ATO Interpretative Decision

ATO ID 2004/9 (Withdrawn)

Income Tax

• This ATO ID is withdrawn as the ATO is reconsidering the view expressed in the ATO ID.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Are Exceptional Circumstances Relief Payments (ECRPs) paid to the taxpayer under the Farm Households Support Act 1992 (FHSA) classed as 'assessable primary production income' for the purposes of the calculating the 'averaging' concession available under section 392-80 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

No. ECRPs received by the taxpayer are not classed as assessable primary production income for the purposes of calculating the 'averaging' concession available under section 392-80 of the ITAA 1997.

Facts

The taxpayer is a farmer. The taxpayer receives ECRPs every fortnight from Centrelink. The ECRPs are equivalent to the Newstart Allowance and are paid to assist farmers with their everyday living expenses. In order to qualify for the ECRPs, section 8A of FHSA specifies that the taxpayer must:

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hold a current Exceptional Circumstances certificate, issued by the relevant Rural Adjustment Authority, which identifies the farm enterprise as one that is in an Exceptional Circumstances affected area;

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be a farmer;

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be at least 18 years old;

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be an Australian resident and living in Australia; and

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not be on Newstart Allowance, or another social security benefit or pension, or a service pension from the Department of Veteran Affairs.

For the purposes of the FHSA, 'farmer' is defined as a person who:

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has a right or interest in the land used for the purpose of a farm enterprise; and

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contributes a significant part of his or her labour and capital to the farm enterprise; and

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derives a significant part of his or her income from the farm enterprise.

Reasons for Decision

Subsection 392-80(2) of the ITAA 1997 provides that a taxpayer's 'assessable primary production income' for the current year is the amount of that taxpayer's

* basic assessable income for the current year that was derived from, or resulted from your carrying on a *primary production business.

* denotes a term defined in subsection 995-1(1) of the ITAA 1997

The issue of what constitutes income which has 'derived from, or resulted from carrying on a primary production business' was considered in Taxation Ruling IT 2228 in the context of futures transactions. IT 2228 provides that income derived from futures transactions (where the quantity of goods covered by the futures transaction corresponds by and large to the estimated production, and where there is a subsequent sale of the kind covered by the trading) is primary production income because the futures transaction are considered an integral part of the primary producer's business.

However, if a primary producer were to enter into a futures contract or contracts in respect of a quantity of a commodity that was significantly more than his or her own estimated production, or in respect of a commodity which the taxpayer did not produce, this would be regarded as outside the scope of the primary production business. The resulting profit or loss would not be accepted as arising from the primary production business (see paragraphs 23 and 24 of IT 2228).

Accordingly, for income to be derived from, or to be considered as having 'resulted from' carrying on a primary production business, there must be a congruence between the income received and the income ordinarily derived from or resulting from the primary producer's trade or business.

The ECRPs are equivalent to the Newstart Allowance to assist farmers with their everyday living expenses. Although the ECRPs are payable only if the taxpayer is a farmer as defined, there is no congruence between the ECRP and the income ordinarily derived from or resulting from the primary production trade or business.

Therefore, ECRPs received by the taxpayer, a farmer, from Centrelink are not classed as 'assessable primary production income' for the purposes of calculating the 'averaging' concession available under section 392-80 of the ITAA 1997.

Year of income:  Year ended 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
   section 392-80
   subsection 392-80(2)

Related Public Rulings (including Determinations)
Taxation Ruling IT 2228

Keywords
Abnormal income
Grants of financial assistance & funding
Income averaging
Income support payments
Primary production income

Business Line:  Business and Personal Taxes Centre of Expertise

Date of publication:  9 January 2004

ISSN: 1445-2782