Private ruling: Farm management deposit
Date of advice: 6 June 2018
Published: August 2018
Ruling period: 30 June XXXX
Date scheme commenced: 1 July XXXX

Ruling: Q1: Under Division 393 of the Income Tax Assessment Act 1997 (ITAA 1997), can the Commissioner use discretion to provide an exception to allow a deduction in the XXXX income year, for a Farm Management Deposit (FMD) reinvested on XXXX where the deduction for the FMD was disallowed in the XXXX year? | A1: No

Relevant facts and circumstances: The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are: ● Your private ruling application dated XXXX. ● A letter XXXX regarding your farm management deposit reinvestment confirmation and investment statement ● An email. You are a primary producer. You deposited funds into a farm management term deposit (FMD). You claimed a deduction in your tax return for the Financial Year but the deduction was disallowed as your non-primary production income exceeded the maximum threshold amount. You state that for the XXXX financial year you intended to withdraw the FMD and then reopen a new FMD account Your bank reinvested the funds from your original FMD account for another 12 months. Subsection 393-10(3) of the ITAA 1997 provides that the meaning of 'repayment' 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. Your Bank sent you correspondence advising that you had already provided instructions on what you’d like to do when your Farm Management Deposit matured and advising that if you wanted to change your instructions or withdraw your money then you had seven days to do so. The document clearly stated that the previous investment amount had been and net interest had been paid at maturity. In an email your bank advised that they can only back date Term Deposits/FMD’s for a maximum of 14 days and highlighting that as the FMD was reinvested on XXXX the FMD could not be back dated.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 393 | Income Tax Assessment Act 1997 subsection 393-10 | Income Tax Assessment Act 1997 subsection 393-15

Reasons for decision: Summary: The legislative provisions which provide for the Farm Management Deposits (FMD) scheme are found in Division 393 of the ITAA 1997. The scheme allows primary producers (with a limited amount of non-primary production income) to claim deductions for FMDs made in the year of deposit. Within this Division there is no discretion provided to the Commissioner to allow exceptions to the rules therein. Subsection 393-5 of the ITAA 1997 states: (1) You can deduct the amount of a farm management deposit for an income year if: (a) You are the owner of the deposit; and (b) The deposit is made at a time during the year when you are an individual carrying on a primary production business in Australia and (c) If during the year at a time after the deposit was made, you stopped carrying on a primary production business in Australia.. you started carrying on such a business again within 120 days (whether or not during the year); and (d) Your taxable non-primary production income for the year is not more than $100 000 and (e) You do not die or become bankrupt during the year Note 1 : This section does not apply if a deposit is reinvested, the term of a deposit is extended, or a deposit is transferred at the depositor’s request: see sections 393-15 and 393-16.” You opened your Farm Management Deposit at the on XXXX. When you lodged your XXXX income tax return you clamed a deduction for the FMD you had lodged. This deduction was disallowed. 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. The entitlement to a deduction for monies deposited in a farm management account is set out in section 393-5 of the Income Tax Assessment Act 1997 . You can claim a deduction for a deposit in an income year that the deposit is made, providing you meet a number of other eligibility criteria. There is no discretion in relation to farm management deposits that the Commissioner can exercise to allow a deduction in a year after the deposit has been made.