Zsigmond and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2010] AATA 199 (24 March 2010)

Last Updated: 24 March 2010

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2010] AATA 199

ADMINISTRATIVE APPEALS TRIBUNAL )

) No 2009/3661

GENERAL ADMINISTRATIVE DIVISION		)
	Re		STEVE ZSIGMOND

Applicant

And

SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS

Respondent

DECISION

Tribunal

Regina Perton, Member

Date 24 March 2010

Place Melbourne

Decision

The Tribunal affirms the decision under review.

...................[signed]...................
Member

FARM HOUSEHOLD SUPPORT – exceptional circumstances relief payment – farmer – farm enterprise – significant part of labour to farm enterprise – significant part of income from farm enterprise – whether income from wine sales is income from farm enterprise – decision affirmed.

Farm Household Support Act 1992 ss 3, 8A

Income Tax Assessment Act 1997 s 995-1

Social Security Act 1991 s 1207X

REASONS FOR DECISION

24 March 2010

Regina Perton, Member

1. Steve Zsigmond lives and works on 130 acres of land in regional Victoria. He grows grapes on 20 acres of that land. Those grapes are used to make and sell wine and other products in an outlet that operates on part of his land. He also sells his wine directly by mail order. The estate wine is not made on the premises. Mr Zsigmond, his wife and his son are beneficiaries of a family trust which describes its main business activities as vineyard operation.
2. For several years, the area where the farm is located has been in drought. This has affected the yield from the vineyard. It has also impacted on the ability of Mr Zsigmond to run sheep on the property given the scarcity of water.
3. There is Commonwealth legislation in place which allows for those engaged in farming who are in financial difficulties due to drought to obtain income support. In March 2007, Mr Zsigmond gained relevant certification that indicated that he is in an area declared as drought-affected. He applied for, and was granted, an exceptional circumstances relief payment (ECRP). Centrelink administers the payment on behalf of the respondent.
4. On 17 February 2009, Centrelink determined that Mr Zsigmond was no longer eligible for ECRP and cancelled his payments. Mr Zsigmond has unsuccessfully challenged that decision through internal Centrelink review and the Social Security Appeals Tribunal (SSAT). He applied to this Tribunal on 6 August 2009.
5. The issues for the Tribunal to consider are whether Mr Zsigmond has a farm enterprise; is a farmer; contributes a significant part of his labour and capital to the farm enterprise; and derives a significant part of his income from the farm enterprise. Specific matters for consideration are whether the income derived from the outlet can be considered as income from a farm enterprise; and whether a significant part of Mr Zsigmond’s income was derived from the farm enterprise at the time of cancellation of the ECRP.

LEGISLATION

6. Section 3 of the Farm Household Support Act 1992 (the Act) sets out the meaning of terms in the legislation including farmer and farm enterprise:

farm enterprise means an enterprise carried on within any of the agricultural, horticultural, pastoral, apicultural or aquacultural industries.
farmer means a person who has a right or interest in the land used for the purposes of a farm enterprise..

7. Section 6 of the Act outlines the object of the ECRP as follows:

...
(1) The object of exceptional circumstances relief payment is:
(a) to provide financial assistance to persons who:
(i) are farmers; and
(ii) are in exceptional circumstances;
(iii) are experiencing difficulty in meeting living expenses;
...

8. Section 8A of the Act sets out the qualification for ECRP:

Qualification – farmers
(1) A person is qualified for exceptional circumstances relief payment in respect of a period if:
(a) the period begins on or after 1 October 1994; and
(b) throughout the period:
(i) the person:
(A) is a farmer; 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; and
(E) is an Australian resident; and
(ii) an exceptional circumstances certificate issued in respect of the person has effect.
...

IS MR ZSIGMOND A FARMER?

9. To qualify as a farmer, Mr Zsigmond must have a right or interest in land used as a farm enterprise. Mr Zsigmond is one of the three beneficiaries of the Zsigmond Family Trust (the trust) which trades as Kara Kara Winery. The land controlled by the trust is used, amongst other things, to grow grapes. Sheep graze on the property and plantation trees have been planted. The parties agree and the Tribunal concurs, that the land use meets the definition of farm enterprise. The Tribunal finds that Mr Zsigmond meets the definition of farmer in s 3 of the Act. He therefore meets s 8A(1)(b)(A) of the Act.

DOES MR ZSIGMOND CONTRIBUTE A SIGNIFICANT PART OF HIS LABOUR AND CAPITAL TO THE FARM ENTERPRISE?

10. Mr Zsigmond told the Tribunal that he spends around 90 per cent of his time working on the farm which he established in 1977 from scratch. The tasks he undertakes include tending the vines, planting trees, overseeing the sheep and the usual maintenance requirements that are needed on a farm. The respondent did not challenge that evidence.
11. Financial records indicate that a significant amount of capital has been invested into the farm enterprise. The Tribunal was told that the trust reinvested in the property rather than paying out moneys to the beneficiaries. Mr Zsigmond gave evidence of planting the vineyard, tending the sheep, planting the ironbark and other trees and other costs incurred.
12. The Tribunal is satisfied that Mr Zsigmond meets the criteria in s 8A(1)(b)(B) of the Act.

DOES MR ZSIGMOND DERIVE A SIGNIFICANT PART OF HIS INCOME FROM THE FARM ENTERPRISE?

13. Mr Zsigmond’s individual tax returns for the financial years ending 30 June 2007 and 30 June 2008 do not show any income from the family trust which operates the farm enterprise. In the financial year ending 2007, Mr Zsigmond’s sources of income were a superannuation pension, bank interest and share dividends. Mr Zsigmond’s tax return for 2008 showed that his income derived from the ECRP, bank interest and share dividends. The trust’s returns for the corresponding periods do not show any distributions to the beneficiaries. Therefore, Mr Zsigmond cannot claim income from a farm enterprise as an individual taxpayer.
14. However, the Tribunal also needs to consider Mr Zsigmond’s income as an attributable stakeholder in the trust that operates Kara Kara Winery (s 1207X of the Social Security Act 1991).
15. Kara Kara Winery sells estate wines, verjuice and sauces, chutneys and the like directly to the public from an outlet on the property. All the wines sold are produced solely from grapes grown on the Zsigmonds’ land. Mr Zsigmond’s son is a winemaker but there is no wine made on their premises. This task is contracted out to another winery in the district. Their cellar door outlet also has a café that operates on weekends and by request. There is also a small restaurant that is hired out for wedding receptions and the like.
16. There is disagreement between the parties as to whether the income from sales of wine can be classified as income from a farm enterprise. Mr Noonan, representing Centrelink, submitted that sales of wine should not be considered as income from a farm enterprise. He submitted that the trust operated two enterprises. The growing of grapes, rearing of sheep and growing of timber were said to satisfy the definition of farm enterprise. However, Mr Noonan maintained that the sale of the wine and the catering aspects of the outlet do not meet the definition.
17. Centrelink maintained that while grape growing and wine production are closely related, they are distinct activities with the former providing input into the latter. Either activity could operate independently of the other.
18. Mr Zsigmond submitted that the income from the sales of wine should be considered as income from the farm enterprise. He stated that estate wineries warrant special consideration as all the grapes come from the one source, namely the land on which the winery is located. He indicated that the amount of wine produced has been lower in recent years because the drought had affected the grape harvest. He produced figures which showed the yield from the vines had lessened because of the drought.
19. There was considerable discussion about precedent cases and whether the Tribunal should be persuaded by a departmental guideline (e-ref 002.30650) which states that a vineyard where all or most income is derived from the sale of wine is not included in the definition of a farm enterprise. That guideline suggested that where it is the raw product or animal that is being sold by the farmer such as turf, hay, vegetables and the like, the income is deemed to be that of a farm enterprise. However, citrus orchards where income is derived from the sale of juiced bottled products, dairy farms where the income is derived from the sale of cheese as well as vineyards selling wine would not be included in the definition of farm enterprise.
20. Mr Davis who advocated on behalf of Mr Zsigmond suggested that the guidelines set out in the e-ref were ultra vires. The Tribunal does not accept that they are. While the Tribunal is not bound by departmental policy guidelines of the kind set out in the e-ref, it will usually apply such policy guidelines unless there are sound reasons not to do so. In this case, the Tribunal is of the view that the guideline is consistent with the statutory provision. The Tribunal finds that the income generated by the outlet is not income earned from a farm enterprise.
21. In examining the trust’s tax returns for 2007 and 2008, being the years that preceded the cancellation of the payment, the majority of the gross income arose out of the sales of wine and other activities of the outlet. Furthermore, the returns indicated that all the income arose out of non-primary production. Gross income from sales of sheep amounted to only $940 with livestock expenses of $477. When all deductions were taken into account, there was a net business income of $4,846. The trust’s 2007 return showed all income was from non-primary production. When deductions were taken into account, the business had a small net loss.
22. Mr Noonan submitted that while the definition of farm enterprise in the Act differs from that of primary production business in s 995-1 of the Income Tax Assessment Act 1997, the tax returns still provide evidence that Mr Zsigmond did not class the activities which provided the trust’s income as primary production.
23. The word significant is not defined in the Act. Both parties provided a number of alternative definitions of the word significant from dictionaries, case law and previous Tribunal decisions. The Tribunal accepts Mr Davis’s argument that significant does not mean the majority of income. However, the small amount attributed to sheep sales is insufficient to be called significant. None of the grapes grown were sold as raw product to other businesses. The Tribunal is not satisfied that a significant amount of the income of the trust arose from the farm enterprise.
24. In a submission which accompanied the application to the Tribunal, it was suggested that if Mr Zsigmond’s winery business was not found to be a farm enterprise, that the provisions in s 8A of the Act would apply to small businesses whose income is reduced due to the effect of exceptional circumstances on farm enterprises or those who work in that realm. However, as well as reduced income, there is a requirement that the farmer must be experiencing difficulty in meeting living expenses. There was no evidence that Mr Zsigmond was experiencing such difficulties.
25. The Tribunal notes that Mr Zsigmond was encouraged to apply for the ECRP by officials who came to the region and to his farm. Furthermore, he was initially granted the ECRP which was subsequently cancelled. The Tribunal can understand his frustration at the situation. However, the Tribunal must take into account the provisions of the legislation. Where appropriate, the Tribunal also takes account of the underlying departmental policy where it is not inconsistent with the Act.

DECISION

26. The Tribunal affirms the decision under review.
    

I certify that the twenty six [26] preceding paragraphs are a true copy of the reasons for the decision of:

Regina Perton, Member

(sgd)

Associate Grace Horzitski

Date of hearing: 9 February 2010

Date of decision: 24 March 2010

Advocate for applicant: Mr G. Davis

Advocate for respondent: Mr T. Noonan

Solicitor for respondent: Centrelink Legal Services