Income Tax Assessment (1997 Act) Regulations 2021

SCHEDULES

SCHEDULE 1C  

Note: See section 393-20.02 .

FARM MANAGEMENT DEPOSITS - STATEMENTS TO BE READ BY DEPOSITORS

PART 2 - REQUIRED STATEMENTS  

2   Statements for the purposes of paragraph 393-20.02(b)  

2(1)    
This clause sets out statements for the purposes of paragraph 393-20.02(b) .

2(2)    
The statements are as follows:

Purpose of farm management deposits scheme

The farm management deposits scheme is designed to allow individuals carrying on a primary production business in Australia to shift before-tax income from years when they need it least to years when it is most needed. The scheme helps those individuals to manage their exposure to adverse economic events and seasonal fluctuations.

Eligibility criteria apply to individuals carrying on a primary production business in Australia under the scheme.

Note:

Primary production business and carrying on a primary production business are explained in subsection 995-1(1) of the Income Tax Assessment Act 1997 .

Tax consequences of farm management deposits

The scheme allows individuals carrying on a primary production business in Australia to deduct the amount of any farm management deposit they own from their assessable income for the income year in which the deposit is made. However, the amount of the deductions cannot exceed the owner ' s taxable primary production income for the income year.

Under the Pay As You Go system, owners may reduce their instalment income for an instalment period by the amount of farm management deposits made during that period. The reduction is limited to the amount that the owners can reasonably expect to deduct for the deposit for the income year in which the deposit is made. However, the instalment income for the period cannot be reduced below nil.

When a farm management deposit is repaid to an owner in an instalment period, the instalment income of the period will include the amount of the repayment. But the owner ' s instalment income will only include so much of the repayment as will be included in the owner ' s assessable income for the income year in which the repayment is made.

If neither the owner ' s tax file number nor Australian Business Number has been quoted to the FMD provider that holds the deposit, the amount repaid will also be subject to withholding at a rate equal to the sum of the top marginal tax rate and the Medicare levy.

Important requirements for farm management deposits

Some of the requirements for farm management deposits are summarised below. There are also other requirements set out in the Income Tax Assessment Act 1997 . A breach of some of the requirements will result in the deposit not being treated as a farm management deposit, and the tax benefits will be lost.

• The owner must be an individual who is carrying on a primary production business in Australia when the deposit is made.

• The deposit must be made by only one individual and on behalf of only one individual.

• Rights of the depositor must not be transferable to another entity.

• The deposit must not be used as security for any amount that the depositor or any other entity owes to the FMD provider or any other entity.

• Interest or other earnings on the deposit must not be invested as a farm management deposit with the FMD provider without having first been paid to the depositor.

• If the depositor requests in writing, the FMD provider must electronically transfer the deposit, or part of the deposit, to another FMD provider that agrees to accept it as a farm management deposit.

• The FMD provider must not deduct any fees from the principal of a farm management deposit. However, it may charge fees on the deposit.

Repayment of farm management deposits

The tax benefits are not retained for deposit amounts repaid within the first 12 months after the deposit was made, unless the repayment is made:

(a) because the owner:

(i) dies; or

(ii) becomes bankrupt; or

(iii) ceases to carry on a primary production business in Australia and does not start carrying on such a business again within 120 days; or

(iv) has requested the deposit, or part of the deposit, to be transferred to another FMD provider and the repayment relates to the transfer; or

(b) because the circumstances specified in subsection 393-40(3) of the Income Tax Assessment Act 1997 or in regulations made for the purposes of that subsection, relating to repayment in the event of severe drought, exist; or

(c) because the circumstances specified in subsection 393-40(3A) of the Income Tax Assessment Act 1997 or in regulations made for the purposes of that subsection, relating to repayment in the event of a natural disaster, exist.