| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of private ruling
Authorisation Number: 1011684198100
This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.
Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.
Ruling
Subject: Farm Management Deposit
Questions and Answers
Does the Commissioner have a discretion to treat the Farm Management Deposit (FMD), that was made by you in the previous income year, to be made by you as a trustee of the family trust and not as an individual?
Answer:
No.
Are you assessable on the monies as an individual on redemption of the FMD?
Answer:
Yes.
This ruling applies for the following periods:
Year ended 30 June 2007
Year ended 30 June 2009
The scheme commences on:
1 July 2006
Relevant facts and circumstances
You and your spouse conduct a primary production business via a family trust.
For the previous income year, the trust made an abnormal primary production profit.
The trust distributed the profit and you received a distribution.
You deposited your distribution into an FMD account.
You declared the distribution in your individual tax return and claimed a deduction for the FMD.
In the recent income year, the trust fell on bad times with adverse weather conditions and poor prices in the market and as a result made a trading loss.
As there were no assets to fund the loss, you withdrew your FMD to get you out of a bad situation and save your farming business.
You declared the redeemed FMD in your individual tax return for the recent income year.
All the funds from the FMD were used to fund the trust's primary production business operations.
Reasons for decision
Summary
The Commissioner does not have a discretion to treat the FMD to have been made by you as trustee of the family trust rather than being made by you as an individual. As the FMD was deposited in your name as an individual, you are assessable on the monies on the redemption of the FMD in the year the FMD is redeemed.
Detailed reasoning
The requirements for a farm management deposit are set out in Division 393 of Schedule 2G to the Income Tax Assessment Act 1936 (ITAA 1936).
Under subsection 393-10(1) of Schedule 2G to the ITAA 1936, you claimed a deduction in the income year if you are the owner of an FMD made in the year of income.
Section 393-35 of Schedule 2G to the ITAA 1936 outlines the eligibility conditions that must be met for the deposit to qualify as a FMD. These conditions include:
· the owner of the FMD must be a primary producer at the time the deposit is made
· the deposit must be made by or on behalf of only one person. The deposit must not be made by two or more persons jointly or be made on behalf of two or more persons.
· the deposit must not be made by the trustee of a trust estate on behalf of a beneficiary unless the beneficiary is presently entitled to a share of the income of the trust estate and is under a legal disability
· the deposit must not be made by a person in his or her capacity as a trustee.
Other conditions include that the deposit must be more than $1,000 and the limit of the FMD must not be more than $400,000. The owner of an FMD must not have at any time an FMD with any other financial institution.
In accordance with section 393-35 of Schedule 2G to the ITAA 1936, an FMD must be made by an individual only, it must be more than $1,000 with a limit of $400,000 and must not be made by a person in their capacity as a trustee. Therefore, the FMD deposited by you can not be treated as an FMD of the Family Trust with you as a Trustee.
There is no provision in Division 393 of Schedule 2G to the ITAA 1936 that allows the Commissioner to vary the conditions regarding an FMD.
Accordingly, you are the owner of the FMD made by you in the previous income year. A deduction for the amount of the FMD was claimed in the previous income year.
Where an FMD is withdrawn in a year of income, the owner is required to include, as assessable income, an amount that equals the deductible amount previously allowed in respect of the deposit (subsection 393-15(1) of the ITAA 1936). Therefore, as you withdrew the FMD, the amount withdrawn is assessable to you in the recent income year, being the year of withdrawal.
Copyright notice
© Australian Taxation Office for the Commonwealth of Australia
You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
