Intergenerational transfer of a farm – Centrelink implications

By William Truong, Technical Services Manager

To assist the intergeneration transfer of Australian farms to near relatives, retiring farmers may be eligible to access Centrelink’s foregone wages provision if they’ve had a close relative working on the farm who have agreed to work for less than award wages.

Under this foregone wages provisions, the value of any past contributions to the farm by the near relative is taken into account as consideration when calculating a deprivation amount applicable to the farmer for pension entitlements, when a transfer of the farm takes place.

Access to forgone wages generally only applies once the farmer transfers the title or effective control of an Australian farm to a close relative. Importantly, any direct or indirect control by the farmer must be relinquished and transferred over to the close relative.

Note that if the farmer sells the farm and gives the sale proceeds to the relative, the foregone wages provision will not apply. The provision is only available to facilitate intergenerational transfers of the family farm.

A transfer of a farm can include farming land, associated machinery, stock, seeds and other items required to operate the farm.

When transferred with the farm, any value of the income support recipient's principal home and adjacent land is not included in the foregone wages calculation.

A near relative generally includes a parent, child, brother or sister (or their partner).

Centrelink will generally accept the following as past contributions from a close relative and offset against the retiring member’s deprivation assessment value resulting from the farm transfer:

  • wages forgone, or contributions made to improve the farm, or
  • purchase of livestock and equipment, or
  • unpaid care of the person.

Unpaid care

This is a high level of personal care for at least 12 months, including:

  • cooking and feeding
  • dressing and undressing
  • showering and toileting.

Normal housework and chores do not count as unpaid care.

The care is valued at 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.

Conditions for foregone wages

There are some conditions which are in place for foregone wages to be recognised and treated as consideration:

  • the near relative must have worked on the farm, and
  • the work must have been more than merely assisting with chores, and
  • were it not for the work undertaken by the near relative, outside labour would have had to be employed.

There is no requirement that the work was undertaken during normal business hours. So, the work could have been undertaken after school or on weekends but note that work done by children cannot be calculated whilst the child is under 15 years. Also, 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.

Documentation

Useful documents to help prove a claim for foregone wages include:

  • details of all the times when the new owner did unpaid work or unpaid care
  • details of the value of any improvements contributed
  • documents to support this, such as tax returns and receipts
  • details of how the property has operated over the years.
Example

Joe is a widowed farmer and is planning to retire from farming at age 67, in 2021. The farm assets value $250,000 and are in a discretionary trust of which Joe is Appointer, with the trustee being a corporate trustee controlled by Joe.

Joe's children have been working on the farm unrewarded for a number of years and Joe, having received advice from Centrelink, understands that he may be able to utilise the forgone wages provisions in transferring the farm to his children, upon his retirement.

However, for tax and legal reasons neither Joe nor his children want the farm transferred out of the trust. By transferring control of the discretionary trust and corporate trustee to his children on his retirement, Joe can have the forgone wages of his children offset against the resulting gifting amount that eventuates from this transfer.

The title deeds will not be altered to reflect the transfer, however, this does not present any difficulties in terms of utilising the forgone wages provisions provided that control of the trust has been formally transferred to the children.

Calculating foregone wages is complex and claims under the foregone wages provisions are generally handled by Complex Assessment Officers in Centrelink. Therefore, it is advisable to refer such clients to one of these officers.

More information

If you have any questions, or would like more information, please contact the IOOF TechConnect team on 1300 650 414.

Disclaimer
The information in this section of the website is intended for financial advisers only and is not to be distributed to clients. It has been prepared on behalf of Australian Executor Trustees Limited ABN 84 007 869 794 AFSL 240023, IOOF Investment Management Limited ABN 53 006 695 021 AFSL 230524, IOOF Investment Services Ltd ABN 80 007 350 405, AFSL 230703 and IOOF Ltd ABN 21 087 649 625 AFSL 230522 based on information that is believed to be accurate and reliable at the time of publication.