A quick guide to compensation and valuation in an EAD response

Compensation is intended to enable owners of animals that die from or are ordered for destruction because of an emergency animal disease (EAD) to recover their (like-for-like) animal numbers to pre-disease-outbreak levels, once they are approved by state/territory agricultural departments to restock.

Compensation is not intended to provide relief and recovery or welfare payments to affected producers or agribusinesses suffering financial losses from an EAD incursion (consequential losses). Recovery and disaster relief arrangements including business continuity during and after emergencies have separate funding mechanisms outside of the Emergency Animal Disease Response Agreement (EADRA) and state or territory disease control legislation.

Compensation issues are dealt with by the government officials at the local control centre set up to manage the response.

Compensation payments may be made:

• Initially (the ‘initial payment’) following the direction by state/territory authorities to destroy susceptible animals on an infected property or other property as needed, and
  As a ‘top-up’ when the infected property is eligible to be restocked, provided the total value of equivalent livestock is greater on that date, than that of the initial payment.
• The initial compensation payment is for the market value of animals and property ordered for destruction, and animals that die, as a result of the emergency disease response. This initial payment aims to encourage reporting by removing disincentives to report an emergency disease.
• The ‘top-up’ payment recognises that if market prices rise between the response depopulation and restocking, additional compensation may be required to enable the producer to purchase equivalent replacement animals.

Compensation is determined and managed by state and territory governments under their own legislation. The payment of compensation, the process for claims, and the time frame in which a claim may be made can vary between states and territories.

The process involves the valuation of the livestock on the property that have died from an EAD, or the livestock or property that have been destroyed or damaged, followed by the owner making a claim through the local control centre.

The Emergency Animals Disease Response Agreement (EADRA) does not determine whether compensation will be paid, it sets out how government and industry share the funding of a response.

The aim of valuation is to achieve agreement between the owner and the state or territory on the amount to be paid in compensation.

The relevant jurisdiction’s legislation determines when and how valuation occurs. While these processes may vary slightly from state to state, in general:

• Local market value, or ‘farm gate value’ is the primary basis for valuation.
• Values are usually calculated at the time of detection or reporting of the disease.
• Breeding animals and other high value animals are valued by trained, licensed valuers or value assessors.

The livestock and other property damaged or destroyed in the response effort may be eligible for compensation, however states and territories usually exclude paying compensation for consequential losses, such as loss of profit, loss of production, loss of markets or losses incurred by breach of contract.

Owners who have been authorised to restock their property may be eligible for a second compensation, or ‘top-up’ payment, if the cost of the replacement livestock outweighs the compensation paid for the loss of the original stock. This payment balances the potential fluctuations in the value of livestock during and after a response to an EAD.

Response activities such as the application of quarantine measures and movement controls may result in risks to animal welfare on some premises. If these risks cannot be adequately managed, jurisdictional welfare legislation may require affected animals to be humanely destroyed. Compensation or financial assistance may then be available for the animal owner if they meet the conditions outlined below:

• all alternative non-destruction options must have been considered, and
• the destruction occurred under an animal welfare plan approved by the relevant chief veterinary officer and
• it is clearly identifiable as directly contributing to the disease management outcomes of the response.

These payments may be eligible for cost-sharing if the NMG has agreed to cost share welfare related compensation payments in an approved Emergency Animal Disease Response Plan (EADRP).

The compensation claim is submitted by the owner to the local control centre and assessed and paid by the state or territory department of agriculture or primary industries.

During an EAD response governed by the Emergency Animal Disease Response Agreement (EADRA), compensation costs may be shareable as part of the overall response costs if compensation is part of an approved response plan. In this case eligible costs will be shared between governments and the affected industries.

Cost sharing under the EADRA means that all the response costs (including compensation) that are eligible for cost sharing are shared between affected parties.

For example, foot-and-mouth disease (FMD) is a category 2 disease in the EADRA, and thus the government share would be 80% of the response costs, and the relevant industries’ share would be 20% of the eligible response costs. The Commonwealth initially pays (underwrites) industry’s share of the costs and industry repays the loan through producer levies over a period of up to 10 years.

Individual farmers do not pay for the cost of controlling the disease on their properties.

Compensation should not be confused with recovery or business continuity processes. Costs associated with the recovery from an EAD have separate funding mechanisms outside of the EADRA and state or territory disease control legislation.

Recovery and disaster relief arrangements including business continuity services for producers and agribusinesses impacted by emergencies are provided by recovery agencies from all levels of government and non-government organisations.

Compensation paid to primary producers (those operating a primary production business), for livestock that have died or been destroyed as part of an official emergency animal disease response, is considered assessable primary production income.

A range of tax measures are available to assist primary producers whose taxable income is impacted by compensation payments including:

• The forced disposal or death of livestock tax provision, which allows a producer who makes a tax profit after receiving compensation, to either:
  • spread the profit earned over a period of five years; or
  • defer the profit and use it to reduce the cost of replacement livestock in the disposal year or any of the next five income years.
• The Farm Management Deposits Scheme which can be used to set aside pre-tax income, which a producer can draw on in future years. Income deposited into a Farm Management Deposits account is tax deductible in the financial year the deposit is made and becomes taxable income in the financial year in which it is withdrawn. An individual may hold up to $800,000 in Farm Management Deposits
• Income tax averaging provisions which allow producers to even out income tax liability from year to year, by averaging taxable income in the last five income years.

After professional advice, producers may be able to use one or more combinations of these tax treatments. See Managing varying income | Australian Taxation Office (ato.gov.au) for more detailed information.

Example of actions taken by a producer whose taxable income is impacted by a compensation payment:

1. Defer the tax profit from the compensation received using forced livestock disposal provisions, and
2. deposit other remaining taxable primary production income into a Farm Management Deposit account and claim a deduction for the amount deposited, and
3. then apply income averaging as normal.

Note: the interplay between the various tax measures can be complicated, and farmers’ individual circumstances can vary significantly. Primary producers are encouraged to seek professional advice to inform financial decisions.

Further tax information for primary producers:

• Tax averaging
• Farm management deposits scheme
• Abnormal primary production income

Before an EAD response you can find out more about compensation, valuation and recovery services by contacting your local government department of agriculture or primary industries.

If you’re located in or near an affected area during an EAD response, contact your local control centre.