ATO Interpretative Decision

ATO ID 2004/480 (Withdrawn)

Income Tax

• This ATO ID is withdrawn because of the change in the taxation treatment of those Farm Management Deposits which meet the conditions of section 393-16 of the Income Tax Assessment Act 1997 (ITAA 1997), effective from 1 July 2014. Despite its withdrawal, this ATO ID continues to be a precedential ATO view in respect of decisions dealing with the application of subsection 393-50(3) of Schedule 2G to the Income Tax Assessment Act 1936 (ITAA 1936) for the income years to 30 June 2010. This ATO view is also consistent with the operation of section 393-10 and section 393-15 of the ITAA 1997 for the 2011 to 2014 income years.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is a taxpayer taken to have received a repayment for the purposes of subsection 393-50(3) of Schedule 2G to the Income Tax Assessment Act 1936 (ITAA 1936) where the taxpayer has merged multiple farm management deposits (FMDs) into a single deposit with the same financial institution?

Decision

Yes. A taxpayer is taken to have received a repayment for the purposes of subsection 393-50(3) of Schedule 2G to the ITAA 1936 where the taxpayer has merged multiple FMDs into a single deposit with the same financial institution.

Facts

A taxpayer has carried on a primary production business activity since the 2001 income year. The taxpayer is not in an 'exceptional circumstances' declared area. The taxpayer has two FMDs with a financial institution. A $5,000 FMD was made in June 2002 and a second FMD of $10,000 was made in June 2003. There have been no withdrawals of any part of the FMDs. Income tax returns had been lodged for the years ended 30 June 2002 and 30 June 2003 claiming a deduction for the respective FMDs in each of the years the FMD was made.

In February 2004, the taxpayer makes a further $20,000 FMD. The taxpayer would like to merge the three amounts of $5,000, $10,000 and $20,000 already deposited into a single FMD of $35,000 with the same financial institution that has the existing FMDs before the end of the 2004 income year. The taxpayer's objective is to be able to readily identify and monitor total holdings, access higher interest rates on the consolidated balance and minimise paperwork.

The financial institution has issued individual statements to the owner for each FMD. As an alternative to individual FMD statements, the financial institution has offered to open a FMD account. This type of account records all FMDs and withdrawals. The financial institution will issue a regular periodic statement detailing account activity.

Reasons for Decision

Subsection 393-50(3) of Schedule 2G to the ITAA 1936 states that:

subject to subsections (1) and (2), the expression repay a farm management deposit includes transfer or reinvest the deposit or otherwise deal with the deposit on behalf of or at the request of the depositor.

Subsection 393-50(1) of Schedule 2G to the ITAA 1936 provides that if an FMD is immediately reinvested as an FMD with the same financial institution it is not a repayment or making of an FMD. This is intended to cover the situation where the same amount is reinvested but the terms may have changed as a result of the reinvestment. Subsection 393-50(2) of Schedule 2G to the ITAA 1936 provides that if a FMD is extended, the extension does not involve the repayment or making of an FMD.

The merging of FMDs or increasing an FMD does not fall within the exceptions outlined in subsections 393-50(1) and (2) of Schedule 2G to the ITAA 1936 for reinvesting an FMD or extending the term of an FMD. Further, the Explanatory Memorandum to the bill which became Taxation Laws Amendment Act (Farm Management Deposits) Act 1998 explains the term repay includes:

transfer or reinvestment of the deposit (other than reinvestment or extension of a term with the same financial institution, above) or any other method of dealing with the deposit for the depositor or as the depositor requests.

Accordingly, requests for an FMD to merge with another, or increase an existing FMD are considered as a repayment of the FMD as it has been otherwise dealt with on behalf of or at the request of the depositor.

In the circumstances here, if the taxpayer merges the separate FMDs into a single FMD, the separate FMDs will be considered to have been repaid under subsection 393-50(3) of Schedule 2G to the ITAA 1936.

The $5,000 FMD made in June 2002 is taken to have been repaid and will need to be included in the taxpayer's assessable income for the 2004 income year. The $10,000 FMD made in June 2003 will be taken never to have been an FMD not having met the 12-month requirement under subsection 393-37(1) of Schedule 2G to the ITAA 1936. The taxpayer will not be entitled to a tax deduction in the 2003 income year and will need to request an amendment to the return of income for the 2003 income year. The $20,000 FMD made in February 2004 will also be taken never to have been an FMD, not having been deposited for 12 months, and the taxpayer will not be able to claim a deduction for this amount in the 2004 income year.

The taxpayer is however able to then make a FMD for the $35,000 under a new agreement in accordance with section 393-30 of Schedule 2G to the ITAA 1936. The taxpayer will be able to claim a tax deduction in the 2004 income year, subject to meeting the eligibility criteria of the farm management deposit scheme.

Amendment History

Year of income:  Year ended 30 June 2004

Legislative References:
Income Tax Assessment Act 1936
   Division 393 of Schedule 2G
   section 393-30 of Schedule 2G
   subsection 393-30(2) of Schedule 2G
   subsection 393-37(1) of Schedule 2G
   subsection 393-50(1) of Schedule 2G
   subsection 393-50(2) of Schedule 2G
   subsection 393-50(3) of Schedule 2G

Keywords
Primary producers
Financial institutions

Business Line:  Small Business Individual Taxpayers

Date of publication:  11 June 2004

ISSN: 1445-2782