This information is for primary producers whose business is carried on through a trust structure.
It explains when a trust beneficiary is treated as a primary producer for the purpose of the primary producer income averaging and farm management deposit (FMD) rules.
Averaging
To be eligible for income averaging, a taxpayer must (among other things) be an individual who carries on a business of primary production in Australia for two or more years in a row.
A beneficiary of a trust is taken to carry on a primary production business carried on by a trustee of a trust during an income year if they are presently entitled to all or part of the trust income for that year (subject to a specific anti-avoidance rule designed to prevent exploitation of the averaging rules).
FMD
To be eligible for an FMD deduction, a taxpayer must (among other things) be an individual who carries on a business of primary production in Australia when the FMD is made.
An individual beneficiary of a trust is taken to carry on a primary production business carried on by a trustee of a trust during an income year if the individual is presently entitled to a share of the income of the trust for that year.
If, for an income year, a trust has no trust income to which a beneficiary can be presently entitled (for example, because the trust has a loss for trust purposes), the beneficiary can still be taken to carry on a primary production business if specific conditions are met. The relevant conditions depend on whether the trust is a discretionary trust or one where the beneficiaries’ entitlements to benefit under the trust are certain.
For a discretionary trust, the beneficiary must be chosen by the trustee. To make an effective choice, a trustee of a discretionary trust will need to:
- choose the higher of up to twelve beneficiaries, or
- the number of individual primary production beneficiaries eligible for income averaging last year
- the number of individual primary production beneficiaries eligible to hold an FMD last year
- make the choice in writing, signed by itself and the beneficiary, and retain a record of the choice
- ensure that the choice is completed by the time the trust return is lodged (or within such further time as the Commissioner may allow).
The choice cannot be varied and is irrevocable.
For other trusts (that is, those where the manner or extent to which a beneficiary can benefit from the trust is not able to be significantly affected by the exercise or non-exercise of a power by the trustee), a beneficiary is taken to be carrying on a primary production business if they would have been presently entitled to income if the trust had income for the year.
See also
- Taxation Ruling TR 95/29(W) – for the position prior to 1 July 2010
- Trust tax return instructions
- Tax Laws Amendment (2011 Measures No. 5) Act 2011External Link and Explanatory MemorandumExternal Link