Veney and Secretary, Department of Agriculture, Water and the Environment (Social services second review)

[2021] AATA 3886

Veney and Secretary, Department of Agriculture, Water and the Environment (Social services second review) [2021] AATA 3886 (22 October 2021)

Division:GENERAL DIVISION

File Number(s):      2019/4383

Re:Allan Veney

APPLICANT

Secretary, Department of Agriculture, Water and the EnvironmentAnd  

RESPONDENT

DECISION

Tribunal:Mr S Evans, Member  

Date:22 October 2021  

Place:Sydney

The decision under review is affirmed.

...............................[SGD].........................................

Mr S Evans, Member

CATCHWORDS

FAMILY ASSISTANCE AND SOCIAL SECURITY – farm household allowance – whether enterprise has a significant commercial purpose or character – quandongs - applicant in receipt of newstart allowance – whether multiple entitlement exclusion applies - whether the applicant’s farm enterprise has a significant commercial purpose or character – decision in the Social Services and Child Support Division affirmed. 

LEGISLATION

Farm Household Support Act 1992 (Cth)
Farm Household Support Act 2014 (Cth)
Social Security Act 1991 (Cth)

CASES

Dunning v Secretary, Department of Family & Community Services [1999] FCA 1605
Thomas v FC of T 72 ATC 4094; (1972) 3 ATR 165

SECONDARY MATERIALS

Farm Household Allowance Guidelines

Farm Household Support Bill 2014 - Explanatory Memorandum

Taxation Ruling 97/11

REASONS FOR DECISION

Mr S Evans, Member

22 October 2021

1. The applicant, Allan Veney (‘Mr Veney’), had his application to receive Farm Household Allowance (‘FHA’) refused as his farm operation was deemed not to have a significant commercial purpose or character. Upon review it was found that in addition to being ineligible for FHA, the allowance was not payable owing to a multiple entitlement exclusion. Mr Veney submits that his farm operation is such that he meets the eligibility criteria and that the multiple entitlement exclusion does not preclude payment as he was seeking to transfer from one social security benefit to another.

   INTRODUCTION

2. On 10 August 2018 Mr Veney lodged an application for FHA which is an income support payment for farmers and their partners who are in financial hardship. At the time of his claim, Mr Veney’s farm operation had been affected by drought. 

3. Mr Veney resides in Sydney and holds approximately 100 acres of freehold farmland in northern NSW on which he has been cultivating quandongs and emu apples. Quandongs are native to Australia and grow naturally on Mr Veney’s farmland. Over time Mr Veney has sought to cultivate the trees and increase their yield of quandongs to enable commercial harvesting of the fruit.   

4. FHA is administered by Services Australia (‘the Agency’). On 5 November 2018 the Agency rejected Mr Veney’s application as his farm enterprise did not have a ‘significant commercial purpose or character’, which is one of the eligibility criteria for FHA recipients.

5. Mr Veney appealed the decision to reject his application and the decision was affirmed in February 2019 by an Authorised Review Officer (‘ARO’). In addition to concluding that Mr Veney’s farm did not have a significant commercial purpose or character, the ARO found that the multiple entitlement exclusion provisions would apply as Mr Veney was in receipt of newstart allowance at the time he applied for FHA.  

6. Mr Veney appealed the ARO’s decision and on 19 June 2019 the Social Services and Child Support Division affirmed the decision to reject his claim. Mr Veney now seeks review at the General Division of the Tribunal. 

   RELEVANT LEGISLATION AND POLICY

7. The legislation relevant to Mr Veney’s application is the Farm Household Support Act 2014 (Cth) (‘the FHS Act’) and the Social Security Act 1991 (Cth) (‘the Social Security Act’).

8. Section 8 of the FHS Act sets out the criteria to qualify for FHA:

   8  Qualification of farmers for farm household allowance

   A person is qualified for farm household allowance for a period if throughout the period:

   (a)       the person is a farmer; and

   (b)       the person contributes a significant part of his or her labour and capital to a farm enterprise; and

   (c)       the farm enterprise has a significant commercial purpose or character; and

   (d)       the land that is used for the purposes of the farm enterprise is in Australia; and

   (e)       the person has turned 16; and

   (f)        the person is an Australian resident, and is in Australia; and

   (g)       either:

   (i)        the person has indicated, in writing, that the person is willing to enter into, and comply with, a financial improvement agreement; or

   (ii)       a financial improvement agreement is in force in relation to the person; and

   (h)       the person meets the 4 years or less requirement.

9. Section 38 of the FHA Act provides for a multiple entitlement exclusion which sets out circumstances under which the allowance is not payable:

   38  Multiple entitlement exclusion

   (1)       This section sets out when farm household allowance is not payable to a person because the person receives another pension, benefit, supplement or allowance.

   (2)       The allowance is not payable if:

   (a)       the person is already receiving age pension, a service pension, income support supplement or a veteran payment; or

   (b)       a social security pension, another social security benefit, a service pension, income support supplement or a veteran payment becomes payable to the person.

   (3)       For the purposes of paragraph (2)(b), the allowance is not payable from (and including) the day the pension, benefit or supplement becomes payable.

10. The Farm Household Allowance Guidelines (‘the Guidelines’) provide decision makers with instructions when assessing FHA applications. Whilst the Tribunal is not bound by government policy, it will generally be taken into consideration unless there are cogent reasons not to do so. 

    ISSUES

11. The Tribunal must determine:

    (i)whether Mr Veney’s farm enterprise has a significant commercial purpose or character such that he meets the requirement in subsection 8(c) of the FHS Act; and if so

    (ii)whether the multiple entitlement exclusion provision means FHA is not payable.   

    DOES THE FARM ENTERPRISE HAVE A SIGNIFICANT COMMERCIAL PURPOSE OR CHARACTER?

12. Qualification for FHA requires applicants meet the criteria set out in section 8 of the FHS Act. The criteria are conjunctive, meaning all must be satisfied in order for an applicant to be eligible. Subsection 8(c) of the FHS Act requires an applicant’s farm enterprise to have a significant commercial purpose or character. The Secretary contends that Mr Veney has not demonstrated his enterprise has a significant commercial purpose or character. Mr Veney does not agree.

13. The Explanatory Memorandum (‘the Memorandum’) to the Farm Household Support Bill 2014 distinguishes between a farm enterprise and a hobby farmer and elucidates the purpose of FHA: 

    (c) the farm enterprise has a significant commercial purpose or character

    Paragraph 8(c) requires a farmer to be engaged in a farm enterprise that has a significant commercial purpose or character to qualify for FHA. This requirement prevents ‘hobby farmers’ from qualifying for payment. A hobby farmer is a person with a right or interest in a small farm that is maintained without expectation of it being their primary source of income. The intention of FHA is to support farmers and their partners who do not have an alternative source of income upon which to draw for self-support. It is not intended to support people who choose to engage in activities that are not aimed at generating adequate income.

    The Secretary’s Rules specify the criteria used to determine whether a farm enterprise has a commercial purpose or character.

14. When assessing a farm enterprise to ascertain if it has a significant commercial purpose or character, Instruction 2.3 of the Guidelines sets out a significant commercial purpose and character is to be assessed: 

    2.3 Farm enterprise – assessment of significant commercial purpose or character

    The farm enterprise to which a person or their partner contributes a significant part of his or her labour and capital must also have a significant commercial purpose or character. This requirement prevents ‘hobby farmers’ from qualifying for payment. A hobby farmer is a person with a right or interest in a small‑scale operation that is maintained without expectation of it being their primary source of income. To determine which enterprises, meet the commerciality test there is a set of characteristics (also used by the ATO) that the decision maker must work through. These characteristics are set out in a Secretary’s Rule.

    2.3.1 Secretary’s Rule considerations

    Section 5 of the Farm Household Allowance Secretary’s Rule 2014 (the Secretary’s Rule) outlines factors which must be considered when determining whether a farm enterprise has a significant commercial character. These factors are informed by TR97/11 which considers available case law in outlining the factors which contribute to someone carrying on a business of primary production. While none of these factors determine a significant commercial character on their own, collectively a combination of these factors can demonstrate that the farmer (and their partner as the case may be) intend to generate their primary income from the farm.

    Under section 5 of the Secretary’s Rule the matters that must be considered when determining if a farm enterprise has a significant commercial purpose or character for FHA purposes are:

    a)    whether a business plan has been drawn up for the farm enterprise

    b)    if the person or the person’s partner (where the person is not a farmer) is not an expert in respect of the farm enterprise

    i)   whether relevant expert advice has been sought about the farm enterprise from a relevant authority, an experienced farmer or an agent, or

    ii)   whether relevant technical literature on the farm enterprise has been obtained

    c)    whether it has been established that the land that is used for the purposes of the farm enterprise is suitable for the farm enterprise, including by analysing soil and water samples

    d)    whether the person or the person’s partner (where the person is not a farmer) has

    i)   considered if there is a commercial market, or a potential commercial market, for the farm enterprise, and

    ii)   investigated the capital requirements of the farm enterprise, including by planning how capital for the farm enterprise will be obtained and used, and

    iii)   conducted research into the farm enterprise confirming (based on market prospects, the expected level of production, and the running costs, of the farm enterprise) that profits can be expected, and

    iv)   ensured the size and scale of the farm enterprise is sufficient for a commercial enterprise

    e)    whether legal requirements required to operate the farm enterprise on a commercial basis have been, or could at the appropriate time be, complied with

    f)     whether there is

    i)   an intention to make a profit in respect of the farm enterprise, and

    ii)   a reasonable belief that the farm enterprise is likely to generate a profit.

    These characteristics are to be evaluated on a case‑by‑case basis. While required in all circumstances to be assessed, these matters are not exhaustive as these factors could be fulfilled by a business with low stock numbers or a low value of crop production. Accordingly, significant commercial character must also be assessed with reference to the other considerations.

15. Taxation Ruling 97/11 (‘the Taxation Ruling’) referred to in the Secretary’s Rules takes into account case law relevant to determining if a farm enterprise has a significant commercial character, notably the matter of Thomas v FC of T 72 ATC 4094; (1972) 3 ATR 165 (‘Thomas’). With reference to Thomas, the Taxation Ruling states in part: 

    The phrase 'significant commercial purpose' is referred to by Walsh J in Thomas …

    The 'significant commercial purpose or character' indicator is closely linked to the other indicators and is a generalisation drawn from the interaction of the other indicators. It is particularly linked to the size and scale of activity … the repetition and regularity of activity … and the profit indicators ... A way of establishing that there is a significant commercial purpose or character is to compare the activities with those of a taxpayer who is carrying on a similar activity that is a business. Any knowledge, previous experience or skill of the taxpayer in the activity, and any advice taken by the taxpayer in the conduct of the business should also be considered but are not necessarily determinative: see Thomas. In that case, Walsh J found that the taxpayer's activities in growing macadamia nut trees and avocado pear trees amounted to the carrying on of a business. The court was influenced by the scale of the activity, and the taxpayer's expectation of an ongoing financial return. Consideration should also be given to whether the taxpayer is a pioneer in the activity or has developed a new method of undertaking the activity, whether successful or not.

    Evidence

16. Mr Veney originally expected to maintain ‘off-farm’ employment until 3 September 2018, after which he would be eligible to receive age pension. He intended to continue working to establish the quandong farm ‘to supplement the Age Pension and generate on-farm income by harvesting and marketing the fruit’. He writes that he planned to purchase ‘all major items, or incur all foreseeable significant costs associated with the establishment of the orchard whilst gainfully employed off-farm and prior to qualifying for [a]ge [p]ension’. 

17. It transpired Mr Veney’s off-farm employment ceased on 20 June 2016. Mr Veney did not qualify for Age Pension at that time, and instead applied for and was granted newstart allowance. Whilst in receipt of newstart allowance, Mr Veney was transferred to the New Enterprise Initiative Scheme (‘NEIS’) pre-training, after which he was transferred to a NEIS trainer located closer to his farm. Being located closer to his farm enabled him to ‘work on the farm virtually 24/7’. 

18. Having completed the online training modules, the NEIS trainer invited Mr Veney to transfer from Newstart to a payment under NEIS. Mr Veney chose not to participate formally in the NEIS as he calculated it was financially detrimental for him to do so. 

19. Mr Veney lodged a pre-filling tax report 2018 (‘the Report’) which records his income for the years 2014 through to 2017.  His basic taxable income is recorded as:

    ·2017:   $14,092.00

    ·2016:   $77,913.00

    ·2015:   $79,511.00

    ·2014:   $16,556.00

20. In addition to the pre-filling reports, Mr Veney’s 2017 tax return records his income as $14,477, of which $2,300 was derived from his previous employment as a bus driver. $12,177 was derived from Australian Government allowances, primarily Newstart. The tax return also records Mr Veney’s farm enterprise was trading at a loss of $8,011 during the 2016-17 financial year. There are no other tax returns in evidence before the Tribunal, and Mr Veney was uncertain as to whether he had submitted a return subsequent to the 2016-17 financial year. He submits that the Australian Taxation Office (‘ATO’) has assessed expenses incurred in establishing the farm as ‘legitimate primary production expenses’ and writes that ‘[a]s far as the ATO is concerned, I have been a legitimate primary producer since about 2004’.

21. That Mr Veney has never turned a profit from his farm is not in dispute. In an extract of Mr Veney’s business plan he reports having purchased the ‘big ticket items’ during the establishment period of his orchard. These expenses included earthworks, a tractor, a fodder storage facility, water tanks, fencing and irrigation equipment, all of which were reported to the ATO and accepted as primary production expenditure and attracted ATO primary producer tax credits.

22. The extract of the business plan submitted by Mr Veney details that the farm was originally purchased in partnership in approximately 1992 and has operated on a sole trader basis since about 1998. The business plan also reveals that in 2016 Mr Veney purchased a fodder storage facility which he now uses for plant propagation. The property boundary was originally fenced in 1995 and internally divided into four paddocks in 2017, with three of the paddocks feral goat proofed since 2017.

23. Mr Veney gave evidence that he spends 40 hours a week working on the farm, and continues his work whilst in Sydney, including by germinating the seedlings which he later plants at the farm.  

    Consideration

24. Turning to the criteria set out in the Guidelines, Mr Veney has a business plan and has extensively researched the farming of quandongs with an intention of cultivating the native fruit to a commercial standard. His detailed account of the process of increasing the yield of his orchard by selecting seedlings and grafting superior scions to inferior rootstock supports his claim of being a pioneer in the commercial harvesting of quandongs.  

25. The commercial expectation set out in his business plan is to produce two tonnes of dried quandong flesh each year, which he anticipates would retail at $100 per kilogram. His projected output is predicated on establishing 1,000 quandong trees. That Mr Veney had 1,000 immature quandong plants on his property indicates the plan’s viability. 

26. Mr Veney has corresponded with various industry experts including from the Royal Botanic Gardens and the University of New England relating to the establishment of quandong and emu apple trees. Whilst he has not provided documentary evidence in relation to seeking expert advice, he gave evidence that he could have done so had he known it was relevant.  Similarly, Mr Veney has not presented any soil or water samples, but claims access to the original land survey.

27. Mr Veney does not profess to be an expert in quandong farming but has obtained technical literature and participated in the inaugural AGM of the Australian Quandong Industry Association.

28. In relation to the commercial aspects of the enterprise, Mr Veney draws parallels between his own operation and that which is considered in the Taxation Ruling where the ruling states in relation to Thomas: 

    … Walsh J found that the taxpayer's activities in growing macadamia nut trees and avocado pear trees amounted to the carrying on of a business. The court was influenced by the scale of the activity, and the taxpayer's expectation of an ongoing financial return. Consideration should also be given to whether the taxpayer is a pioneer in the activity or has developed a new method of undertaking the activity, whether successful or not.

29. Mr Veney submits that this description could equally apply to his own enterprise. Further, Mr Veney notes the observations in Thomas regarding the scale of an operation being an indicator of commercial purpose or character:

    But a man may carry on a business although he does so in a small way. In my opinion the appellant's activities in growing the trees ought not to be found to have been carried on merely for recreation or as a hobby. I leave out of account the pine trees, the growing of which did not have, I think, a significant commercial purpose or character. But the appellant in planting the avocado pear trees and the macadamia nut trees set out to grow them on a scale that was much greater than was required to satisfy his own domestic needs and he expected upon reasonable grounds that their produce would have a ready market and would yield, if the trees became established, a financial return which would be of a significant amount, with a relatively small outlay of time and money, and that this return would continue for a very long time. In these circumstances I think it is proper to find, and I do find, that he set out to engage in producing the pears and the nuts as a business and that he was in the tax year carrying on that business, which was a business of primary production.

30. The Secretary argues that Mr Veney is a hobby farmer, a conclusion supported by him not having submitted a tax return after the 2016-17 financial year and his reliance on social security payments as his primary source of income since 2016.

1. Mr Veney is yet to generate any income from the enterprise and does not dispute that he was, and remains, reliant on social security payments as his primary source of income. He currently uses the income he receives from Age Pension to live on and maintain the running of his farm. He reasons that in Thomas, the enterprise in question had not turned a profit but was nonetheless found to be carrying on a business of primary production. 

2. The considerations set out in the Secretary’s Rule are forward looking in that they give weight to a person having an intention to make a profit in respect of the farm enterprise and a reasonable belief that the farm enterprise is likely to generate a profit. In contrast, a hobby farmer maintains a farm without expectation it will be their primary source of income.

3. Mr Veney has held his farm since 1992. By his own account he initially planned to continue his off-farm work until he qualified for Age Pension, though this changed when his employment ceased in 2016. His business plan indicates his goal is to ‘generate sufficient income to maximise [his] permissible income while remaining eligible for Age Pension’. This suggests that Mr Veney does not have an expectation that the farm enterprise will be his primary source of income. 

4. Mr Veney’s farm business meets many of the criteria set out in the Guidelines and I am satisfied that he considers it a serious business endeavour. His capital investment in the farm and associated assets has been significant, more so when considered relative to his income. His testimony at the hearing indicated extensive knowledge about quandongs and his pioneering efforts to graft plants in order to produce trees which combine the best characteristics in order to cultivate tress able to produce commercially viable fruit.

5. In reviewing the decision to refuse FHA, the ARO wrote that ‘[t]he farm enterprise does not have a significant commercial nature because it has not made any income’. The Guidelines state that decision makers, including the Tribunal, are expected to take into account other relevant considerations when determining if an enterprise has a significant commercial purpose. Mr Veney’s claim to meet the commerciality test cannot be determined solely on the basis of income his enterprise has generated. 

6. The evidence suggest that the majority of Mr Veney’s quandongs are relatively immature. It is unclear how much fruit they will yield or what income they would reasonably be expected to generate and when. Mr Veney’s evidence suggested that he was still at an early stage of his enterprise and there is scant detail in his business plan as to how he intends to transition from establishment of his crop and into commercial production. 

7. I accept that Mr Veney has sought expert advice, conducted research and is actively developing suitable stock. However, yielding fruit, harvesting the crop and marketing it such that commercial returns are likely is an outcome expected sometime in the future and subject to many unquantified variables and unmitigated uncertainties. For these reasons, I do not consider there is a reasonable expectation that his business will make a profit. 

8. Based on Mr Veney’s own evidence, it is apparent that his farm enterprise is not expected to be profitable enough that he would no longer be reliant on Age Pension, at least in part. Consequently, I am not satisfied that it is intended the farm enterprise would be his primary source of income.

9. Whilst I am satisfied that Mr Veney is carrying on a business, in considering the totality of the evidence against the criteria set out in the Guidelines, I am not satisfied that his business has a significant commercial purpose or character such that it meets the requirements in subsection 8(c) of the FHA Act.

   DOES THE MULTIPLE ENTITLEMENT EXCLUSION PREVENT PAYMENT OF FHA?

10. The Secretary submits that even if Mr Veney were to meet the eligibility requirements for FHA, the allowance was not payable on account of the multiple entitlement exclusion set out in section 38 of the FHS Act. Having concluded that Mr Veney does not meet the eligibility requirements for FHA, it is not strictly necessary to determine if FHA would be payable. I have decided to do so as it was a significant point of contention between the parties.

11. It is not in dispute that Mr Veney was in receipt of newstart allowance when he made his application for FHA. Newstart allowance is defined as a social security benefit in section 23 of the Social Security Act. It is also agreed that Mr Veney sought to transition from newstart allowance to FHA and there is no suggestion he sought to receive more than one entitlement.

12. Mr Veney’s expectation was that following a successful application for FHA, newstart allowance would cease being paid to him and he would instead be paid FHA. He gave evidence that he expected the process would be similar to his transition from newstart allowance to age pension upon becoming eligible for the latter.

13. The Tribunal heard arguments from both parties as to whether the multiple entitlement exclusion would apply to Mr Veney’s application. The Secretary submitted that Mr Veney was required to cancel his newstart allowance upon applying for FHA in order for FHA to be payable. For his part Mr Veney submitted that the Secretary is required to ensure that a person is always paid the most appropriate or beneficial payment for their circumstances.

    Consideration

14. Section 38 of the FHS Act provides that FHA is not payable if the person is already receiving … a social security benefit. On plain reading it would appear that FHA is not payable in circumstances where an applicant is in receipt of newstart allowance. This understanding is supported by a number of Federal Court and Tribunal decisions that have considered this issue in relation to the Farm Household Support Act 1992 (Cth) (‘the 1992 Act’) which was replaced by the FHS Act. The 1992 Act contained in section 12 a similar provision to section 38 of the FHS Act. In Dunning v Secretary, Department of Family & Community Services [1999] FCA 1605 the Full Court relevantly stated ‘the receipt of the newstart allowance disqualified the appellant from being entitled to payment of the farm household support during the period in which he had received the newstart allowance’.

15. The Memorandum provides context for the application of the multiple entitlement exclusion where it states that the purpose of FHA is to provide for:

    an assets test that is higher than mainstream asset limits in recognition that farm assets are relatively illiquid compared with other types of business assets and therefore cannot readily be drawn on for self-support

    …

    an income support payment for farmers and their partners that aligns with social security law where possible. This approach ensures recipients are treated equitably and have access to the same benefits and services as mainstream income support recipients.

    …

16. A distinction is made between those who have access to mainstream income support and those who do not have access to the same benefits. The FHS Act provides for a separate allowance, FHA, so that farmers and their partners have access to income support and benefits which would ensure they are treated equitably with mainstream income support recipients.

17. In excluding those who are eligible for existing benefits, pensions or allowances from payment of FHA, the multiple entitlement exclusion provision in section 38 confines payment only to those who are not able to access mainstream income support. That is, FHA is limited to those who are not treated equitably. This is entirely consistent with the purpose of FHA as set out in the Memorandum.

18. Consequently, I am satisfied that should Mr Veney have met the eligibility criteria in section 8 of the FHS Act, FHA would not have been payable by operation of section 38.

    CONCLUSION

19. As Mr Veney does not meet the eligibility criteria for payment of FHA, his application cannot succeed and the decision under review will be affirmed.

    DECISION

20. For the reasons stated above, the decision of the Social Services and Child Support Division of the Tribunal dated 19 June 2019 is affirmed.

I certify that the preceding 50 (fifty) paragraphs are a true copy of the reasons for the decision herein of Mr S Evans, Member

................................[SGD]........................................

Associate

Dated: 22 October 2021

Date(s) of hearing:	11 June 2021
Applicant:	Self-Represented
Solicitor for the Respondent:	Dr S Thompson, Services Australia