Private ruling: Farm management deposits
Published: February 2014
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Is your withdrawal of a farm management deposit to be included in your assessable income in the 2012-13 income year? | A1: Yes

Relevant facts and circumstances: You are a primary producer. You deposited funds into a farm management deposit (FMD). You withdrew an amount within twelve months this amount was included in your taxable income for the relevant financial year. You then decided that you wanted the remainder of the FMD to be repaid to you in the subsequent financial year to offset a taxable loss you made in that year, but you were aware that it was necessary for the funds to be repaid on or after the twelve-month period to meet the FMD scheme criteria. After a transactional error was corrected, the funds were withdrawn as intended after the twelve-month period.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 393-10(1).

Reasons for decision: Summary: The FMD scheme in Schedule 2G to the ITAA 1936 allows primary producers to set aside pre-tax income in profitable years for subsequent withdrawal in low-income years. The FMD scheme allows you to claim a deduction for farm management deposits made in the year you deposit. If you withdraw a farm management deposit, the amount of the withdrawal is included in your assessable income in the year of repayment. The FMD scheme provisions in Division 393 of Schedule 2G of the ITAA 1936 were repealed by Tax Laws Amendment (Transfer of Provisions) Act 2010 (Act No 79 of 2010) with effect from 1 July 2010. The FMD scheme provisions have been rewritten into Division 393 of the Income Tax Assessment Act 1997 (ITAA 1997). Division 393 of the ITAA 1997 applies to assessments for the 2010-11 income year and later income years. For consistency throughout the provisions, the rewrite replaces the references to 'withdrawal' with 'repayment'. Subsection 393-10(3) of the ITAA 1997 provides that the meaning of 'repay' includes a transfer, reinvestment or other dealing on your behalf or at your request. This is relevant for determining the timing of the assessable amount on repayment of an FMD. To qualify for the tax deduction, the deposit must not be withdrawn within 12 months after the end of the applicable depositing day, except in certain circumstances. A deduction claim must be cancelled - to the extent that the deposit is repaid to you in the next year and within 12 months after it was made - unless the deposit was repaid to you: · in exceptional circumstances, or · because the owner dies, becomes bankrupt, ceases to carry on a primary production business for 120 days or more, or has requested the deposit be transferred to another FMD provider. As you were previously allowed a deduction in respect of the FMD that is now repaid, subsection 393-10(1) of the ITAA 1997 requires you to include an amount in your assessable income equal to the amount repaid. In your case, we accept that the deposit was not repaid to you within 12 months after the end of the applicable depositing day. Therefore, your FMD satisfies the 12-month rule to be a complying FMD for the purposes of section 393-37 of the ITAA 1936 and the amount withdrawn will be assessable in the subsequent financial year.