This page explains how farms are dealt with under the income and assets tests and how the income from a farm and its value can affect your rate of income support pension or payment.
If you receive a service pension, income support supplement (ISS) or veteran payment, the amount of your pension or payment depends on your income and assets. The pension or payment is calculated under two separate tests — the income test and the assets test. The test paying the lower rate of pension or payment is the one that is applied. You can have a certain amount of income and assets before your pension or payment is reduced.
For more information on the income and assets test refer to Income Test and Assets Test.
Under the income and assets tests, income you make from your farm, and the asset value of the farm itself, will be taken into account when working out how much pension or payment you can be paid. There are some exceptions to this rule — see the section ‘asset value of your farm’ in this page.
This page is specific to those who own their farm directly or in a partnership. The income and assets rules applicable to your farm is dependent on whether the farm is held directly by you or whether it is held under private trust or private company arrangements.
For more information on private trusts and private companies refer to Being involved with private trusts and Being involved with private companies.
To work out your farm income for pension or payment purposes we will use your income:
- after deductions for operational costs; but
- before income tax and other personal deductions.
Generally speaking, all operational costs associated with running the farm business will be deducted from the calculation of your income. There are some expenses which the Australian Taxation Office allows you to deduct but DVA does not, and will include in your income. These are:
- averaging of insurance recoveries;
- bank charges relating to investment income;
- capital expenditure for items such as water storage and reticulation, fences for disease control or prevention of land degradation (Income Tax Assessment Act 1936 sections 75A, 75B, 75C and 75D claims);
- contributions to personal superannuation funds;
- double wool clip;
- forced disposal of livestock;
- income equalisation deposits;
- losses from another source;
- previous year’s losses;
- trading stock valuation adjustments; and
- union fees (unless membership is compulsory).
If you own your home, the value of your home is not counted under the assets test. Land surrounding your home that is on the same title as your home is called curtilage. In certain circumstances the curtilage may also be exempt from assessment under the assets test.
If the total area of the title on which your home stands is 2 hectares or less, the land that is used for private and domestic purposes, up to an area of 2 hectares, will not be counted as an asset.
If the total area of the title on which your home stands is more than 2 hectares, then the area over 2 hectares will be included as an asset.
There is an exception to this rule if you are over veteran pension age. All of the land on that title will be disregarded from assessment under the assets test if:
- you are over veteran pension age; and
- you have lived on your property for 20 years or more; and
- effective use is being made of the land, where possible; and
- the land is over 2 hectares and is held on the same title as your principal home.
If you have a mortgage on your property, the value of the mortgage may be deducted from the value of the property.
Any land that is not held on the same title as your principal home will be assessed as an asset.
Your plant, machinery and livestock are assets, which are counted under the assets test. The amount counted for pension or payment purposes is the current market value, which may not be the same as the depreciated value used for tax purposes.
If you own a farm that is leased out or worked by a share farmer only those assets which belong to you and your partner are taken into account. Any stock and equipment that belong to your tenant are not counted.
- your pension or payment is paid at the maximum rate; or
- your pension or payment is paid at a reduced rate under the income test; and
- your total assets are not within $10,000 of the amount that would reduce your pension or payment under the assets test;
then the amount that is counted under the assets test will usually be your estimate of the market value of your property.
- your pension or payment is paid at a reduced rate under the assets test; or
- your total assets are within $10,000 of the amount that would reduce your pension or payment under the assets test;
we will arrange for your property to be valued once a year by an accredited property valuer. The value given to us by the valuer will be the amount that is counted under the assets test. If you disagree with this value you can ask for the valuation to be reconsidered.
Generally speaking, if you give away money or assets worth more than $10,000 in a financial year or $30,000 over a rolling five year period, the amount over either limit will be counted for 5 years as a financial asset for the purposes of the assets test. Deemed income will be assessed for the purpose of the income test.
For more information refer to Giving Away Income or Assets.
Be sure to check with a professional adviser before you make your decision to transfer your farm to the younger generation. A professional adviser can give you and your family vital information on taxation implications for both you, and the person receiving the farm.
When you are granted an income support pension or payment and periodically after that, you will be notified of your obligations.
Unless you are advised otherwise in writing, you will be required to tell us within 14 days (28 days if you live overseas or receive remote area allowance) of changes to your circumstances that might affect the rate of income support pension or payment you receive or your eligibility to receive that pension or payment. These obligations apply equally to trustees.
In relation to farms, the sorts of things you would need to tell us about are as follows:
- you start to get income from your farm;
- your farm income increases;
- you buy or sell a farm; or
- you give your farm away.
If you have more than 2 hectares of curtilage exempt from assessment, you will need to advise us if effective use is no longer being made of the land, or if you move from the property.
Usually an overpayment of pension or payment will not occur when you have met your obligations. However, sometimes even if you have met your obligations, an overpayment can occur because we have not been able to process the change before the next payday. We do our best to avoid this occurring, but it is not always possible. To provide you with your exact entitlement we are obliged to recover overpayments of pension or payment where they do occur.