Tax Laws Amendment (Transfer of Provisions) Act 2010 (79 of 2010)

Schedule 4   Farm management deposits

Part 1   Main amendments

Income Tax Assessment Act 1997

2   After Division 392

Insert:

Division 393 - Farm management deposits

Table of Subdivisions

Guide to Division 393

393-A Tax consequences of farm management deposits

393-B Meaning of farm management deposit and owner

393-C Special rules relating to financial claims scheme for account-holders with insolvent ADIs

Guide to Division 393

393-1 What this Division is about

You can deduct a farm management deposit you make, if:

(a) you are an individual carrying on a primary production business (including a primary production business you carry on as a partner in a partnership or as a beneficiary of a trust); and

(b) you hold the deposit for at least 12 months; and

(c) you meet some other tests.

The amount of the deposit withdrawn is included in your assessable income in the income year in which it is repaid. Special rules apply if the deposit is repaid in exceptional circumstances.

Farm management deposits allow you to carry over income from years of good cash flow and to draw down on that income in years when you need the cash. This enables you to defer the income tax on your taxable primary production income from the income year in which you make the deposit until the income year in which the deposit is repaid.

Note: An FMD provider must, every quarter, give certain information to the Agriculture Secretary about farm management deposits: see section 398-5 in Schedule 1 to theTaxation Administration Act 1953.

Subdivision 393-A - Tax consequences of farm management deposits

Table of sections

393-5 Deduction for making farm management deposit

393-10 Assessability on repayment of deposit

393-15 Transactions to which the deduction, assessment and 12 month rules have modified application

393-5 Deduction for making farm management deposit

Entitlement to deduction

(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 $65,000; 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 section 393-15.

Note 2: This Division applies to certain partners and beneficiaries as if they were individuals who carried on a primary production business: see subsections 393-25(2) and (3).

Sum of deductions not to exceed taxable primary production income

(2) The sum of the deductions that you would otherwise be entitled to under this section for*farm management deposits made in the income year mustnot exceed your*taxable primary production income for the income year.

Amounts to be deducted in order of deposits

(3) If you are entitled to deduct amounts in respect of 2 or more deposits, deduct the amounts in the order in which the deposits were made (until you reach the limit imposed by subsection (2)).

393-10 Assessability on repayment of deposit

Amount assessable

(1) Your assessable income for an income year includes the amount worked out using the following formula, if:

(a) you are the*owner of a*farm management deposit; and

(b) the deposit is repaid in full or in part in the year; and

(c) the amount worked out using the formula is greater than nil:

Note 1: This subsection does not apply if the deposit is reinvested, the term of the deposit is extended, or the deposit is transferred at the depositor's request: see section 393-15.

Note 2: In a case where not all of the deposit is deductible under section 393-5, repayment of the non-deductible amount can take place without the amount being assessable. Once that amount is repaid, the remainder is assessable when it is repaid, so that the deduction is recouped.

Example: Matt makes a farm management deposit of $120,000 on 1 April 2011. His taxable primary production income for the 2010 - 11 income year is $50,000; therefore, the deposit is only partly deductible in the year because it exceeds his taxable primary production income. Matt makes the following withdrawals from the deposit: $45,000 on 1 May 2013, $40,000 on 1 March 2014 and $35,000 on 1 September 2015.

The unrecouped FMD deduction immediately before the first repayment of $45,000 is $50,000. No amount is included in his assessable income for the 2012-2013 income year because the difference between the unrecouped FMD deduction ($50,000) and the amount of the deposit remaining after the repayment ($75,000) is less than nil.

The unrecouped FMD deduction immediately before the second repayment of $40,000 is $50,000. $15,000 is included in Matt's assessable income for the 2013-2014 income year because the difference between the unrecouped FMD deduction ($50,000) and the amount of the deposit remaining after the second repayment ($35,000) is $15,000, which is greater than nil.

The unrecouped FMD deduction immediately before the third repayment of $35,000 is $35,000; that is, $50,000 less $15,000. $35,000 is included in Matt's assessable income for the 2015-2016 income year; that is, the difference between the unrecouped FMD deduction ($35,000) and the amount of the deposit remaining after the third repayment ($0).

Unrecouped FMD deduction

(2) The unrecouped FMD deduction in respect of a*farm management deposit at a particular time is:

(a) if no part of the deposit has been repaid before that time - the amount of the deduction under section 393-5 for making the deposit; or

(b) if one or more parts of the deposit have been repaid before that time - the unrecouped FMD deduction in respect of the deposit just before the most recent such repayment, reduced by any amount included in the*owner's assessable income under this section as a result of that repayment.

Example: Mia makes a deposit of $3,000, all of which is deductible. The deposit's unrecouped FMD deduction just before a first repayment of $1,000 is the amount of the deduction (that is, $3,000 - see paragraph (2)(a)). The deposit's unrecouped FMD deduction just before a second repayment is $2,000 (that is, according to paragraph (2)(b), the unrecouped FMD deduction immediately before the first repayment ($3,000) reduced by the $1,000 included in Mia's assessable income as a result of the first repayment).

Note 1: If the deposit was originally an income equalisation deposit, see section 393-10 of theIncome Tax (Transitional Provisions) Act 1997.

Note 2: Section 393-55 affects the unrecouped FMD deduction of a new deposit linked to an old deposit affected by Division 2AA (Financial claims scheme for account-holders with insolvent ADIs) of Part II of theBanking Act 1959.

Application of Division to transfer, reinvestment or other dealing

(3) This Division applies to a transfer, reinvestment or other dealing with a*farm management deposit as if it were a repayment of the deposit, if:

(a) you are the depositor; and

(b) the transfer, reinvestment or other dealing is on your behalf or at your request.

Note: Section 393-15 modifies the application of the deduction, assessment and 12 month rules to certain transfers, reinvestments and other dealings.

Deemed repayment because of death, bankruptcy etc.

(4) This section applies as if a*farm management deposit had been repaid when it became repayable, rather than when it is actually repaid, if the deposit became repayable because of the requirement contained in the relevant agreement as set out in item 11 of the table in section 393-35 (death, bankruptcy etc.).

Note 1: This means that the amount of the deposit is included in your assessable income for the income year when the death, bankruptcy etc. occurs, rather than for any later year in which the deposit might be repaid.

Note 2: This also means that, under subsection 45-120(5) in Schedule 1 to theTaxation Administration Act 1953 (about Pay as you go (PAYG) instalments), the amount of the deposit is included in your instalment income for the period in which the death, bankruptcy etc. occurs.

However, under section 12-140 in that Schedule, an amount may also be required to be withheld from the actual payment if you do not quote your tax file number or ABN to the relevant FMD provider.

Note 3: Section 393-60 of this Act may limit the operation of subsection (4) if the farm management deposit is with an ADI that becomes a declared ADI under Division 2AA (Financial claims scheme for account-holders with insolvent ADIs) of Part II of theBanking Act 1959.

393-15 Transactions to which the deduction, assessment and 12 month rules have modified application

(1) The provisions mentioned in subsection (2) do not apply in relation to the following transactions:

(a) the immediate reinvestment of a*farm management deposit as a farm management deposit with the same*FMD provider;

(b) the extension of the term of a farm management deposit (even if other terms such as those relating to interest payable are also varied);

(c) the transfer of a farm management deposit in accordance with a requirement of the relevant agreement as set out in item 13 of the table in section 393-35 (which allows for transfers of deposits at the request of the depositor).

Note: This means that these transactions:

(a) will not result in assessable income for the owner; and

(b) will not give rise to a deduction; and

(c) will not, if the transaction occurs within 12 months after the end of the day the deposit is made, result in the deposit losing its status as a farm management deposit.

(2) The provisions are:

(a) section 393-5 (about deductions for making a farm management deposit); and

(b) subsection 393-10(1) (about assessability of the repayment of a farm management deposit); and

(c) subsections 393-40(1) and (2) (about repayment of a farm management deposit within the first 12 months); and

(d) subsections 393-40(3) and (4) (about repayment of a farm management deposit in exceptional circumstances).

(3) For the purposes of working out the*unrecouped FMD deduction for a deposit that is subject to a transaction mentioned in subsection (1), the transaction does not cause the deposit to be a different deposit.

Note: This ensures that the unrecouped FMD deduction (which affects how much income tax is assessed in the event of a repayment) equals the deduction for the original deposit, less any amount included in your assessable income because of a previous repayment of the deposit.

Subdivision 393-B - Meaning of farm management deposit and owner

Table of sections

393-20 Farm management deposits

393-25 Owners of farm management deposits

393-30 Effect of contravening requirements

393-35 Requirements of agreement for a farm management deposit

393-40 Repayment of deposit within first 12 months

393-45 Partly repaid farm management deposits

393-20 Farm management deposits

Meaning of farm management deposit

(1) A deposit with an*FMD provider is a farm management deposit if:

(a) the depositor applies to make the deposit in accordance with subsection (2); and

(b) the deposit is made under an agreement between the FMD provider and the depositor that:

(i) describes the deposit as a farm management deposit; and

(ii) at all times while the deposit is with the FMD provider, contains requirements to the effect set out in the table in section 393-35.

The agreement may also contain additional requirements that are not inconsistent with those set out in that table.

Depositor to provide information in application form

(2) For the purposes of paragraph (1)(a), the depositor must apply to the*FMD provider to make the deposit by completing and signing a form that:

(a) permits the depositor to state the*owner's*tax file number in the form; and

(b) requires the depositor to provide any other information required by regulations for the purposes of this paragraph; and

(c) contains any statements, required by regulations for the purposes of this paragraph, that are to be read by the depositor when completing the form.

Note 1: A depositor who makes a false or misleading statement in such a form commits an offence against section 8K or 8N of theTaxation Administration Act 1953.

Note 2: If the owner does not quote his or her tax file number or ABN to the FMD provider, the Pay as you go (PAYG) withholding required under section 12-140 in Schedule 1 to theTaxation Administration Act 1953 from a repayment of the deposit is at the highest marginal tax rate.

Note 3: Division 4A of Part VA of theIncome Tax Assessment Act 1936 sets out rules for quoting tax file numbers in connection with farm management deposits.

Meaning of FMD provider

(3) In this Act:

FMD provider means an entity that:

(a) is an*ADI; or

(b) carries on in Australia the*business of banking, so long as the Commonwealth, a State or a Territory guarantees the repayment of any deposit taken in the course of that business; or

(c) carries on in Australia a business that consists of or includes taking money on deposit, so long as the Commonwealth, a State or a Territory guarantees the repayment of any deposit taken in the course of that business.

393-25 Owners of farm management deposits

Meaning of owner

(1) The owner of a*farm management deposit is:

(a) if paragraph (b) does not apply - the individual who made or is making the deposit; or

(b) in the case of a deposit made or being made by the trustee of a trust on behalf of a beneficiary who is an individual - the beneficiary.

Primary production businesses carried on by partnerships and trusts

(2) This Division applies to you as if you were an individual who is carrying on a*primary production business that is actually carried on by a partnership, if you are an individual who is a partner in the partnership.

(3) This Division, and section 97A of theIncome Tax Assessment Act 1936 (about beneficiaries who are owners of farm management deposits), apply to you as if you were an individual who is carrying on a*primary production business that is actually carried on by a trustee, if you are an individual who is a beneficiary presently entitled to a share of the income of the trust.

Application of Division to beneficiary no longer under legal disability

(4) If:

(a) a*farm management deposit was made by a trustee on behalf of a beneficiary of a trust; and

(b) the beneficiary was under a legal disability when the deposit was made; and

(c) the beneficiary is no longer under a legal disability;

then this Division, and Division 4A of Part VA of theIncome Tax Assessment Act 1936, apply as if the beneficiary had made the deposit.

Note: Division 4A of Part VA of theIncome Tax Assessment Act 1936 is about quotation of tax file numbers in connection with farm management deposits.

393-30 Effect of contravening requirements

(1) A deposit is not a farm management deposit if, when the deposit was accepted, a requirement contained in the relevant agreement as set out in items 1 to 6 of the table in section 393-35 was contravened.

(2) A deposit is not, and is taken never to have been, a farm management deposit if a requirement contained in the relevant agreement as set out in items 7 to 9 of the table in section 393-35 is contravened at any time in relation to the deposit.

(3) So much of a deposit as causes a requirement contained in the relevant agreement as set out in item 10 of the table in section 393-35 to be contravened is not a farm management deposit .

393-35 Requirements of agreement for a farm management deposit

An agreement mentioned in paragraph 393-20(1)(b) must contain requirements to the effect of those set out in the following table:

393-40 Repayment of deposit within first 12 months

Partial repayment within first 12 months

(1) Any part of a deposit repaid within 12 months after the end of the day the deposit is made is not, and is taken never to have been, part of a farm management deposit .

Note 1: A repayment covered by subsection (3) or (5) is disregarded in applying this subsection. The normal rules in sections 393-5 (about deductions for making a farm management deposit) and 393-10 (about assessability of the repayment of a farm management deposit) apply instead.

Note 2: This subsection 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 section 393-15.

Deposit not to be reduced to less than $1,000 within first 12 months

(2) A deposit is not, and is taken never to have been, a farm management deposit if the amount of the deposit is reduced to less than $1,000 because of one or more repayments within 12 months after the end of the day the deposit is made.

Note 1: A repayment covered by subsection (3) or (5) is disregarded in applying this subsection.

Note 2: This subsection 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 section 393-15.

Repayment in exceptional circumstances

(3) Subsections (1) and (2) do not apply to a repayment of the whole or a part of a*farm management deposit if all of the following circumstances are satisfied:

(a) the repayment is made in the income year following the income year in which the deposit is made with the*FMD provider;

(b) at the time of the repayment, the*owner of the deposit is eligible for the issue of an exceptional circumstances certificate (within the meaning of subsection 8A(2) of theFarm Household Support Act 1992) that relates to a*primary production business of that owner;

(c) by the end of 3 months after the end of the income year in which the repayment is made, such an exceptional circumstances certificate is issued in respect of that owner;

(d) a declaration of exceptional circumstances (as referred to in paragraph 8(c) of theRural Adjustment Act 1992) was not in force in relation to that primary production business when the deposit was made.

(4) Any later deposit that is made by, or on behalf of, that*owner in the income year in which the repayment is made is not, and is taken never to have been, a farm management deposit .

Repayment in the case of death, bankruptcy or ceasing to carry on a primary production business

(5) Subsections (1) and (2) do not apply to a repayment of a*farm management deposit because of the requirement contained in the relevant agreement as set out in item 11 of the table in section 393-35 (death, bankruptcy etc.).

Certain transactions do not affect the day the deposit was made

(6) Subsections (1) to (4) apply as if a*farm management deposit that:

(a) is made as a result of a transaction mentioned in subsection 393-15(1) (about reinvesting a deposit, extending the term of a deposit and transferring a deposit at the depositor's request); or

(b) is affected by such a transaction;

were made on the day on which the original deposit was made.

Example: A farm management deposit is made on 1 July 2010 for a term of 6 months, but is extended in December 2010 for another 6 months. For the purposes of subsections (1) to (4), the day the extended deposit was made remains as 1 July 2010.

Note: Section 393-40 of theIncome Tax (Transitional Provisions) Act 1997 provides for a special rule for deposits transferred under the repealedLoan (Income Equalization Deposits) Act 1976.

393-45 Partly repaid farm management deposits

A reference to a farm management deposit is a reference to so much of the deposit as has not been repaid.

Subdivision 393-C - Special rules relating to financial claims scheme for account-holders with insolvent ADIs

Guide to Subdivision 393-C

393-50 What this Subdivision is about

A deposit (the new deposit ) arising from:

(a) an entitlement under Division 2AA (Financial claims scheme for account-holders with insolvent ADIs) of Part II of theBanking Act 1959 relating to a farm management deposit (the old deposit ); or

(b) a distribution from liquidation of an ADI that is attributable to a farm management deposit (also the old deposit );

is treated as a transfer of the old deposit and does not give rise to new assessable income or deductions.

Table of sections

Operative provisions

393-55 Farm management deposits arising from farm management deposits with ADIs subject to financial claims scheme

393-60 Repayment if owner of farm management deposit with insolvent ADI dies, is bankrupt or ceases to be a primary producer

Operative provisions

393-55 Farm management deposits arising from farm management deposits with ADIs subject to financial claims scheme

Application

(1) This section applies if an entitlement arises under Division 2AA (Financial claims scheme for account-holders with insolvent ADIs) of Part II of theBanking Act 1959 in connection with an account containing a*farm management deposit (the old deposit ) with an*ADI (the old ADI ) and either:

(a) an amount (the new deposit ) is deposited into either of the following to meet, in whole or part, so much of the entitlement as relates to the old deposit:

(i) an existing account for a farm management deposit;

(ii) an account established under section 16AH of that Act for the purposes of meeting (in whole or part) the entitlement; or

(b) an amount (also the new deposit ) is deposited by a liquidator of the old ADI into either of the following as so much of a distribution from the liquidation of the old ADI as relates to the old deposit:

(i) an existing account for a farm management deposit;

(ii) an account established under section 16AR of that Act for the payment of the distribution.

Note: If an amount is deposited in connection with an account with the old ADI containing 2 or more old deposits, the amount is to be apportioned between each old deposit, so that so much of the amount as is attributable to a particular old deposit is regarded as a distinct new deposit relating to that old deposit.

New deposit is a farm management deposit

(2) This Division (except this section) applies to the new deposit as if the new deposit were a transfer of the old deposit in accordance with a requirement contained in the relevant agreement for the old deposit as set out in item 13 of the table in section 393-35 (which allows for transfers of deposits at the request of the depositor). To avoid doubt, this Division applies in that way as if the amount transferred were the amount of the new deposit, even if that is more or less than the amount of the old deposit.

Note 1: The effects of this include the following:

(a) section 393-5 (about deductions for making a farm management deposit) does not apply in relation to the making of the new deposit (see paragraphs 393-15(1)(c) and (2)(a));

(b) subsection 393-10(1) (about assessability of the repayment of a farm management deposit) can only apply to the extent of any difference between the amount transferred and the amount of the old deposit (see paragraphs 393-15(1)(c) and (2)(b));

(c) subsections 393-40(1), (2) and (4) (about repayment of a farm management deposit within the first 12 months) can only apply to the extent of any difference between the amount transferred and the amount of the old deposit (see paragraphs 393-15(1)(c) and (2)(c) and (d));

(d) the day the old deposit was made, for the purposes of subsections 393-40(1) and (2) (about repayment of a farm management deposit within the first 12 months) and (3) and (4) (about repayment in exceptional circumstances), is maintained for the new deposit (see subsection 393-40(6)).

Note 2: Also, the unrecouped FMD deduction in respect of the new deposit is the same as the unrecouped FMD deduction in respect of the old deposit (see subsection 393-15(3)), unless subsection (6) or (7) of this section applies because the new deposit is less than the old deposit.

(3) In determining whether either of the following is a*farm management deposit, disregard a requirement contained in an agreement as set out in item 4 of the table in section 393-35 (requiring the deposit to be $1,000 or more):

(a) the new deposit;

(b) a deposit made later directly by the transfer of the new deposit in accordance with a requirement of the relevant agreement for the new deposit as mentioned in item 13 of that table.

(4) In determining whether a deposit made after the entitlement arises is a*farm management deposit, disregard the old deposit when determining whether a requirement contained in an agreement as set out in item 5 of the table in section 393-35 (prohibiting farm management deposits with other FMD providers) has been complied with.

Note: Subsection (4) means that a deposit made with a financial institution other than the old ADI after the entitlement arises can be a farm management deposit (despite subsection 393-30(1)) even though the owner of the deposit still has the old deposit with the old ADI.

(5) A requirement contained in an agreement as set out in item 5 of the table in section 393-35 does not apply to the new deposit to prevent it from being a*farm management deposit.

Note: Subsections (4) and (5) mean that, despite subsection 393-30(1) (which prevents a deposit, or part of a deposit, from being a farm management deposit if certain requirements are not met), the fact that you are the owner of both the new deposit with one financial institution and the old deposit with another financial institution does not prevent the new deposit from being a farm management deposit.

Unrecouped FMD deduction for new deposit less than old deposit

(6) Despite subsection (2) and subsection 393-15(3), if the new deposit is less than the old deposit at the time (the declaration time ) the old ADI became a declared ADI under theBanking Act 1959, the unrecouped FMD deduction in respect of the new deposit is the amount worked out using the following formula:

Note: The new deposit could be less than the old deposit if the entitlement is paid in instalments (each of which will be a separate new deposit).

(7) However, if the amount worked out under subsection (6) is more than the difference (if any) between:

(a) the*unrecouped FMD deduction in respect of the old deposit just before the declaration time; and

(b) the total of the amounts worked out under all previous applications of subsection (6) in relation to that old deposit;

the unrecouped FMD deduction in respect of the new deposit is equal to the difference (if any).

Note: This ensures that when new deposits linked to the old deposit are repaid, the total amount included in assessable income will not exceed the unrecouped FMD deduction in respect of the old deposit.

Relationship with other provisions

(8) This section has effect despite Division 253 (about tax treatment of entitlements under the financial claims scheme for insolvent ADIs).

393-60 Repayment if owner of farm management deposit with insolvent ADI dies, is bankrupt or ceases to be a primary producer

Subsection 393-10(4) does not apply in relation to so much of a*farm management deposit with an*ADI as is equal to the sum of the amounts described in subparagraphs (d)(i) and (ii) of this section if:

(a) you are the*owner of the deposit; and

(b) the deposit becomes repayable during an income year because of the requirement contained in the relevant agreement as set out in item 11 of the table in section 393-35 (death, bankruptcy etc.); and

(c) during the income year, the ADI becomes a declared ADI under Division 2AA (Financial claims scheme for account-holders with insolvent ADIs) of Part II of theBanking Act 1959; and

(d) at the end of the income year, you have either or both of the following:

(i) an unmet entitlement under that Division connected with the account for the farm management deposit;

(ii) an unmet claim against the ADI, or an unpaid debt owed to you by the ADI, in the winding up of the ADI connected with the account for the deposit.

Note: Subsection 393-10(4) makes the repayment of a farm management deposit assessable in the income year when the death, bankruptcy etc. occurs, rather than in any later year in which it might be repaid.