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Edited version of your written advice
Authorisation Number: 1012978974548
Date of advice: 2 March 2016
Ruling
Subject: Withdrawal from a Farm Management Deposit
Question
Do the amounts withdrawn from Farm Management Deposits (FMD), within 12 months of the deposit being made, remain eligible for concessions as FMDs?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2016
The scheme commenced on
1 July 2014
Relevant facts
You deposited funds into a Farm Management Deposit (FMD) with a bank commencing in 20XX. The term of the deposit was for one year.
Several months later you withdrew portion of the funds from the FMD.
Because of your withdrawal the amount of interest to be paid by the bank on the maturity of the FMD was reduced and there was also a penalty fee charged.
On the day of the withdrawal you had email discussions with your accountant about the withdrawal and you were made aware that the early withdrawal from the FMD could have tax implications for you.
On the day following the withdrawal you contacted the bank to see if the withdrawal could be reversed. You were told that this could not be done.
You instructed the bank to start a new FMD for the amount of the funds previously withdrawn to start on immediately and to mature on the same date as the original FMD.
You have not
• been issued with an exceptional circumstances certificate
• been declared bankrupt, or
• ceased carrying on a primary production business.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 393-5
Income Tax Assessment Act 1997 Section 393-10
Income Tax Assessment Act 1997 Subsection 393-40(1)
Income Tax Assessment Act 1997 Subsection 393-40(3)
Income Tax Assessment Act 1997 Subsection 393-40(5)
Reasons for decision
The Farm Management Deposits (FMD) Scheme allows you to claim a deduction for FMDs made in the year you deposit. If you withdraw an FMD, the amount of the deduction previously allowed is included in your assessable income in the year of repayment.
There are rules which must be adhered to for the deposit to be considered an FMD. One of the rules involves repayment of a deposit within the first 12 months of the amount being deposited.
Subsection 393-40(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states any part of a deposit repaid within 12 months after the end of the day the deposit is made is not, and is taken never to have been, part of a FMD.
A deduction is not allowed for the part of the deposit that is repaid. Where this affects a deduction you have claimed in the prior year, you need to request an amendment of your assessment for that income year.
You can repay a deposit early and still retain the tax deduction in the income year in which the deposit was made if:
• at the time of the repayment
• you operate your primary production business in an area covered by an exceptional circumstances (EC) declaration made by the Minister for Agriculture, Fisheries and Forestry, and
• the deposit was made when the area was not under an EC declaration (subsection 393-40(3) of the ITAA 1997), or
• you die, become bankrupt or cease to carry on a primary production business for 120 days or more (Subsection 393-40(5) of the ITAA 1997).
In your case, as neither of the exceptions outlined above occurred, the amount repaid to you within the 12 month period is not considered to be part of the farm management deposit.
Some parts of the income tax legislation contain provisions that provide the Commissioner with a discretion; however in relation to Division 393 (Farm Management Deposits) there is no provision that gives the Commissioner the power to exercise a discretion.
The Commissioner understands the circumstances that led to the withdrawal of the farm management deposits within the 12 month period, however as stated above he has no discretion in this matter.
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