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Social Security and Veterans' Affairs Legislation Amendment
(Retirement Assistance for Farmers) Bill 1998
Date Introduced: 11 March 1998
House: House of Representatives
Portfolio: Social Security
Commencement: 15 September 1997
farmers on low incomes who have reached pension age with the
ability to gift their farm to a younger generation without
affecting their access to the age pension. The opportunity will
only be available for a period of three years commencing on 15
September 1997 and will be subject to the circumstances of the
farmer meeting a number of criteria.
In February 1996, the now Deputy Prime Minister
committed a coalition government to establishing a Special Rural
Task Force (Task Force) to investigate the impact of the Social
Security assets tests on rural customers. This was in response to
concerns across the rural communities that the current social
security assets tests and hardship provisions may disadvantage
The establishment of the Task Force was
announced on 11 September 1996 by the Minister for Social Security.
The terms of reference of the Task Force included considering and
making recommendations to the government on:
- the impact of the social security assets tests on rural
customer including how the assets test:
- operate when farmers cannot sell their properties due to market
- affect farmers on small holdings which cannot generate income
beyond the age pension limit; and
- affect farmers who cannot subdivide and sell their land due to
- the operation of the assets test hardship provisions; and
- the social and economic implications of changing the assets
test rules relating to inter-generational transfer of farms.
This Bill relates to findings and
recommendations of the Task Force in respect of the last of these
points, i.e. intergenerational transfer of farms.
Assets Testing Arrangements
Social Security payments are, in general, means
tested on the basis of both income and assets. Pensions have a
tapered assets test under which the rate of pension is reduced
depending on the level of assets held. The value of assets above a
threshold reduces the rate of pension by $3 for every $1000 of
assets owned. To determine the pension rate, Social Security
applies either the income or the assets test, whichever produces
the lower rate of payment.
At present, the aged pension asset test limits
Circumstances of the
Single home owner
Single non-home owner
Homeowner couple (combined)
Non-home owner couple (combined)
The allowable income limits are:
Circumstances of the
Free area (pa)
Cut-out point (pa)
If a person disposes of an asset for less than
it is worth (for example, by giving it away or selling it at an
undervalue), then for the purposes of the assets test the amount by
which the value of the asset (or the difference between what it was
worth and what the person received for it) exceeds $10 000 is
included in the value of the person's assets for a period of five
years after the disposition.(2) Clearly this is to prevent people
giving away assets to children and other relatives so as to make
themselves eligible for the age pension. This provision of the
Social Security Act 1991 and its associated provisions are
often referred to as the 'gifting provisions'.
Payment can be made under the pension assets
hardship provisions if it is considered that the claimant would
suffer 'sever financial hardship' if payment was not granted.
'Severe financial hardship' is not legislatively defined. For
administrative purposes, where a customer's total income is less
than the maximum rate of Social Security payment that applies to
them, and they have liquid assets less than the limit ($6000 for
singles and $10,000 for couples), then they are considered to be in
'severe financial hardship'.
Some customers with substantial assets claim a
pension under the assets test hardship provisions because they are
unable or unwilling to sell or draw upon their assets to support
themselves. A test of reasonableness is applied in each case. If a
farmer has their property on the market at a realistic price and is
unable to find a buyer, the test is satisfied relatively easily.
However, some farmers want to keep their property and still get a
pension. Although it is recognised that some farmers have a long
term attachment to their properties or wish to keep the property
and pass it to their heirs, an unwillingness to rearrange assets
does not mean in itself that an asset is considered 'unrealisable'
under the pensions assets test.
The Social Security Act 1991 defines an
unrealisable asset as one that a person could not be reasonably
expected to sell or use as security for borrowing. Existing policy
is that if a person has a long term attachment to a property (for
example, has lived there for 20 years or more), it is unreasonable
to expect them to sell the property unless they can subdivide and
keep the portion on which they live.
A number of concessions have been introduced to
assist those suffering hardship and who are not entitled to payment
because they have high levels of assets. Some exclusions relevant
to farmers claiming pensions are:
- as mentioned above, under the gifting provisions, any amount
which a pensioner gifts to another person in excess of $10 000 in a
year is assessed under the assets test, for the subsequent five
years, as if the person still owned the asset. Further, deemed
income is calculated on the amount gifted over $10,000 and this is
counted as income under the pensions income test during the five
Where a pensioner farmer legally transfers their
property to an immediate family member, Social Security will deduct
the value of some contributions, e.g. wages forgone and capital
contributions, made in the past by the family member, from the
value of the property transferred.
- When assessing the value of primary production assets, the
total value of all the assets can be off-set against the total
primary production debt. This is not the case for non-farmers who
can only off-set debt against the encumbered assets.
- Farm houses are valued by reference to housing values in nearby
rural centres. The value of houses in regional centres is usually
higher than that of farm houses. Using an implied value based on a
similar house in the nearest regional centre means that the
farmer's assets total is reduced by a higher home and curtilage
amount than could be expected if an actual value was used.
- When a property is transferred and the person retains a granny
flat or life interest in a private residence which is valued at
more than the difference between the homeowner and non-home owner
allowance assets levels, the person can be counted as a homeowner
and have the value of the granny flat or life interest deducted
from the value of the asset transferred.
Report of the Special Rural Task
The Task Force completed its report in January
1997.(3) Recommendation 15 provided:
to facilitate the inter-generational transfer of
farm assets, a short term (e.g. two year) moratorium on the five
year gifting provisions be applied for farmers planning retirement
(from 63 years) or of pension age to give individual families a one
off 'window of opportunity' to plan and transfer the family farm.
Qualification would be conditional upon:
- active involvement of the second generation in the farm
operation over a minimum of the previous three years;
- an off farm asset test not exceeding the applicable asset test
- an income test consisting of average income over the previous
three year period being less than the pension rate
- application to one farming enterprise.(4)
The gifting provisions mean that if a farmer
wishes to retire and give the farm to the next generation, they
could be precluded from receiving a pension for five years. In such
situations, two or more generations could be dependent on one farm
enterprise that can only realistically support one generation.
The Task Force stated:
The Task Force believes that
structures to support long term planning have either not been
available or have been too expensive for many farmers to access.
The Committee believes that there is a need to create a window of
opportunity for older farmers to address the lack of planning that
now results in ineligibility for income support for those farmers
wishing to transfer the property to their children.
Agriculture - Advancing
On 14 September 1997 the Prime Minister and the
Minister for Primary Industries and Energy announced the
government's rural policy package, entitled 'Agriculture -
That package includes the government's response
to recommendation 15 of the Task Force in the form of the
Retirement Assistance for Farmers Scheme. Farmers who qualify for
retirement assistance (see the conditions below) will be able to
transfer their interest in their farm to a younger generation
without affecting their eligibility for the age pension. The
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. The essential elements of the scheme are:
- it will be effective for a period of three years from 15
September 1997 but will also apply to those who transferred legal
title of their property in the five years preceding 15 September
1997 (the scheme therefore effectively applies for eight
- it will be open to farmers or farming partners who have equity
of up to $500 000
- farmers must have owned the property for at least 15 years or
have been actively involved in farming for 20 years.
- farmers must have had an average income of less than the age
pension over the preceding three years (from both farm and non-farm
activities) and the younger generation must have been actively
involved in the farm for the preceding three years.
- where the property transfer has taken place after 14 September
1997, pension entitlements will be backdated to the time of the
transfer. Where the property transfer took place before that date
(within the previous 5 years), pension entitlements will be
backdated to 15 September 1997.
Item 14 of Schedule
1 inserts proposed new Part 3.14A into
the Social Security Act 1991. That part is entitled
'Retirement assistance for farmers'. Item 11 of
Schedule 2 inserts proposed new Division
8 into the Veterans' Entitlements Act 1986. Those
provisions mirror the proposed new sections in the Social
Security Act 1991 because the retirement assistance scheme is
to apply equally to Veterans' Affairs support payments.
What transfers will the retirement
assistance apply to?
Retirement assistance will available to a person
where all of the following conditions are satisfied
(proposed new section 1185B):
- the person must be a 'qualifying farmer' at any time between 14
September 1992 and 15 September 2000. A person is a 'qualifying
- the person has had a legal interest in a farm (including being
a shareholder in a private company that has a legal interest in a
farm) continuously for a period of 15 years and the person or their
partner has contributed a significant part of his or her labour and
capital to the development of the farm; or
- the person has a legal interest in a farm which was acquired
before 15 September 1997 and the person or their partner has been
involved in farming in Australia for a continuous period of 20
years or for periods totalling 20 years, by contributing a
significant part of his or her labour to farm enterprises and
deriving a significant part of his or her income from farm
- the person must transfer his or her interest in the farm or
farms and all of the farm assets to an 'eligible descendant' at any
time between 14 September 1992 and 15 September 2000. The transfer
must be by way of a gift. An 'eligible descendant' in relation to a
person means a child, step child, adopted child of the person or
partner of the person or a descendant in direct line of such a
child. The Secretary of the Department of Social Security has a
discretion to treat any other person as an eligible
- the person or his or her partner must have reached pension age
(65 years for males, 60 to 65 for females depending on when they
were born) or must be going to reach pension age by 15 September
- the total value of the farm and farm assets must not exceed
- during the three years prior to the transfer the eligible
descendant must have been actively involved with the relevant
- if the person is a member of a couple, the person's partner
must not have an interest in the farm or farm assets.
- the person must satisfy the farmers' income test. The farmers'
income test is contained in proposed new section
1185K. It consists of totalling the persons farm and
non-farm incomes over the period of 3 financial years prior to the
date of the transfer and comparing that to three times the maximum
basic rate pension (maximum basic entitlement). If the total income
is less than the maximum basic entitlement the farmers' income test
Retirement assistance will also be available
where a person who is an eligible former partner of a qualifying
farmer transfers his or her interest in the farm and all farm
assets to an eligible descendant. A person is an eligible former
partner of a qualifying farmer where at the time of ceasing to be
the partner of another person, the other person was a qualifying
farmer and the first person had a legal interest in a farm or farm
What does the retirement assistance
If the conditions for obtaining retirement
assistance are satisfied (under proposed new section
1185B), proposed new section 1185D will
operate to deem the transfer of the farm and farms asset not to be
a disposal. It will similarly deem any transfer by the person's
partner not to be a disposal. Clearly the intended consequence is
that a farmer and his or her partner will be able to transfer their
farm to their children or grandchildren and immediately following
the transfer they may be eligible for the pension (the eligibility
will, of course, be determined in the ordinary manner apart from
disregarding the disposition of the farm).
This concession has been granted exclusively to
the farming community. No similar concession exists for the
non-farming small businessperson, who are owner operators, to allow
him or her to transfer their business to a younger generation and
become eligible for the age pension.
- Social Security Act 1991, section 1125.
- The Special Rural Task Force, Impact of the Social Security
assets tests on rural customers, January 1997.
- Ibid., 36.
- Ibid., 34.
19 March 1998
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