Social Security (Primary Production Concession) Principles 2017

The Social Security (Primary Production Concession) Principles 2017 is a legislative instrument made under section 1209E of the Social Security Act 1991. It prescribes the mandatory decision‑making framework the Secretary of the Department of Social Services must apply when exercising certain discretions under the Act to grant concessions to individuals involved in primary production through controlled private companies or trusts. The instrument does not create new entitlements or obligations for individuals; rather, it constrains and structures the Secretary’s administrative discretion in five specific types of determinations, each linked to a different provision of the Act.

First, Part 2 addresses the situation where an individual has a long‑term connection with primary production but has experienced an interruption in the three years immediately before the test time, such that they cannot meet the standard requirements of paragraph 1208U(1)(e) of the Act. The Principles direct the Secretary to consider whether the individual satisfies a 20‑year connection test (involving significant labour and income) and, where the enterprise was previously carried on by another entity, to average the net income of the enterprise over the three most recent tax years, adjusting for what that income would have been had the individual or a related entity carried on the enterprise. This effectively allows a “catch‑up” concession for genuine primary producers whose recent activity has been interrupted.

Second, Part 3 governs determinations under subsection 1208W(2) to reduce the value of a specified asset owned by a company or trust by all or part of a specified liability. The key principle is that the liability must arise from a genuine arm’s length transaction. The instrument sets out three mandatory conditions for a transaction to be taken as genuine arm’s length: it must relate to the specific business activities of the entity, must not be with or involve a minor (subject to exceptions for 16‑ and 17‑year‑olds engaged in full‑time work or study), and must be made under a written agreement signed by each party and witnessed by an independent person. Notably, the transaction can still be with the sole attributable stakeholder, provided those conditions are satisfied.

Third, Part 4 deals with determinations under subsection 1208Y(2) that an asset owned by a controlled private company or trust is taken not to be controlled by the individual. The Secretary must consider whether the individual would likely be an attributable stakeholder of the entity, and if the trust is a concessional primary production trust, whether the individual would be an attributable stakeholder but for that concessional status. The Secretary must have regard to the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2017.

Fourth, Part 5 covers determinations under subparagraphs 1208Z(2)(a)(ii) and (b)(ii) that a specified percentage lower than 100% is the adjusted net value of an asset controlled by an individual. The same attributable stakeholder inquiry applies, and the Secretary must then consider the likely asset attribution percentage under the Attributable Stakeholders Principles.

Fifth, Part 6 mirrors the approach for net income of a primary production enterprise: the Secretary determines a lower percentage of the enterprise’s net income that is to apply to the individual for a tax year, again based on the attributable stakeholder and income attribution percentage analysis.

In summary, the instrument replaces unstructured administrative discretion with a prescribed, criteria‑based process. It adds compliance costs for the Department (must consider specific evidence, consult another legislative instrument) and for applicants (must produce written, witnessed agreements and document 20‑year involvement). But it also provides certainty: if the criteria are met, the Secretary has no residual discretion to deny the concession. The effect is to reduce the assessable assets and income of genuine primary producers who operate through corporate or trust structures, thereby potentially increasing their social security entitlements or reducing the rate reduction otherwise applied.

Controlled private company and controlled private trust: Defined in the Social Security Act 1991, these are entities over which the individual has control (typically through shareholding or trustee appointment). The Principles apply only to such entities, meaning the concessions are not available for publicly listed companies or widely held trusts.

Concessional primary production trust: A trust that has been granted concessional treatment under Division 11 of Part 3.18 of the Act. The instrument uses this concept in Parts 4-6: the Secretary must consider whether the individual would be an attributable stakeholder of a trust that is itself concessional, but for that concessional status. This is a layered inquiry that adds complexity.

Attributable stakeholder, asset attribution percentage, income attribution percentage: These terms are defined in the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2017. The present instrument cross‑references those Principles extensively. The asset attribution percentage determines how much of an entity’s assets are attributed to the individual; the income attribution percentage does the same for net income. The Secretary must have regard to the relevant parts of that instrument when deciding whether to apply a lower percentage than 100%.

Long‑term connection with primary production: Defined in section 6. An individual is taken to have a long‑term connection if, for a total period of 20 years (continuous or aggregated), the individual or their spouse has:

• been involved in carrying on one or more primary production enterprises;
• contributed a significant part of their labour;
• derived a significant part of their income, either directly or indirectly (including through a company, trust or partnership).

This is a high threshold. The 20‑year period is measured in years, not interrupted by short gaps, but the total must be 20 years. The requirement for significant labour and significant income is not quantified in the instrument; the Secretary must assess what is “significant” in the circumstances.

Genuine arm’s length transaction: Under section 9, a transaction is genuine arm’s length only if all three conditions are met: it relates to the specific business activities of the entity; it is not with or regarding an arrangement with a minor (with a carve‑out for 16‑ and 17‑year‑olds working full‑time or studying); and it is made under a written agreement signed by each party and witnessed by an independent person. “Independent person” is not defined, creating an ambiguity: a relative, employee or adviser of the entity may not qualify. The requirement for a signed, witnessed written agreement imposes a formal documentation burden that informal family arrangements will likely fail.

The instrument directly binds the Secretary of the Department of Social Services and departmental officers making determinations under the specified provisions. They must follow the decision‑making principles when exercising those particular discretions. Any determination that does not comply with the principles would be legally challengeable on administrative law grounds.

The individuals affected are primary producers who operate their farming or other primary production businesses through a controlled private company or trust, rather than as sole traders or in a partnership. These individuals may be receiving or applying for social security payments such as the Age Pension, Disability Support Pension, or Carer Payment, where assets and income are means‑tested. The concessions reduce the attributable value of assets and net income from the primary production enterprise, thereby potentially increasing the rate of payment payable or enabling eligibility where assets would otherwise exceed the threshold.

Specifically, Part 2 affects individuals who have a long‑term history in primary production but suffered an interruption (e.g., due to drought, illness, financial distress) in the three years before the test time. This could include older farmers who temporarily leased out their land or ceased active farming.

Parts 3-6 affect those who have debts or liabilities secured against farm assets, or who have complex ownership structures with multiple stakeholders. For example, a farmer who owns a company that holds the farm land and machinery, and who has borrowed from a family member, may seek a reduction in the asset value for that liability, but only if the loan is documented in a written agreement signed and witnessed independently.

Accountants and financial advisers are indirectly affected: they must advise clients on how to structure their affairs to meet the instrument’s conditions. For instance, ensuring all loans to or from the farming entity are evidenced by a written agreement that satisfies the witnessing requirement, and maintaining records of the individual’s 20‑year involvement (including periods of employment, income tax returns, and partnership statements).

The instrument also affects the Administrative Appeals Tribunal and courts when reviewing determinations, as they must apply the principles.

Duties of the Secretary: The Secretary must comply with the decision‑making principles when making a determination under each of the five heads of power. This is mandatory: the instrument uses “must comply” (section 4). For each type of determination, the Secretary must consider the specified matters. The duty is to consider, not to reach a particular outcome. For example, under section 6, the Secretary “must consider whether the individual has had a long‑term connection with primary production”. Under section 9, the Secretary “must consider whether the specified liability arose from a genuine arm’s length transaction”. Under sections 11, 13 and 15, the Secretary “must consider whether it is likely that the individual would be considered to be an attributable stakeholder”.

Where the instrument says the Secretary “must have regard to” another instrument (the Attributable Stakeholders Principles), the Secretary must genuinely turn their mind to that document, but is not bound by every detail. “Have regard to” is a weaker duty than “comply with”.

Rights of individuals: The instrument does not expressly confer rights on individuals. However, by constraining the Secretary’s discretion, it creates a legitimate expectation that the Secretary will apply these criteria. An individual affected by a determination can seek reasons and review. They have the right to submit evidence (e.g., written agreements, historical records of involvement) and to have that evidence considered within the prescribed framework. If the Secretary refuses to consider a relevant factor (e.g., ignores the 20‑year connection test), the determination may be invalid.

Evidentiary rights: Individuals seeking a concession must provide information. For the long‑term connection, they must show 20 years of involvement, significant labour and significant income. For the asset reduction, they must produce the written agreement signed and witnessed. The instrument does not specify the standard of proof, but administrative decision‑making typically applies the balance of probabilities.

Right to have regard to other principles: There is no right to demand that the Secretary apply a particular attribution percentage; the Secretary must consider the likely percentage under the Attributable Stakeholders Principles, but can determine a different percentage if the evidence supports it, subject to the requirement that the determination is lower than 100% and rational.

The instrument itself creates no penalties. Penalties for false statements or fraud arise under the Social Security Act 1991: sections 209-217 deal with administrative penalties, criminal offences for false statements, and overpayment recovery. If an individual provides false information in support of a concession application (e.g., exaggerating the period of involvement or fabricating a loan agreement), they face potential criminal prosecution or civil penalty.

Enforcement of the Secretary’s compliance with the Principles is achieved through administrative review. A person whose interests are affected by a determination can seek internal review, then review by the Administrative Appeals Tribunal (AAT), and ultimately judicial review in the Federal Court or Federal Circuit and Family Court under the Administrative Decisions (Judicial Review) Act 1977. Grounds for review include failure to take into account a relevant consideration (i.e., a mandatory consideration under the Principles), taking into account an irrelevant consideration, or applying the Principles incorrectly.

If the Secretary fails to consider the matters set out in the Principles, the determination is likely set aside and remitted for reconsideration in accordance with the law. No monetary compensation flows directly; the remedy is a correct decision.

The instrument also imposes a duty of consistency: because the Principles apply equally across all similar cases, a determination that deviates from the approach taken in materially identical circumstances might be challenged as unreasonable or arbitrary.

The instrument is made under section 1209E of the Social Security Act 1991. It must be read as part of that Act’s legislative scheme. The specific provisions that the Principles implement are:

• Paragraph 1208U(1)(f): determination that that paragraph applies to an individual and a trust.
• Subsection 1208W(2): reduction of asset value by liability.
• Subsection 1208Y(2): asset not controlled.
• Subparagraphs 1208Z(2)(a)(ii) and (b)(ii): adjusted net value of controlled asset.
• Subparagraphs 1209(1)(b)(ii) and (c)(ii): percentage of net income.

These provisions are in Division 11 of Part 3.18 of the Act, which deals with “Concessional primary production trusts”. The Principles flesh out the criteria the Secretary must use when the Act confers a discretion, rather than imposing a rigid black‑letter rule.

A key interaction is with the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2017. That instrument defines “attributable stakeholder”, “asset attribution percentage”, and “income attribution percentage”. The present instrument requires the Secretary to have regard to Parts 2, 3 and 4 of that instrument when considering the likelihood of an individual being an attributable stakeholder, and when considering the likely asset or income attribution percentage. This creates a layered regulatory framework: an adviser must consult both instruments to understand the full decision‑making process.

The instrument also interacts with general administrative law principles. The requirement to “consider” certain matters is a statutory codification of the common law duty to consider relevant factors. Non‑compliance could lead to judicial review.

Tax law interacts indirectly: the term “net income” in Part 6 refers to the net income of the primary production enterprise for a tax year, which will be determined by the entity’s tax return. The instrument does not define net income; it left to the Act and tax law. Similarly, “tax year” is defined as the entity’s tax year, which may differ from the individual’s.

The instrument does not affect any other legislation (e.g., Veterans’ Entitlements Act 1986), unless that legislation also adopts the same Social Security Act definitions.

The instrument as provided shows no amendment history. It was formulated by Finn Pratt, Secretary of the Department of Social Services, on 8 March 2017 and commenced on 1 April 2017. There is no evidence in the source of any subsequent amendments. However, the reader should note that legislative instruments are often amended by later instruments. The absence of amendment history in this text does not guarantee that no amendments have been made. A search of the Federal Register of Legislation is advisable for the current version.

The instrument has not been repealed or remade. It remains in force as at the date of this analysis (subject to any undisclosed amendments). The power under which it was made (section 1209E of the Social Security Act) has not been repealed, so the instrument remains legally operative. Practitioners should always check for amending instruments, especially those that might update the definition of “minor” or the cross‑references to the Attributable Stakeholders Principles.

The instrument itself has not been the subject of any reported litigation, at least as disclosed in the source. However, determinations made under the instrument may have been challenged in the AAT or courts. The instrument’s provisions are relatively prescriptive, leaving limited room for legal challenge if the Secretary follows them. The most likely points of contention are the factual questions: whether the individual has a long‑term connection, whether a transaction is genuine arm’s length, and whether the individual is likely an attributable stakeholder.

No cases are cited in the instrument. It does not refer to any judicial interpretation of its provisions. The instrument is a relatively recent legislative instrument (2017), so case law may still develop. The principles are binding on the Secretary but may be reviewed by the AAT de novo, meaning the AAT can substitute its own decision based on the principles.

1. The 20‑year connection test requires “significant part of his or her labour” and “significant part of his or her income”. These terms are not defined. The Secretary has wide scope to determine significance. An individual who owned the land but merely collected rent may not satisfy the labour test, even if the income was significant.

2. The 20‑year period is measured as total years, not continuous. However, it must involve periods of actual involvement. The instrument does not say how short each period can be; gaps do not count, so the total must be 20 years of involvement. An individual who farmed for 10 years, then worked off‑farm for 20 years, then returned for 10 years, would have only 20 years of involvement, but the gap might affect the interruption analysis.

3. The “interruption” in Part 2 is not defined. The Secretary must consider whether the individual had a long‑term connection and “for some reason” there was an interruption in the three years immediately before the test time. The instrument does not specify what reasons are acceptable, nor does it say the interruption must be beyond the individual’s control. This could include voluntary interruptions (e.g., taking a break) but the Secretary may interpret it narrowly.

4. Genuine arm’s length transaction requirement: written agreement, signed and witnessed by an independent person. Many family loans are made informally. Without a formal document, the liability will not be recognised for asset reduction. The “independent person” requirement is problematic: is a spouse independent? A lawyer? A neighbour? The instrument does not define independent. The safest approach is a justice of the peace or a professional adviser who is not a party to the transaction.

5. Transaction with a minor is presumptively not arm’s length. Even if the minor is the individual’s child who is 16 and working full‑time on the farm, the exception applies only if the minor is not a student and is engaged full‑time in an occupation. A minor who is a student (including part‑time work) cannot be a party to a valid transaction. This may affect succession planning where a farm is transferred to a young family member.

6. Cross‑reference to Attributable Stakeholders Principles 2017. The Secretary must have regard to that instrument, but it may itself contain complex rules. Advisers must locate and apply that instrument too. The attribution percentages may be calculated based on control, income entitlements, or other factors. The instrument does not summarise them.

For individuals seeking a concession:

1. Document the 20‑year long‑term connection. Gather evidence of involvement in primary production over at least 20 years total. This can include tax returns showing income from primary production, records of labour (time sheets, payroll records, partnership accounts), and evidence of activity such as sale dockets, livestock records, or lease agreements. If farming through a spouse, include their records. Ensure the evidence shows “significant” labour and income; prepare a narrative with dates and examples.

2. Identify and document the interruption. If relying on Part 2, explain the reason for the interruption in the three years before the test time. This might be drought, illness, financial collapse, or sale of stock. Provide supporting evidence (medical certificates, drought declarations, financial statements).

3. For asset reduction (Part 3): Ensure all liabilities (loans, overdrafts, unpaid debts to family members) are documented in a written agreement. The agreement must:

   • Relate to the specific business activities of the farming entity (e.g., “loan for purchase of irrigation equipment”);
   • Not involve a person under 18 (unless the minor is 16 or 17 and working full‑time or studying full‑time, and not a student);
   • Be signed by each party;
   • Be witnessed by an independent person who is not a party. Use a solicitor, justice of the peace, or accountant. The witness should not be a relative or employee of the entity.

4. For control and attribution (Parts 4-6): Work with an accountant or lawyer to determine the likely attributable stakeholder status and attribution percentages under the Attributable Stakeholders Principles 2017. Prepare documentation showing the ownership structure, voting rights, income entitlements, and any concessions already applied. If the trust is a concessional primary production trust, explain why the individual would not be an attributable stakeholder but for that status.

5. Application process: Submit a written request to the Department for the relevant determination, accompanied by supporting evidence. There is no prescribed form, but a letter citing the relevant sections and attaching the evidence is advised. Keep copies of everything. Request that the Secretary have regard to the Attributable Stakeholders Principles.