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Ruling

Subject: Treatment of farm management deposit income

Question

Does the withdrawal of the farm management deposit (FMD) form part of the primary production business income for the purposes of the assessable income test within the non-commercial loss rules in Division 35 of the Income Tax Assessment Act 1997?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 2012

The scheme commences on:

1 July 2011

Relevant facts and circumstances

You are in partnership and have been running a farming business for many years, and this is their primary source of income.

During the relevant financial year, the partnership returned a primary production loss.

In this year, you withdrew money from FMD accounts to use as working capital for your primary production business operations.

You intend on applying the income test and business activity tests in Division 35 of the ITAA 1997 which allow the deduction of their non-commercial business losses against your other income for the year.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 35-10

Income Tax Assessment Act 1997 section 35-30

Reasons for decision

For the 200X and later income years, will apply to defer a non-commercial loss from a business activity unless:

The income requirement prevents you from accessing the four tests where your adjusted taxable income exceeds $250,000 (that is, your taxable income, reportable fringe benefits, reportable superannuation contributions and total net investment losses but excluding your business losses).

However not all of your assessable income is included in calculating your adjusted taxable income. Any assessable income attributed to the business activity incurring the loss is not included in your adjusted taxable income. This is because it forms part of the business losses, which are disregarded (the business losses are calculated by deducting the expenses attributed to the business activity from the assessable income 'from' that business activity).

As your FMD is properly attributable to your partnership business activity (the income is from the partnership activity), the repayment will be excluded from your adjusted taxable income for the purposes of Division 35 of the ITAA 1997.

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