Private ruling: Deferred cash contract
Published: March 2012
Ruling period: Year ending 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Is the deferred cash contract settled in July 2012 treated as assessable income in the 2012-13 year of income? | A1: Yes.

Relevant facts and circumstances: You entered into a deferred cash contract in the 2011-12 year of income nominating your produce to be delivered in the 2012-13 year of income. Payment for the produce will be made within seven business days from the day of delivery.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5

Reasons for decision: Summary: The payment received in July 2012under the deferred cash contract will be assessable in the 2012-13 income year. The principle for this can be found in Taxation Ruling TR 97/9 Income Tax: sale of wool Paragraphs 12 and 13 of TR 97/9 states; 12. Private treaty sales may be divided into 'spot' sales and 'consignment' sales. Although the terms of private treaty spot sales vary from contract to contract, a debt in relation to most sales will not be fully quantified until the wool, having been delivered to the premises of the private treaty merchant, is weighed and tested by the Australian Wool Testing Authority. 13. In the usual situation, where the price of the wool is dependent on test results, we consider that income is derived once the test results have been received by the merchant. At this time, the price of the contract is fully ascertained, and the merchant has accepted the wool and owes the woolgrower an amount equal to the price… Sales by forward contract Paragraph 18 of TR 97/9 states; 18. We do not consider that there has been a sale of wool when a forward contract is made. In addition, the amount of the debt will not then be fully ascertainable. Sales by forward contract are essentially a specialised form of private treaty sale. Consequently, for the reasons given in paragraph 13, income is generally derived when the buyer, having taken delivery of the wool, receives the results of testing. In your case you entered into a deferred cash contract, which is considered to be a simple forward contract, in the 2011-12 year of income for the delivery of produce in the 2012-13 year of income. In accordance with paragraph 18 of TR 97/9 the income is considered to be derived by you and is assessable in the 2012-13 year of income when the purchaser takes delivery of the produce between 1 July and 5 July 2012.

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