Herrick and Department of Family and Community Services [2002] AATA 91 (15 February 2002)

Last Updated: 28 February 2002

DECISION AND REASONS FOR DECISION [2002] AATA 91

ADMINISTRATIVE APPEALS TRIBUNAL )

) No V01/1089

GENERAL ADMINISTRATIVE DIVISION )

Re GERARD HERRICK

Applicant

And SECRETARY, DEPARTMENT OF FAMILY & COMMUNITY SERVICES

Respondent

DECISION

Tribunal Mr J. Handley, Senior Member

Date 15 February 2002

Place Melbourne

Decision The decision under review is set aside and in substitution IT IS DECIDED the applicant is a 'farmer' as defined under the Farm Household Support Act 1992.

..............................................

Senior Member

CATCHWORDS

Social Security - Applicant a share farmer - whether he is a 'farmer' under the Farm Household Support Act - whether he made a 'significant' contribution of 'capital' - decision set aside.

Farm Household Support Act 1992

Parett and Secretary, Department of Family & Community Services [2001] AATA 427

Re Vulcan Australia and Comptroller General of Customs (1994) 34 ALD 773

ACI Pet Operations Pty Ltd v Comptroller General of Customs (1990) 26 FCR 531

Incorporated Interests Pty Ltd v Federal Commissioner of Taxation (1943) 67 CLR 508

Federal Commissioner of Taxation v Roberts (1992) 108 ALR 385

Words & Phrases : 'Contributes'; 'Significant'; 'Capital'.

REASONS FOR DECISION

15 February 2002 Mr J. Handley, Senior Member

1. The applicant applies to review a decision of the Social Security Appeals Tribunal ("SSAT") made on 1 May 2000. The SSAT then decided to affirm a decision previously made by an Authorised Review Officer ("ARO") of Centrelink.

2. The application arises out of a rejection by the respondent to accept a claim brought by Mr Herrick for a Farm Family Restart Grant, under the Farm Household Support Act 1992. The issue in dispute is whether Mr Herrick is a "farmer" as defined by the Act.

3. The application was heard in Bendigo on 23 January. Mr Herrick appeared without representation but with the assistance of Mr Allan, a rural counsellor. The respondent was represented by Ms King. The facts giving rise to the application were essentially not in dispute, and may be briefly summarised as follows-

4. At all relevant times the applicant and his wife were share farmers. They were parties to a "share farming agreement". (T-13 p.87-94) The other parties to the agreement were the property owners (the owners). The property was used to conduct a dairy farm.

5. The agreement recorded that the owners would provide the land and stock, milking facilities, a house, machinery and vehicles. The share farmers were to provide management and labour to milk and manage the farm, their own four wheel all terrain vehicle ('ATV') and trailer, hand tools and computer and software. The term of the agreement was recorded as a period of three years, commencing on 1 August 1998. The agreement had terms as to the division of monies from milk sales and calves raised and sold.

6. In a separate part of the agreement under the sub-heading of "Expenses" all costs were to be paid by the owners, except for the following, which were to be paid by the owners and the applicant at 2/3 and 1/3 respectively-

* Shed costs

* power

* rubberware

* detergents

* dairy supplies

* Nitrogen fertiliser & spreading costs

* Grain, pellets, additives

* Power - Irrigation/water

7. The same agreement records that the applicant is responsible, in full for his 'own insurance'.

8. The applicant said that he obtained a bank overdraft to provide, in part, the funds necessary to meet his obligations as a share farmer. In the first year of share farming the overdraft had a $5,000 limit but in the second year it was increased to $10,000.

9. Having regard to the definition of "farmer" within the Act, the issue in this application is whether the applicant "contributed a significant part of his ..... capital .....".

The Legislation

10. The Act defines "farmer" as-

"..... a person who

(a) has a right or interest in the land used for the purposes of a farm enterprise'; and

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

(c) derives a significant part of his or her income from the farm enterprise".

"Farm enterprise" is defined by the Act as-

"..... an enterprise carried on within any of the agricultural, horticultural, pastoral, apicultural or aquacultural industries".

11. The respondent concedes that the applicant does have a right or interest in the land within the meaning of sub-paragraph (a) of the above definition by reason of his status as a share farmer. The respondent also concedes that the applicant derived a significant part of his income from the farm enterprise within the meaning of sub-paragraph (c) of the definition.

12. There is no dispute that the applicant did contribute a significant part of his labour. However the ARO and the SSAT decided that the applicant did not contribute a significant part of his capital to the farm enterprise pursuant to s.9(b).

Reasons For Decision

13. In the 1999 Income Tax Return found at T-13 of the T-documents (page 80), the applicant has recorded a number of his expenses to offset the income that he earnt. His total expenses were $49,744.07. He has claimed "fertiliser" at $1,418.15, "fodder" at $13,387.10 and "rates - water" at $2,675, 'electricity' at $1,073.21 and 'dairy expenses' at $1,235.72.

14. The sum total of these five items of expenditure ($19,789.18) is approximately 40% of the total expenses claimed by the applicant in the 1999 year of income.

15. As may be seen from the list of expenses appended to the sharefarming agreement (refer para 6 earlier) the applicant had no obligation to pay "water/rates" and his liability for "fertiliser" was only 1/3 of the cost of "nitrogen fertiliser". (The schedule of "Expenses" in the Share Farming Agreement additionally records that the owner is responsible at 100% of the cost of "fertiliser which has been spread to develop and maintain soil fertility levels"). To the extent that "grain, pellets, additives" may be construed as 'fodder', the applicant was obliged to pay 1/3 only, whereas "bought in hay" was the responsibility of the owner in full.

16. When the applicant left the farm (he has subsequently been employed as a wage and salary earner) the applicant sold the ATV, which he used only when he was a share farmer. A Land Rover motor vehicle was apportioned by the applicant as 50/50 between personal and farming use and it has been retained. The applicant has also retained a computer which he estimated had a 90/10% division between farm and personal use respectively. Other tools, chainsaws, brush cutters and power tools owned by the applicant, he said were used only in relation to the farm.

17. The ARO decided, (p.103) that the applicant had "not made a significant contribution to the capital of the farm enterprise. By this I mean you do not own any of the milk producing cows, major farm machinery or any part of the property". (emphasis by ARO)

18. The SSAT were concerned also with the "capital" and decided that despite the applicant having taken out an overdraft "to be able to meet their share of the expenses of the property", that "these do not necessarily constitute capital".

19. In the Statement of Facts and Contentions filed prior to the hearing, the respondent concluded, "when one takes into account the amount of the assets necessary to run the farm, they have not contributed a significant amount of capital. The overdraft does not of itself constitute "significant capital" which has necessarily been "contributed to the business".

20. At the hearing Ms King agreed that a share farmer is contemplated by the legislation but for the purposes of the present application the issue of concern was the meaning to be given to the word "capital" and whether the applicant had contributed any significant capital to the farm enterprise. It was submitted that the overdraft constituted a loan which was not of itself capital because it was the money of another person.

21. The hearing was also concerned with whether the expenses for fertiliser, fodder and water, constituted "capital". Additionally, the expenditure of monies, having their source in the overdraft, was also the subject of submissions as to whether that expenditure constituted "capital".

22. The definition extends however to consideration as to whether the contribution by the applicant was a "significant" part of his "capital".

23. The words "contribute", "significant" or "capital" are not defined by the Act.

24. 'Contribute" is not a term of art or requiring legal gloss. As per the Macquarie Dictionary it means 'to give', whether 'in common with others' or for a 'common purpose'. In the context of the definition of 'farmer', I would add that a 'contribution' of 'capital' is in the nature of an investment.

25. In Parett and Secretary, Department of Family & Community Services [2001] AATA 427 (being a review of a decision under the same legislation, as in the present application) the Tribunal determined at paragraph 33, that "significant implies nothing more than being not insignificant or not negligible at one end of the spectrum and being noteworthy or of considerable amount, effect or importance". This analysis was taken apparently from the Concise Oxford Dictionary.

26. In Re Vulcan Australia and Comptroller General of Customs (1994) 34 ALD 773, the Tribunal examined a number of authorities as to the meaning to be given to the word "significant". Whilst the authorities highlighted that the meaning to be attributed to the word depended in part on the context of its use, Foster J, in ACI Pet Operations Pty Ltd v Comptroller General of Customs (1990) 26 FCR 531 examined the word in considerable detail, by reference to dictionary interpretations. At 551-552 His Honour said-

"I derive assistance also from considering that the word is the opposite of "insignificant" which word is defined in the Macquarie Dictionary as meaning "unimportant, trifling or petty and as "too small to be important". Looked at from this point of view, "significant" may be regarded as meaning "not unimportant or trivial" or as sufficiently large to be important"..... The very use of the term must frequently involve a subsidiary question - "significant for what".

27. An interpretation of the word "capital" is not as straight forward. The word "capital" of course has a different meaning depending on context. In economic or accounting terms it can extend to capital which is either 'expenditure', 'value', 'paid up', 'fixed', 'issued' or 'nominal'.

28. In Incorporated Interests Pty Ltd v Federal Commissioner of Taxation (1943) 67 CLR 508 Rich J, said at 519-

"Capital required means the stock, money or wealth in any form necessary for the operations of the particular company during the accounting period. The question involved is one of degree and therefore one of fact".

29. In the same decision Starke J, at 520 said-

"Capital is not in truth a technical term. For the purpose of economics capital has been defined as produced wealth as distinguished from land and other natural resources used productively for gain. But in the business or mercantile sense and therefore in the sense used in the War-Time (Company) Tax Assessment Act it is simply the means with which business is carried on and it may consist of money or property convertible into money".

30. In Federal Commissioner of Taxation v Roberts (1992) 108 ALR 385, (a decision of the Full Court), Hill J, at 389 referred to the decision of Northrop J at first instance, who decided-

"In the present case the money borrowed from the bank constitutes part of the capital of the partnership necessary for it to carry on its profession".

31. In the context of the present application and noting that the legislation is to be interpreted beneficially (refer Re Corbon & Department of Family and Community Services [2001] AATA 549 at paragraph 33), I am satisfied that the applicant has made a 'significant' contribution of 'capital' to the farm enterprise.

32. The items of expenditure referred to above constitute almost 40% of the total expenses incurred by the applicant. It is to be noted that these expenses were incurred whilst he was a share farmer. Whether he was obliged to meet these expenses or not (depending on the interpretation of the share farming agreement), I am satisfied that those expenses were significant, in the context of the total expenses and also in the context of the total income derived from the farming enterprise. In order to meet his obligations under the share farming agreement the applicant was required to incur certain items of expenditure which on his evidence could only be achieved by obtaining or having access to monies secured by the overdraft.

33. Alternatively, if the items of expenditure referred to are not 'capital' in nature, the monies obtained from the overdraft, to meet these expenses, surely is capital, that is, capital in the nature of money. These monies have a direct relationship - an "essential connection with the income producing ability of the" farm. (refer FCT v Roberts). The farm is not the property of the applicant but his input, both in labour and capital, has a distinct and direct relationship to the generation and return of income.

34. The overdraft monies expended by the applicant, constitute his 'risk' in the farming enterprise and properly characterised, its purpose has no domestic or private application.

35. His contribution is significant. It constitutes accepting the liability for a not insignificant amount of money to meet the operating costs of an enterprise he does not own and where he receives 1/3 of the income from milk and is obliged to pay 1/3 of a number of operating expenses. The 'significance' of the capital contributed must be subjective and measured against the applicant, not against the value of the farm or the enterprise.

Conclusion

36. Mr Herrick is a share farmer and was obliged to meet certain costs under the share farming agreement he had with the owners. True it is that he was entitled to certain remuneration but in my view and on an interpretation of the agreement, that remuneration was not a reward only for his labour. It was also a reward for his capital contribution (an investment). Additionally, that he was unable to meet his obligations under the agreement without having to obtain an overdraft indicates to me that he did make a capital contribution as constituted by the liability he incurred and the responsibility for the overdraft repayments. Whilst the monies obtained under the overdraft were primarily "owned" by the lending bank, the drawing of those monies from the overdraft facility became the capital which he contributed to the farming enterprise.

37. In the circumstances and for the above reasons I am satisfied that the applicant is a "farmer" as defined and the decision under review should be set aside.

I certify that the 37 preceding paragraphs are a true copy of the reasons for the decision herein of Mr J. Handley, Senior Member

Signed: ....................M.Dimovski.................................................

Associate

Date/s of Hearing 23 January 2002

Date of Decision 15 February 2002

Counsel for the Applicant Self Represented

Counsel for the Respondent Ms King, Departmental Advocate