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Could your farmgate sales get you into trouble?

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Jul 20, 2022

CONCERNS have been raised in the local community after a Portland couple had their home insurance claim refused as they didn’t disclose to their insurance company that they were selling eggs at their farm gate.

According to the ABC, the couple’s home and possessions had been destroyed nine months ago as the result of an electrical fault.

The application for a payout was refused as it was found that the policy holders had not disclosed the business they ran on the property. There was a stall at the gate to the property, selling eggs using an honesty system.

The policy holders said they were under the impression that they did not have to disclose the business as it was not operated from the house they were insuring. The chickens were located several hundred metres away from the house.

Insurance company AAMI were contacted for comment as they were the insurers in this instance.

A AAMI spokesperson said, “It is important to have the correct cover for your property, as insuring a business is very different than a home. When buying our home insurance online there is a standard set of questions people must answer, including whether a business is being operated at the insured address.

“An honesty box selling some excess produce at the front gate is unlikely to qualify as a business because you probably wouldn’t need to declare the income to the tax department. We encourage anyone who is unsure to contact us so we can clarify their situation and how the policy would apply.”

Rachael Poole, Head of Home, Allianz Australia said, “Like many insurers, Allianz relies on the accuracy and honesty of policyholders to ensure correct insurance cover for their circumstances. Regardless of the type of cover, policyholders are required to meet disclosure obligations when obtaining, changing or renewing insurance cover.

“To do this, Allianz encourages policyholders to answer all questions as accurately as possible. If unsure about questions or any details, Allianz encourages customers to call us to confirm they are covered and that the most appropriate insurance cover is obtained.”

An Insurance Council of Australia spokesperson said, “Customers have an obligation to disclose information about the insured property to their insurer, including if they are already undertaking or planning to conduct a commercial activity at the home regardless of the size or scale. Each insurer’s Product Disclosure Statement (PDS) informs customers about their disclosure obligations when purchasing or renewing an insurance policy.”

Similar information was also made available by the Australian Securities and Investments Commission (ASIC), who said that people need to take care not to make a misrepresentation when taking out insurance.

So the issue comes down to the definition of a business. The Australian Taxation Office was contacted for clarity.

ATO Spokesperson said, “If you sell products, including through the use of ‘honesty boxes’, you need to understand whether you are doing it as a hobby or carrying on a business for taxation purposes. The ATO has detailed information on its website that can help you understand whether a business is a hobby or business.”

The information can be found at ato.gov.au/Business/Starting-your-own-business/In-detail/Online-selling—hobby-or-business-/

The spokesperson said there is no single test to determine if you’re carrying on a business. Features of a business include: the activity is a significant commercial activity, involving commercial sales of products or services, and is of a reasonable size and scale; there is an intention to make a profit from the activity as demonstrated by a business plan, unlike with a hobby; the activity is repeated; the activity is systematic, organised and carried on in a business-like way and records are kept; the activity is carried on in a similar way to that of other businesses in the same or similar industry; and or the entity has relevant knowledge or skill.

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