This topic discusses:
For the forgone wages policy to be applied a farmer must transfer the title or effective control of the farm to a near relative.
Forgone wages policy applies ONLY to farms in Australia.
Explanation: The forgone wages policy is a limited concession designed to assist Australian farmers to retire and hand ongoing control of the farm to the next generation.
Transfer of the farm includes associated machinery, stock, seed etc required to operate the farm.
The value of any past contribution to the farm by the near relative is taken into account as consideration when calculating a deprivation amount.
Past contributions can be:
A near relative (1.1.N.20) includes a parent, child, brother or sister (or their partner).
Exception: IF the person who worked on the farm does not meet the definition of near relative, BUT the relationship between the retiring farmer and the person who worked on the farm is of a special familial nature, forgone wages may be applied.
Forgone wages may be applied where:
In all situations the delegate must be satisfied that ownership or effective control of the farm has been transferred to the near relative and that the near relative worked for little or no wages (could include distributions and/or dividends) and that the benefit of that labour was for the attributable stakeholder.
The value of forgone wages is NOT accepted as financial consideration if a person sells the farm and gives the proceeds to the near relative.
Explanation: Selling the farm does not facilitate intergenerational transfer of the family farm.
Exception: There may be evidence of a prior agreement that the wages were forgone on the understanding that the near relative would be compensated at a later date. An equitable charge over the property may have been established in the near relative's favour. In this case the forgone wage calculation is used to value the equitable charge.
For forgone wages to be treated as consideration:
There is no requirement that the work was undertaken during normal business hours. The work could have been undertaken after school or on weekends.
Forgone wages does not apply where the near relative operated the farm in business with the person, or as a share farmer, or in a partnership.
Explanation: Normal market forces determine income earned if the relative was the proprietor of the business, OR entitled to a share of the profits because of share farming OR a partnership.
From January 2002 the forgone wages provisions may still be applied IF the recipient received a distribution from a company or trust AND it can be demonstrated that the distribution was part payment of wages forgone; and not because the near relative was considered to be involved in the business with an entitlement to profits; where:
Exception: Where the income from the business, share farming or partnership was affected by events other than market forces, for example fraud, the forgone wages rules may be applied.
The formula for calculating forgone wages is:
In applying the formula:
The amount calculated is accepted as consideration and is deducted from the deprivation amount.
The notional amount is ALWAYS deducted whether or not the near relative actually received these particular benefits.
The AWOTE figure is ALWAYS used regardless of whether the near relative would have been paid a junior or adult rate. The AWOTE figure is adjusted on a pro-rata basis where the hours worked were less than full-time. The AWOTE figure is not increased to take account of 'overtime' worked.
The AWOTE figure is listed in table 1 of 'Average Weekly Earnings State and Australia, Australian Employees (Full Time Ordinary Time Earnings Adults), Trend Estimates' published quarterly by the ABS, catalogue number 6302.0.
AWOTE figures for February 1992 to present date are provided in the key term definition for AWOTE.
Where the near relative received some wages, this amount is compared with an estimate of the amount they would have had to pay for outside labour to perform the same work. The relevant percentage is then applied to the forgone wage calculation.
Example: Where the near relative was paid $100 pw and it is estimated that $400 pw would have had to be paid for outside labour, it is accepted that 25% of the forgone wage commitment has been met, therefore 75% of the forgone wage calculated is allowed.
Forgone wages are NOT calculated for any period that the near relative was UNDER 15 years.
Explanation: This is younger than the legal school leaving age.
A near relative's unpaid care of an income support recipient is accepted as financial consideration IF:
The care value is the amount that would have had to be paid to purchase equivalent assistance from community support agencies. It includes home help, care at home, and the cost of providing food.
Policy reference: SS Guide 3.6.4 CP - Qualification & Payability
If past contributions are valuable consideration (1.1.V.25), an income support recipient MUST provide a statement about the:
If possible the income support recipient should also provide other financial documentation.
Examples: Other financial documentation includes income tax returns for the person or the relative, workers compensation records and receipts for capital expenditure.
The income support recipient AND near relative MUST provide statutory declarations IF:
Granny flat provisions DO reduce the effect of the deprivation (gifting) rules where income support recipients transfer their principal home to family members in return for a life interest (1.1.I.185) or right to accommodation for life.
Act reference: SSAct section 12A(2) A person has a granny flat interest, section 198(1) Qualification for carer payment, section 1119 Value of asset-tested income streams that are not defined benefit income streams
Policy reference: SS Guide 2.2.3 Verifying Financial Information, 188.8.131.52 Granny Flats - Features, Rights & Interests, 184.108.40.206 Assessing Private Annuities & Overseas Income Products, 4.1.8 Deprivation Related to Private Annuities
Last reviewed: 10 August 2012