Social Security (Primary Production Concession) Principles 2001

Administered by Department of Social Services

Legislation au F2007B00366 Not in force Legislative Instrument

Legislation content

EXPLANATORY STATEMENT

Social Security (Primary Production Concession) Principles 2001

Summary

Section 1209E of the Social Security Act 1991 (the Social Security Act) provides that the Secretary may formulate principles to be complied with by him or her when making decisions under a number of provisions of the Social Security Act, including paragraph 1208U(1)(f), section 1208W, subsection 1208Y(2) and sections 1208Z and 1209.

The purpose of this instrument is to set out decision-making principles that the Secretary must comply with in making determinations under these provisions. These determinations relate to the way in which the trusts and companies measure affects primary production enterprises.

Background

The Social Security and Veterans’ Entitlements Legislation Amendment (Private Trusts and Private Companies – Integrity of Means Testing) Act 2000 amended the Social Security Act to give effect to a measure in the Government's 2000-2001 Budget to revise the means test treatment of private companies and private trusts. The measure aims to ensure that customers who hold their assets in private companies or private trusts receive comparable treatment under the means test to those customers who hold their assets directly. The assets and income of the structure will be attributed to the person or persons who control the company or trust, or to the person or persons who were the source of the capital or corpus of the company or trust.

Explanation of the provisions

Part 1

Section 1 of the Principles states the name of the disallowable instrument and section 2 states that the Principles commence on gazettal. Section 3 contains interpretation provisions. Section 4 sets out the purpose of the instrument.

Part 2

Section 5 sets out the purpose of Part 2 of the instrument. This is to provide decision-making principles that can be used in making a determination, under paragraph 1208U(1)(f), that a person is eligible for concessional primary production treatment under Part 3.18 of the Social Security Act, even though that person, and their spouse, has not earned any primary production income in the past three financial years.

Section 6 provides, in summary, that the Secretary must consider whether an individual has had a long-term connection with primary production, even though he or she does not satisfy the requirements of subparagraphs 1208U(1)(e)(i), (ii) and (iii). An individual will be taken to have had a long-term connection with primary production if, for a period of 20 years, he or she has been involved in carrying on one or more primary production enterprises, has contributed a significant part of his or her labour to carrying on such enterprises and has directly or indirectly derived a significant part of his or her income from those enterprises. This 20-year period can be one continuous period or made up of 2 or more periods which total twenty years.

Section 7 provides, in summary, that where a primary production enterprise was being carried on by a person or entity, other than the individual, or his or her spouse, or an entity controlled by the individual, or his or her spouse, at any time in the three year period prior to the test time (ie the former owner of the enterprise) then the Secretary must consider the average net income of the primary production enterprise over the prior three years. The Secretary must also consider whether there would have been any reductions or adjustments to that average income if the primary production enterprise had been carried on by the individual, or his or her spouse, or an entity controlled by the individual, or his or her spouse.

Part 3

Section 8 sets out the purpose of Part 3 of the instrument. This is to provide decision-making principles that can be used in making a determination, under subsection 1208W(2), as to the part of a specified liability that can be used to reduce the value of an asset owned by a company or trust for the purposes of determining whether a trust is a concessional primary production trust under Division 11 of Part 3.18 of the Social Security Act.

Section 9 provides that the Secretary must consider whether the liability arose as a result of a genuine arm’s length transaction. In short, a transaction will fall into this category if it relates to the specific business activities of the company or trust, is not an agreement involving a minor (as defined in subsection 9(4)) and is in the form of a written agreement signed by each party to the transaction and witnessed by an independent person.

Part 4

Section 10 sets out the purpose of Part 4 of the instrument. This is to provide decision-making principles that can be used in making a determination, under subsection 1208Y(2), that an asset, which would otherwise be an asset controlled by an individual, is taken, for the purposes of determining whether a trust is a concessional primary production trust under Division 11 of Part 3.18, not to be controlled by the individual.

Section 11 provides that in making this determination the Secretary needs to consider whether it is likely that, having regard to the decision-making principles set out in Part 2 of the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000, the individual would be considered to be an attributable stakeholder of the company or trust that owns the asset. If the asset is owned by a concessional primary-production trust, the Secretary must consider the likelihood that, but for this fact, the individual would be considered to be an attributable stakeholder of the trust.


Part 5

Section 12 sets out the purpose of Part 5 of the instrument. This is to provide decision-making principles that can be used in making a determination, under subparagraph 1208Z(2)(a)(ii) or (b)(ii), that the adjusted net value of an asset controlled by an individual is, for the purposes of determining whether a trust is a concessional primary production trust under Division 11 of Part 3.18 of the Social Security Act, less than 100%.

Section 13 provides that in making this determination the Secretary needs to consider whether it is likely that, having regard to the decision-making principles set out in Part 2 of the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000, the individual would be considered to be an attributable stakeholder of the company or trust that owns the asset. If the asset is owned by a concessional primary-production trust, the Secretary must consider the likelihood that, but for this fact, the individual would be considered to be an attributable stakeholder of the trust. If the Secretary does consider that it is likely that the individual would have been considered to be an attributable stakeholder of the company or trust, then the Secretary must also consider what would be the individual’s likely asset attribution percentage in relation to the company or trust, taking Part 3 of the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000 into account.

Part 6

Section 14 sets out the purpose of Part 6 of the instrument. This is to provide decision-making principles that can be used in making a determination, under subparagraph 1209(1)(b)(ii) or (c)(ii), that, for the purposes of determining whether a trust is a concessional primary production trust under Division 11 of Part 3.18 of the Social Security Act, less than 100% of the net income generated by a primary production enterprise, which was carried on by a company or trust that was a controlled private company or trust in relation to an individual for the tax year, applies to the individual.

Section 15 provides that in making this determination the Secretary needs to consider whether it is likely that, having regard to the decision-making principles set out in Part 2 of the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000, the individual would be considered to be an attributable stakeholder of the company or trust that owns the asset. If the asset is owned by a concessional primary-production trust, the Secretary must consider the likelihood that, but for this fact, the individual would be considered to be an attributable stakeholder of the trust. If the Secretary does consider that it is likely that the individual would have been considered to be an attributable stakeholder of the company or trust, then the Secretary must also consider what would be the individual’s likely income attribution percentage in relation to the company or trust, taking Part 3 of the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000 into account.

 

Overview

The Social Security (Primary Production Concession) Principles 2001 were introduced to provide decision-making principles for the Secretary when making determinations under specific provisions of the Social Security Act 1991. Enacted by the Parliament of Australia, this instrument aims to ensure that individuals holding assets in private companies or private trusts receive comparable treatment under the means test to those who hold their assets directly. The legislation addresses the problem of ensuring integrity in the means testing process, particularly in relation to primary production enterprises, by setting out specific principles that must be followed. These principles are designed to guide the Secretary in determining eligibility for concessional primary production treatment, asset control, and income attribution in complex financial arrangements involving primary production enterprises.

Scope and Application

The Social Security (Primary Production Concession) Principles 2001 outlines the decision-making principles that the Secretary must adhere to when making determinations under specific provisions of the Social Security Act 1991. These provisions relate to the treatment of primary production enterprises in the means test for social security benefits. The Act applies to individuals and entities involved in primary production, particularly those who hold their assets in private companies or private trusts, ensuring they receive comparable treatment under the means test to those who hold their assets directly. The principles are designed to assess eligibility for concessional primary production treatment, taking into account factors such as long-term involvement in primary production and the nature of liabilities and assets owned by companies or trusts. The instrument extends its application nationally, as it is a Commonwealth legislation, and it does not specify any exclusions, exemptions, or thresholds within the explanatory statement provided. The Act may be further elaborated through subordinate instruments, which would provide more detailed guidance and specifications on its application.

Key Provisions

The Social Security (Primary Production Concession) Principles 2001 establishes the decision-making principles that the Secretary must follow when making determinations under specific provisions of the Social Security Act 1991, such as paragraph 1208U(1)(f), section 1208W, subsection 1208Y(2), and sections 1208Z and 1209 (Sections 5, 8, 10, 12, and 14). These principles govern how trusts and companies measuring affects primary production enterprises. Section 6 outlines that the Secretary must evaluate whether an individual has a long-term connection with primary production, even if they do not meet the requirements of subparagraphs 1208U(1)(e)(i), (ii), and (iii). This long-term connection is determined by assessing the individual's involvement in carrying on primary production enterprises, their contribution of labour, and the income derived from these enterprises over a 20-year period (Section 6). The Act imposes several obligations on the Secretary when making determinations. For instance, under Section 7, the Secretary must consider the average net income of a primary production enterprise over the previous three years if it was carried on by a person or entity other than the individual or their spouse, or an entity controlled by them. The Secretary must also evaluate whether there would have been reductions or adjustments to this average income if the individual or their spouse had been running the enterprise. Additionally, in making certain determinations, the Secretary must consider whether a liability arose from a genuine arm’s length transaction, as specified in Section 9. Such transactions must pertain to the business activities of the company or trust, not involve a minor, and be documented in a written agreement signed by each party and witnessed by an independent person. There are no explicit offences, penalties, or civil/criminal consequences for breaches of the Act mentioned in the provided text. The Act primarily sets out the decision-making principles and considerations that the Secretary must adhere to when determining eligibility for concessional primary production treatment under the Social Security Act. However, it is essential to note that non-compliance with the Social Security Act generally could result in penalties, fines, or other legal consequences as stipulated elsewhere in the Act. The specific penalties would depend on the nature and severity of the breach and would be governed by other sections of the Social Security Act.

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Sourced from the Federal Register of Legislation at 26 August 2026. For the latest information on Australian Government law please go to https://www.legislation.gov.au.