By Kain Elsmore
The task of assessing damages for economic loss in relation to injured Farmers is complicated and requires an understanding of why the financial records look the way they do. Some key issues for consideration are detailed below:
Business or Hobby?
Generally only those operations conducted with a view to making profit / creating asset value are considered when undertaking an assessment of economic loss. Hobby farming conducted with a view to generating taxation losses will generally not give rise to a valid claim for economic loss. However, where a “hobby” Farmer is developing / maintaining a property with a view to commencing commercial farming activities upon cessation of their main occupation, a claim for future economic loss may be capable of being advanced.
Legitimate Taxation Deductions.
Some key examples of concessional tax rules available to Farmers (enabling them to minimise their taxable income and in many cases extinguish it all together) include:
- Livestock valuation rules (which effectively allow profits on livestock to be deferred until the sale of a beast despite all costs being incurred over the beasts total life on the farm);
- Accelerated write-offs of capital assets (dams, water channels etc); and
- The Farm Management Deposit Scheme allowing primary producers to set aside / earn interest on pre-tax income from profitable years and use that income when it is most needed.
No other industry sector is as affected by climatic impacts as the rural farming sector. During periods of drought substantial losses may be unavoidable for even the best and most experienced Farmer.
Personal Living Expenses.
The financial records of the Farmer may include expenses unrelated to the ordinary farming operations, such as mortgage payments, utilities (electricity, telephone, rates), insurances and motor vehicle expenses.
Income / Capital Return
The return generated by a Farmer generally falls into two broad categories:
- The “income return” arising from the sale of farm crops / livestock; and
- The “capital return” arising from work undertaken on the farm which improves its capital value.
Whilst the income return will ordinarily be apparent in the financial records, the capital return will not be recognised until the ultimate disposal of the property.
Farm as an Asset.
In circumstances where a Farmer suffers a severe injury or is killed, and disposes of the farm, the argument may arise that the plaintiff or the deceased’s family is really better off because the investment return on the sale proceeds actually exceeds the reported earnings of the farm in operation. However:
- Regardless of the accident / death, the farm would have been sold at some point when the Farmer would have retired and the accident / death has simply led to an acceleration of the sale; and
- The farm may have been worth substantially more when sold in an orderly way rather than hastily following the injury to or demise of the Farmer.
In cases in which we have been involved the Farmer generally intended (or in fact had) worked longer than “normal” retirement. Often, three generations of the same family work on one farming property providing various levels of contribution and experience. Limiting calculations to “normal” retirement may significantly misrepresent the real intentions of the injured / deceased Farmer.
Replacement Labour Approach.
Considerable care should be exercised in assessing loss on a replacement labour approach as a result of:
- The difficulty in replacing all services of an experienced Farmer particularly when the accident / death removes the intellectual skill and long term experience from the farm completely;
- The cost of providing on-site accommodation for replacement employees so that they may deal with “farm emergencies” when they arise; and
- The availability of farm workers.
- Walden v Black  NSWCA 170 (5 July 2006)
- Schimke v Clements & Suncorp Metway Insurance Ltd  QSC 182 (22 June 2011)
- Kay v Murray Irrigation Ltd  NSWSC 1411 (unreported)
- Zahra v Brown  NSWCA 162 (unreported)
- Kerney v Mead & Anor  NSWSC 518
- Cochrane & Anor v Hannaford  NSWCA 371
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