EXPLANATORY STATEMENT
Issued by the authority of the Minister for Social Services
Social Security Act 1991
Social Security (Primary Production Concession) Principles 2017
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.
The Principles commence on 1 April 2017 following the cessation of the Social Security (Primary Production Concession) Principles 2001 on that date.
The Social Security (Primary Production Concession) Principles 2001 cease operation on 1 April 2017 due to the sunsetting provisions in the Legislation Act 2003.
Background
Part 3.18 of the Social Security Act specifies the means test treatment of private companies and private trusts. The provisions in Part 3.18 aim to ensure that people who hold their assets in private companies or private trusts receive comparable treatment under the means test to those 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.
Commencement
This instrument commences on 1 April 2017.
Consultation
The Department of Human Services has been consulted in the preparation of this instrument.
Regulation Impact Statement (RIS)
This instrument is not regulatory in nature and will have no regulatory impact on individuals, business, activity or competition.
Explanation of the provisions
Part 1
Section 1 of the Principles states the name of the instrument and section 2 states that the Principles commence on 1 April 2017. 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 2017, 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 2017, 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 2017 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 2017, 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 4 of the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2017 into account.
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Social Security (Primary Production Concession) Principles 2017
The Principles are compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview of the legislative instrument
Part 3.18 of the Social Security Act 1991 (the Act) establishes the attribution rules for controlled private trusts and controlled private companies. Under Division 11 of Part 3.18 of the Act, a “concessional primary production trust” is exempt from the attribution rules. Section 1208U(1) of the Act establishes the criteria that must be met for a trust to qualify for an exemption.
This instrument, in conjunction with Division 11 of Part 3.18 of the Act, specifies how to determine whether the person meets the income and assets test.
Human rights implications
The Principles engage the right to social security under Article 9 of the International Covenant on Economic, Social and Cultural Rights (ICESCR). The right to social security requires that a system be established under domestic law, and that public authorities must take responsibility for the effective administration of the system.
The social security scheme must provide a minimum essential level of benefits to all individuals and families that will enable them to acquire at least essential health care, basic shelter and housing, water and sanitation, foodstuffs, and the most basic forms of education.
The Principles are compatible with human rights as they ensure a person’s current resources are appropriately assessed for the purposes of ascertaining the person’s assessable income for means testing purposes under Part 3.18 of the Act.
Conclusion
The Principles are compatible with human rights as they do not raise any human rights issues.
Finn Pratt AO PSM
Secretary
Department of Social Services