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Edited version of your written advice
Authorisation Number: 1012672213980
Ruling
Subject: Farm management deposit
Question
Are you entitled to include your redemption of a farm management deposit (FMD) as income in the 2014-15 year of income where the redemption was made in April 2014 and redeposited in June 2014?
Answer
Yes.
This ruling applies for the following period:
Year ended 30 June 2014
Year ending 30 June 2015
The scheme commenced on
1 July 2013
Relevant facts and circumstances
You made a FMD in 2013 with the intention of it to be withdrawn in 2014. In 2014 rather than drawing down a loan facility a junior bank officer accidentally redeemed the FMD.
When you realised the mistake in 2014 you immediately instructed the bank to redeposit the FMD and recalculate the interest position.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 393-10
Reasons for decision
Division 393 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that FMDs allow you to carry over income from years of good cash flow and to draw down on that income in years when you need the cash. This enables you to defer the income tax on your taxable primary production income from the income year in which you make the deposit until the income year in which the deposit is repaid.
Subsection 393-10(3) of the ITAA 1997 states that the meaning of 'repay' includes a transfer, reinvestment or other dealing on your behalf or at your request. This is relevant for determining the timing of the assessable amount on repayment of a FMD.
As you were previously allowed a deduction in respect of the FMD that is now repaid, subsection 393-10(1) of the ITAA 1997 requires you to include an amount in your assessable income equal to the amount repaid.
Your instruction to the bank was that the FMD be repaid to you in 2014.
In 2014 you requested a draw-down of your loan facility however a bank error repaid the FMD instead. You realised the bank error in 2014 and instructed the bank to reverse the error and reinstate the interest position. This was done and the FMD eventually repaid to you in 2014.
Subsection 393-40(1) of the ITAA 1997 states that where any part of a deposit is repaid within 12 months the deposit it is never considered to be part of a FMD.
In your circumstances the repayment of the FMD was a result of a bank error and the result is not consistent with the intention of the FMD legislation therefore the repayment of the FMD in 2014 is ignored and the repayment is assessable in the 2014-15 financial year.
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