), (5), (7A), or (8), any payment under
the AUSTUDY scheme, the Veterans' Entitlement Act or the Farm Household
Support Act 1992 is not income of the person for the purposes of this
section.
operative day means:
(a) if the transfer of the
person's qualifying interest in the farm or farms was completed before 15
September 1997 - that day; or
(b) otherwise - the day on which the
transfer of the person's qualifying interest in the farm or farms was
completed.
ordinary income from farming, in relation to a person
who has a qualifying interest in a farm or farms, means the ordinary income of
the person from the farm or farms and any relevant farm assets.
5. Commencement
Clause 2 provides that this Schedule is taken to have
commenced on 15 September 1997.
Schedule 2 - Amendment of the Veterans' Entitlements Act 1986
1. Summary of proposed changes
Schedule 2 amends the the Veterans'
Entitlements Act 1986 (the Veterans' Entitlements Act) by inserting
provisions for the Retirement Assistance for Farmers Scheme. These amendments
largely mirror the Schedule 1 amendments to the the Social Security
Act 1991 (the Social Security Act) as the Scheme applies equally to both
the veteran community and the general community.
2. Explanation of the changes
These provisions provide veterans and their partners
with a "window of opportunity" for an inter-generational transfer of the farm
and farm assets without that transfer affecting their eligibility for a
Veterans' Affairs income support payment.
The
Scheme is the same as that which applies to persons covered by the Social
Security Act, both are subject to the following
criteria:
· the Scheme will only apply to
farms transferred between 15 September 1992 and 15 September
2000;
· the person or their partner must
have been continuously involved in farming for the last 15 years, or
intermittently involved in farming for 20 years or more;
and
· the equity in the farm can be no
more than $500,000; and
· all interest in
the farm must be transferred, although a life interest can be retained in the
farm house and surrounding 2 hectares (principal home);
and
· the member of the younger generation
being given the farm must have been actively involved in farming for at least 3
years; and
· the person (or couple) must
have earned less that the equivalent of the age service pension over the last 3
years; and
· the farmer, or in the case of
a couple, one of the members of the couple, must be of retirement
age.
3. Explanation of the items
Schedule 2 - Amendment of the Veterans' Entitlements Act 1986
Item 1 inserts, in alphabetical order, into the
index of definitions, new terms used in these
provisions.
Item 2 inserts a new
subsection 5MA(2A). 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 a dwelling 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 while the dwelling in question is the persons principal
home.
Item 3 inserts new section 5P
which provides definitions for the new terms used in the operation of the Scheme
under the Veterans' Entitlements Act. These terms are the same as
explained at item 5 of Schedule 1 for new section 17A of the Social
Security Act, with the exception of nomenclature
adjustments.
Item 4 inserts into the
Veterans' Entitlements Act, a definition for the new term "retirement
age".
Under the Veterans' Entitlements Act,
a male veteran reaches pension age at 60 and a female veteran reaches pension
age in accordance with a sliding scale gradually aligning female pension age
with male pension age (see section 5QA). As with their male counterparts,
pension age for female veterans is consistently five years earlier than for
non-veteran females. Thus, eligible veterans may receive an age service pension
five years earlier than their general community counterparts can receive the age
pension.
Also, a war widow or war widower,
although not a veteran, may receive an income support payment, under the
Veterans' Entitlements Act, five years earlier than their counterparts in the
general community. That is at the same age as that for veterans (see subsection
45A(2)).
The term "retirement age" is
used to refer collectively to the different age criteria that apply to the
different types of income support payments under the Veterans' Entitlements
Act.
This means, war widows, war widowers and
veterans may qualify for the Scheme five years earlier than those in the general
community.
Items 5 to 10 add notes to
relevant parts of the Veterans' Entitlements Act dealing with working out a
person's ordinary income. These notes alert the reader to the fact that
different provisions apply to working out a person's ordinary income from a
farm, if the income is being calculated to determine whether they satisfy the
farmers’ income test for the purposes of Division
8.
Item 11 inserts a new division into
Part IIIB of the Veterans' Entitlements Act.
Division 8 – Retirement Assistance for Farmers
Subdivision 1 - General
New section 49 provides that the purpose of new
Division 8 is to provide that where the conditions in the new division are
satisfied, the value of the transferred farm and farm assets will be disregarded
when determining:
(a) whether a service pension
or income support supplement is payable;
or
(b) what rate of service pension or income
support supplement is payable.
New section 49A
is the Veterans' Entitlements Act equivalent of new section 1185B of the Social
Security Act being inserted by item 14 of Schedule 1, except that the
Veterans' Entitlements Act refers to "retirement age" instead of "pension
age".
New section 49B is the Veterans'
Entitlements Act equivalent of new section 1185C of the Social Security Act
being inserted by item 14 of Schedule 1.
Subdivision 2 - Modification of provisions relating to assets test
New section 49C is the Veterans' Entitlements Act
equivalent to the new Social Security Act section 1185D being inserted by
item 14 of Schedule 1, except that the Veterans' Entitlements Act refers
to "retirement age" instead of "pension age".
Subdivision 3 – Claims for service pension or income support supplement
New section 49D is the Veterans' Entitlements Act
equivalent of new section 1185E of the Social Security Act being inserted by
item 14 of Schedule 1, except
that:
· the Veterans' Entitlements Act
refers to "retirement age" instead of "pension age";
and
· the Veterans' Entitlements Act
refers to service pension and income support supplement instead of a social
security payment.
Subdivision 4 – Requests for increase in rate of service pension or income support supplement
New sections 49E to 49H are the Veterans' Entitlements
Act equivalent of new sections 1185F to 1185J of the Social Security Act being
inserted by item 14 of Schedule 1 except that they are dealing with
requests for an increase in service pension and income support supplement
instead of a social security payment.
Subdivision 5 - Farmers' income test
New section 49J is the equivalent of new section 1185K
of the Social Security Act being inserted by item 14 of Schedule 1. As
such it sets out how to work out whether a person meets the farmers' income
test. To qualify for the Scheme a person must meet this farmers' income test by
earning less than the age service pension over the last three years. (The
maximum rate of age service pension is the same as the maximum rate of age
pension.)
4. Commencement
Clause 2 provides that this Schedule is taken to have
commenced on 15 September 1997.