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Administrative Appeals Tribunal of Australia |
Last Updated: 25 February 2003
ADMINISTRATIVE APPEALS TRIBUNAL )
GENERAL ADMINISTRATIVE DIVISION |
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Re |
JOHN HONOR GRAHAM HONOR |
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And |
SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES |
Tribunal |
Mr O Rinaudo, Member |
Decision
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The Tribunal sets aside the decision under review and remits the matter to the respondent for reconsideration in accordance with the Tribunal's reasons for decision. |
(Sgd) Mr O Rinaudo
SOCIAL SECURITY - benefits and entitlements - farm help - whether applicant is a "farmer" - statutory interpretation - meaning of "farmer"
Farm Household Support Act 1982
Re Secretary, Department of Family and Community Services and Oliver [2002] AATA 724
Re Secretary, Department of Family and Community Services and QX01/2 [2001] AATA 1026
ACI PET Operations Pty Ltd v Comptroller-General of Customs (1990) 26 FCR 531
Re Catto and Secretary, Department of Family and Community Services [2001] AATA 354
Parrett v Secretary, Department of Family and Community Services [2002] FCA 716
25 February 2003 |
Mr O Rinaudo, Member |
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1. This is an application for review of a decision of the respondent, as affirmed by the Social Security Appeals Tribunal (the SSAT), to reject the applicants' claims for farm help. The respondent and the SSAT determined that the applicants did not meet the definition of a "farmer" in the Farm Household Support Act 1992 (the Act), and therefore did not qualify for farm help payments.
2. This matter was heard by the Tribunal on 11 September 2002 in Bundaberg. The applicants were represented at the hearing by Mr Murray Davis, a Farm Financial Counsellor with the Department of Primary Industries. The respondent was represented by Mr Rick McQuinlan, a Departmental advocate. The Tribunal had before it the documents lodged pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 (the T documents) as well as the following documentary exhibits:
§ Statement of Grant M Hutchings, H&R Block Tax Accountants; and
§ Joint statement of John and Graham Honor dated 19 April 2002.
3. Graham Honor is the son of John Honor. On 13 December 2000, the applicants lodged claims for farm help. The applicants were partners in a cane farming and a cane harvesting enterprise, although they did not have a formal partnership agreement. Graham Honor became a partner in the businesses around six years ago. In August 2000, the family's cane farm (which John Honor and his wife had owned since 1972) was put on the market, eventually selling in August 2001. The family ceased operating the cane harvesting aspect of their business in October 2000. The applicants contend that both cane growing and harvesting should be seen as primary production and should be treated as farm enterprises for the purposes of the Act.
4. The respondent contends that neither applicant qualifies for benefits under the Act. It contends that Graham Honor was not a partner in the family business, but was merely an employee. The respondent points to the applicant's tax returns in support of this contention, the returns including group certificates rather than distributions from a partnership. Accordingly, it was contended that Graham Honor does not meet the definition of a "farmer" under the Act as he does not have an interest in a farming enterprise.
5. The respondent further contends that John Honor has not derived a significant part of his income from a farming enterprise and therefore he does not meet the definition of a "farmer" under the Act and, accordingly, does not qualify for benefits under the Act.
6. Further, the respondent contends that the cane harvesting business is not a farming enterprise within the terms of the Act.
EVIDENCE BEFORE THE TRIBUNAL
7. Mr John Honor told the Tribunal that he has been on a disability support pension since 1996 after a heart attack. Prior to that he was fit and well and working full time on the farm.
8. In 1997 he underwent a heart transplant operation. He spent eight months convalescing. He said that in 1998 he had a couple of bouts of rejection. He has undertaken little physical or manual labour since his heart attack.
9. For a period after the heart attack he would spend a couple of hours on the tractor driving and was responsible for the phone work associated with running the farm. After only about four hours on the tractor he would be "knocked up".
10. Mr Honor stated that Graham Honor was paid as a haul-out driver during the cane cutting season which lasted for about four months. Haul-out refers to the big bins which drive along beside the cane harvester to collect the cut cane. There are three haul-out bins to each harvester. Graham would operate one of these.
11. Graham Honor also gave evidence. He stated that he was a boiler-maker by trade. His evidence was that he would finish work around noon or one o'clock and then go home to work on the farm. He spent three or four months (the season) as a haul-out driver in the cane cutting business. The rest of the time he was working on the farm. This amounted for eight or nine months of the year and constituted about 70% of his time spent on the farm.
12. Graham Honor said that he worked on the farm from January to July and from November to January. He said that when his father got sick the bulk of the work on the farm fell to him. He undertook the planting, spraying, fertilising and watering of the crop.
13. In addition to the oral evidence of the applicants, the Tribunal was also referred to their joint statement dated 19 April 2002. It says:
"1. We John and Graham Honor were partners along with Pamela Ethel Honor in a 65 Hectare sugarcane farm at Alloway near Bundaberg. We also operated a contract cane harvesting business in conjunction with the farm business, using our machine to cut our farms cane as well as cane on a neighbour's property.
2. We ceased the contract cane harvesting business (ie. Harvesting cane other than our own) in October 2000.
3. We applied for Farm Help Income Support and Re-Establishment Grant in mid December 2000.
4. We sold the Alloway cane farm in August 2001.
5. We bought an additional cane harvester to increase the scale of the harvesting business in 1998/1999 season to offset exceptionally low farm cane income. Due to the low world sugar price and drought (ie. only 15%of our water allocation) we had low tonnage and prices. Although we increased the scale of the harvesting business the cane farm was still maintained in the expectation that world sugar price would once again rise to a viable and sustainable level and yearly rainfall would return to average. In hindsight the purchase of the additional harvester had a detrimental effect on the farm as any net surplus from the cane farm was supporting the harvesting business.
6. The years prior to 1998 show that our farm consistently returned significant income and profit due to a relatively more stable world sugar price and an average rainfall pattern.
7. John Honor receives a Disability Support Pension but still performs light farm work and operates the business in managerial capacity. Even during our busy harvest period, John overseas the rest of the farm and does the bookwork for both harvesting and farming businesses.
8. Graham was paid a set wage from the farm business as a haul-out driver during the cane-crushing season and general farm work and managerial duties for the rest of the year. This was paid by the business and only administered by Bundaberg District Cane Growers. It was not required for tax reporting to split Graham's wage income to show the farming and harvesting components. The cane harvest usually lasts four months. During the harvest periods Graham still operated the farm and the remaining 8 months were spent solely on the farm. It would be fair to say that at least two thirds of Graham's total time was spent directly on the cane farm.
9. The majority of our capital value was the farm itself owned by John and Pam. The machinery to operate the farm also made up a significant capital value that was owned by the partnership. Prior to the 1999 harvest the farm harvester was used to generate additional income off farm. Another harvester was then purchased to supplementing farm income as explained in point 5.
10. The last three years (1997/98 through to 1999/2000) have seen the business run at a loss. Although both the farming and contracting sides of the business generated large gross incomes, after costs a net deficit still resulted in these years. The operating costs are particularly high for the contracting business where wages, fuel and repairs are high cost items. Farm costs tend to be more stable however income relies greatly on the tonnes harvested and the world sugar price. We understand that Centrelink are instructed to use gross income figures except where a farm is not generating a sufficient income to meet the living costs of the farm family, and then the labour contribution of the owners is used to determine eligibility. As stated above, for all the time the business was running at a loss the majority of both John and Graham's time was contributes to the farm."
14. Exhibit two is a letter dated 11 September 2002 from Mr Grant M Hutchings, Certified Practicing Accountant of H&R Block tax accounts. He says in that letter that he acts as accountant and tax agent for the Honors. In respect of the issue of Graham Honor receiving a group certificate and wages as a haul-out driver he says:
"In regards to the latter please be advised that as part of their service, Bundaberg Canegrowers administers the wages paid by a large number of cane farmers. It is the individual cane farmers (in this case the Honors) who actually pay the wages and remit the tax thereon. Canegrowers simply calculate and record the wages and prepare year end group certificates.
Further I advise that Graham was a partner in this business and performed all the functions necessary for the complete operation of the farming and contracting sides of the business. He was not simply a haulout driver. This occupation description was simply a carry over from prior years before Graham became a partner in the family business. Graham had simply been an employee of the business in the past and this occupation description seemed the most fitting. The Tax Office requires only one occupation description per return. If there is more than one occupation description the Tax Office have instructed us to use the occupation from which most income is earned. As we prepare returns electronically, a lot of information is carried over from year to year and this is one area that obviously was not checked and adjusted as Graham's situation changed. It had no effect on his tax returns and we did not envisage another Government Department would rely on this information for other purposes.
Still on this point I should advise that in a truly technical sense Graham should not have received a Group Certificate at all. As a partner in the business his only income would normally be a distribution of the partnerships profit or loss. Once again this is partly a carry over from the time before Graham became a partner in the business. He had always previously received wages income, which was taxed at source. So it was felt that it would be easier for Graham and his partner and family to manage if this wage continued. It was a simpler way for Graham to manage his cashflow and his tax liability. It was also a reflection of Graham's extra labour input to the business over and above that of the other partners. John Honor has been seriously ill over the last few years and unable to put in the physical effort that he used to do. There was a lot of reliance on Graham in this respect and it was only fair that he receive a salary before partner's distributions. This is common and acceptable practice, but it is not usually put on group certificate.
Secondly I believe that there is some contention that the Honor's were not farmers but were actually contractors. Once again I believe that some reliance is being placed on the fact that the partnership tax return shows the description of main business activity as Cane Harvesting Contractors. Once again I would like to point out that the Tax Office only require one business description per return and if there is more than one business we are instructed to use the business from which most gross income is earned. So whilst it is true that the Honors were Cane harvesting Contractors I think it is also safe to say that they were Cane Farmers. Given the size of Cane Crops in Bundaberg in recent times I think that Gross Cane Sales Income of $136,581 in 1998, $47,933 in 19999, $76,443 in 2000 and $85,151 in 2001 would make them significant farmers in this region. This is no part time hobby, but a legitimate reasonable sized business venture. In fact by reference to the tax returns you can see that Honor's best net income comes from farming. The contracting side has been running at losses and so it could be argued that the farming was a more important business to the Honors than the contracting business."
15. Mr Hutchings concluded that he supported the contention that the Honors were cane farmers and were entitled any "exit package" available.
LEGISLATIVE FRAMEWORK
16. Section 8B of the Act sets out the qualifications for farm help income support. That section provides:
"Subject to this Division, a person is qualified for farm help income support in respect of a period if:
(a) the period begins on or after the farm help scheme payment commencement date; and
(b) throughout the period, the person:
(i) is a farmer; and
(ii) is at least 18; and
(iii) is an Australian resident; and
(iv) is in Australia; and
(c) the person has been a farmer for a continuous period of at least 2 years immediately before the period; and
(d) a certificate of inability to obtain finance issued in respect of the person has effect throughout the period."
17. Section 3(2) provides definitions for words and phrases used in the Act. Relevantly, s 3(2) provides:
"In this Act, unless the contrary intention appears: ...
`farm enterprise' means an enterprise carried on within any of the agricultural, horticultural, pastoral, apicultural or aquacultural industries. ...
`farmer' means 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."
18. The respondent contends that the John Honor does not meet the definition of "farmer" in s 3(2) of the Act as he did not derive a significant part of his income from the farm enterprise. As he is not a "farmer" he does not qualify for farm help under the provisions of s 8B of the Act.
19. In relation to Graham Honor, the respondent and the SSAT reached a similar conclusion, but the SSAT also considered that Mr Honor did not satisfy the requirements of paragraph (a) of the definition of "farmer", in that he does not have a right or interest in land used for the purposes of a farm enterprise.
ISSUES BEFORE THE TRIBUNAL
20. A number of issues arise in this case, including, (a) whether a cane harvesting business is a "farming enterprise", (b) whether there is a valid partnership in existence from which Graham Honor would derive a right or interest in a farming enterprise, and (c) what constitutes a "significant" part of a person's income for the purposes of the legislation.
21. The first question to be addressed by the Tribunal is whether the applicants' cane harvesting business can constitute a farming enterprise for the purposes of the Act. It should be noted that the Tribunal is satisfied that the cane growing business constitutes a "farming enterprise" for the purposes of the Act.
CONSIDERATION
(a) Is the cane harvesting business a "farming enterprise"?
22. As indicated above, a farming enterprise is defined in the Act as meaning "an enterprise carried on within any of the agricultural, horticultural, pastoral, apicultural or aquacultural industries".
23. The phrase "farming enterprise" was considered in Re Secretary, Department of Family and Community Services and Oliver [2002] AATA 724. In that case, Senior Member Fayle noted that "enterprise" is defined in the Macquarie Dictionary, second edition, as:
"n. 1. a project undertaken or to be undertaken, esp. one that is of some importance or that requires boldness or energy. 2. engagement in such projects ..."
24. The Senior Member concluded that, in relation to the Act, the existence of a farm enterprise is not dependent on the level of business activity arising from that enterprise. However, the present case is not so dependent on the level of the work undertaken but rather the nature of the work undertaken.
25. The Shorter Oxford English Dictionary, third edition, contains the following relevant definitions:
§ Agriculture: "The science and art of cultivating the soil; including the gathering in of the crops and the rearing of live stock; farming (in the widest sense)".
§ Horticulture: "The cultivation of a garden; the art or science of cultivating or managing gardens, including the growing of flowers, fruit, and vegetables".
§ Pastoral: "1. Of or pertaining to shepherds or their occupation; of the nature of a shepherd. 2. Of land: Used for pasture. Hence for scenery, etc: Having the simplicity or natural charm associated with such country".
§ Farming: "1. The action or system of farming (out) or letting out to farm (the revenue, etc). 2. The business of cultivating land, raising stock, etc".
26. The cane harvesting business operated by the applicants could be said to meet the definition of a farming enterprise. The business certainly falls within the definition of "enterprise" discussed in Oliver's case.. A harvesting business would also seem to be an enterprise carried on within the agricultural or horticultural industries. But the business may not fit the definition of "farming".. Farming is relevantly defined as cultivating land, not cultivating crops. The Tribunal is satisfied that some degree of involvement in the raising of stock or development of land is required to satisfy the definition of "farming".
27. As the Tribunal is satisfied that a contract cane harvesting business does not constitute "farming", the Tribunal finds that the applicants were not carrying on a farming enterprise within the meaning of the Act. Therefore, in so far as the applicants' cane harvesting business is concerned, the applicants cannot satisfy the definition of being a "farmer" under the Act.
(b) Is there a valid partnership in existence from which Graham Honor would derive a right or interest in a farming enterprise?
28. Interestingly, the SSAT determined that Graham Honor did not have an interest in a farming enterprise despite having made a finding of fact that he was in a partnership with his parents, the partnership conducting a cane farming business and a cane harvesting business.
29. Under state partnership law (see Partnership Act 1891 (Qld)), a partnership agreement does not have to be in writing. It appears to the Tribunal that there was a partnership between Graham, Pam and John Honor in respect of the cane farm. Only John and Pam are registered as owners of the land. However the evidence supports the view that a legitimate partnership existed between the parties from around 1997/98.
30. The respondent in its submission to the Tribunal conceded that both Graham and John Honor satisfied the requirement of paragraph (a) of the definition of "farmer" in that each "has a right or interest in the land used for the purpose of a farm enterprise".
(c) Have the applicants derived a "significant" part of their income from a farming enterprise?
31. The definition of "farmer" under the Act requires that the applicants derived "a significant part" of their income from a farming enterprise. The Tribunal in Re Secretary, Department of Family and Community Services and QX01/2 [2001] AATA 1026 considered the meaning of the term "significant" in this context. The Tribunal found, applying the reasoning of Foster J in ACI PET Operations Pty Ltd v Comptroller-General of Customs (1990) 26 FCR 531, that "significant may be regarded as meaning sufficiently large [as] to be important".
32. In ACI PET, the Federal Court was considering the meaning of the word "significant" in relation to the Customs Act 1901. Foster J stated:
"The word `significant' has acquired a number of shades of meaning in common parlance. For instance, it is not infrequently used as a substitute for `substantial'.. It is, however, clearly important that it be given as precise a meaning as possible in this legislative provision, as its use imports a major guiding consideration into the determination by the comptroller of whether goods serve `similar functions'. I turn, therefore, to the dictionaries for guidance and find that the Oxford English Dictionary (2nd ed) defines the word (where relevant) as `full of meaning or import; important, notable; and having or conveying a meaning', and that the Macquarie Dictionary defines it as `important; of consequence; expressing a meaning; indicative'.
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'."
33. The Tribunal adopts this approach in relation to the meaning of "significant".
34. The Tribunal notes that, in assessing whether an applicant derives a "significant" part of their income from a farming enterprise, the Departmental officers will have regard to the gross income earned in a financial year. This approach is outlined in the Centrelink Manual and has been approved by the Tribunal in a number of cases (see Re Catto and Secretary, Department of Family and Community Services [2001] AATA 354 and Re Secretary, Department of Family and Community Services and QX01/2 [2001] AATA 1026). In Re Catto, the Tribunal further noted that where a farm is not generating sufficient income to support the farm family, the labour contribution being made by the farmer becomes paramount in determining whether a significant part of a farmer's income is derived from the farming enterprise. The Tribunal sees no reason in this case to depart from the processes set out in the Departmental guidelines and the findings in Re Catto and Re QX01/2.
35. The applicants derived the following gross income from their businesses:
Financial Year |
Gross Income derived from Cane Harvesting Business |
Gross Income derived from Cane Growing Business |
1995-1996 |
$247,253 |
$181,221 |
1996-1997 |
$269,422 |
$121,660 |
1997-1998 |
$325,067 |
$136,581 |
1998-1999 |
$284,470 |
$76,452 |
1999-2000 |
$429,060 |
$74,176 |
36. The applicant strongly argued that net figures and not gross figures should be taken into account particularly as the net incomes showed a very different picture from the gross incomes. It is noted that in the figures produced by the applicants shows that the net income from the cane harvesting was -$167,970 while the net income from the cane farm over the same period was $96,775.
37. The respondent submitted that consideration should be had to the last two years of this income and drew conclusions from them for each of the applicants.
38. In respect of John Honor, the respondent noted that in the 1997/1998 year the percentage income derived from the farm was 28% of his total income (that is, $45,527/$1,162,423) and in 1998/1999 the percentage income derived from the farm was 19.9% of his total gross income (that is, $25,484/$128,170)
39. In respect of Graham Honor the respective percentages of total farm income over total income were 24.5% in 1997/1998 (that is, $45,527/$185,886) and 18.2% in 1998/1999 (that is, $25,484/$139,644).
40. The respondent concluded by noting that these income levels do not form a significant part of their total income.
41. Before turning to whether these percentages are or are not significant regard should be had to the comments of the federal Court in the decision of Parrett v Secretary, Department of Family and Community Services [2002] FCA 716 where Madgwick J noted as follows:
"45 Firstly, s 8B(c) makes it a sufficient requirement (for present purposes) that a person `has been a farmer for a continuous period of at least 2 years...'. The present applicant is a person who for eighteen years was a farmer as that term would ordinarily be understood. There is nothing in the definition of `farmer' in s 3(2) that limits a consideration of his income-deriving (and other) attributes to the last two of those eighteen years. It will be sufficient if:
(a) there has been a single period of putative farming that lasted for at least two years; and
(b) taking that period as a whole it can be said that he derived a significant part of his income from one or more `farm enterprises', as defined.
The error of the Tribunal, it seems to me, even as a matter of literal interpretation, was to read the phrase `derived a significant part of his or her income' as if such derivation were required for the period of two years preceding the period for which eligibility for the income support benefit is being assessed. On the contrary, s 8B only requires that, for a continuous period of which those two years were at least part, a significant part of income was so derived, even though throughout that period, and in particular in the last two years, such significant income was not continuously derived. The reference to two years was, in my view, designed to introduce a threshold requirement for those eligible to apply but was not designed to be a limitation on the scope of the investigation as to particular applicant's eligibility. If an applicant worked at a farm enterprise continuously for a period of ten or twenty years and, viewed over the ten or twenty year period, would qualify, it would be strange if the application should succeed or fail, depending only on, say, complete crop failures in two years immediately preceding the application. This is particularly so, in light of the ever present vicissitudes of farming to which I have referred. If such a result were to follow, it would be because of a construction that would produce other strange results, very unlikely to have been the parliamentary purpose: It cannot have been the intention to deprive a farmer of the entitlement if he or she were ill for twelve months and therefore, in the Tribunal's approach, would not have been continuously contributing a significant part of his or her labour to the farm enterprise."
42. Having regard to the five year period set out above it can be seen that farm income as a percentage of total income was greater than 50% in the 1996/1997 year and just less than 50% in each of the next two years.
43. Over all, having regard to the totality of the income derived over the period, the Tribunal is satisfied that John Honor has derived a significant part of his income from the farm enterprise. In any event, having regard to the gross income derived by John Honor in the last two years of the farm enterprise, contributions of 28% and almost 20% could not be reasonable regarded as insignificant.
44. The situation is no different for Graham Honor, although his interest in the land only goes back to 1997/1998 it is still significant given that in the last two years the gross income was 24.5% and 18.2%.
45. It was also submitted by the respondent that neither had contributed significant labour to the farm enterprise.
46. In so far as John Honor is concerned his contribution of labour to the farming enterprise has been limited from what it was before his heart attack. However he still contributes labour to the farm. He does some manual work, although he is severely limited in what he can do, but he also undertakes a significant administrative role. He had been a cane farmer since 1972. With a view to supplementing income from an industry that has highs and lows, he, with Graham Honor, started a cane cutting business. By virtue of the nature of cane farming they were capable of undertaking both tasks as the cutting season only stretches over a three of four month period when all cane is cut. This means that they had a eight or nine month period to work on the farm, planting, watering, fertilising and cultivating the crop for harvest the next year. It appears from the evidence that the cane farm was not a hobby farm or a past-time. It is said to be an average farm in the area. Taking into account the comments referred to above in Parrett and taking all factors into account the Tribunal is satisfied that John Honor has contributed a significant part of his labour to the farm enterprise.
47. The same can be said for Graham Honor, although in his case he continued to work and contribute labour to the farm in a greater proportion after his father became ill.
48. The Tribunal accepts that substantial capital would have been invested in the farm enterprise if it was to produce a cane crop each year.
49. In the circumstances the Tribunal considers both John Honor and Graham Honor would be eligible for a grant under the farm help scheme in that they satisfy the requirements of s 8B of the Farm Householder Support Act 1982, the Tribunal being satisfied that they are both "farmers" within the meaning of s 3 of that Act.
50. Accordingly, the Tribunal sets aside the decision under review and remits the respondent for reconsideration in accordance with these reasons for decision.
I certify that the 50 preceding paragraphs are a true copy of the reasons for the decision herein of Mr O Rinaudo, Member
Signed: .......................................................................................
Associate
Date of Hearing 11 September 2002 (at Bundaberg)
Date of Decision 25 February 2003
For the Applicant Mr M Davis, Department of Primary Industries
For the Respondent Mr R McQuinlan, Departmental Advocate
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