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Ruling
Subject: Farm management deposits
Question:
Can a deduction be claimed for the non-deductible portion of an existing farm management deposit (FMD) that is re-invested?
Answer:
No.
This ruling applies for the following period
Year ended 30 June 2012
The scheme commenced on
1 July 2011
Relevant facts
You are a partner in a partnership that carried on a primary production business activity in the subsequent financial year.
In the relevant financial year you made an FMD, a portion of which was claimed as a deduction in your relevant income tax return. The FMD, therefore, contained both deductible and non-deductible components.
In the subsequent financial year, a portion of the non-deductible component was withdrawn and the balance of the FMD was re-invested. The re-invested amount contained both deductible and non-deductible components and you intended to claim the non-deductible component as a FMD in the subsequent financial year.
You meet the eligibility criteria for making an FMD.
Relevant legislative provisions
Income Tax Assessment Act 1997 - Division 393
Income Tax Assessment Act 1997 - Section 393-5
Income Tax Assessment Act 1997 - Subsection 393-15(1)
Income Tax Assessment Act 1997 - Section 393-20
Reasons for decision
Division 393 of the Income Tax Assessment Act 1997 (ITAA 1997) deals with FMDs. Basically, the FMD scheme is available to individual primary producers who meet the eligibility criteria.
A deposit with an FMD provider is an FMD when the required information is provided, such as the owner's tax file number, the deposit is made under an agreement that describes the deposit as an FMD and the eligibility requirements are met (section 393-20 of the ITAA 1997).
Section 393-5 of the ITAA 1997 allows a deduction for the amount of an FMD up to the amount of your taxable primary production income for that year and FMDs can contain both deductible and non-deductible deposits.
Subsection 393-15(1) of the ITAA 1997 provides that if an FMD is extended or immediately reinvested with the same financial institution it is not a repayment or making of an FMD. The note accompanying this subsection clarifies that these transactions will not result in assessable income for the owner and will not give rise to a deduction.
In your case, you made an FMD in the relevant financial year, a portion of which was claimed as a deduction in your relevant income tax return. The FMD, therefore, was made up of a deductible deposit and a non-deductible deposit. In the subsequent financial year, you withdrew a portion of the non-deductible component and reinvested the balance. As discussed above, the reinvestment of an FMD will not result in assessable income for the owner and will not give rise to a deduction. The legislation does not differentiate between re-invested amounts that include deductible and non-deductible amounts. Therefore, you are not entitled to a deduction for re-invested portion of an FMD not claimed as a deduction in a previous year.
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