Edited version of private ruling

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Ruling

Subject : Assessable income - partial withdrawal from a Farm Management Deposit

Question 1

Is a partial withdrawal from a Farm Management Deposit (FMD) included in your assessable income in the year of withdrawal?

Answer

Yes.

Question 2

Does the rule under Subsection 35-10(2) of the Income Tax Assessment Act 1997 (ITAA 1997) apply to you in the withdrawal year?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts

You are a partner in a partnership which conducts a business.

The partnership made a loss and you were distributed a share of that loss.

In an earlier year you deposited amounts into a FMD with a financial institution in your name.

The amounts deposited into the FMD were from a distribution from the partnership business.

In a later year you partially withdrew some of the funds from a FMD.

The funds withdrawn were used for partnership running expenses.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 393-15(2) to schedule 2G

Income Tax Assessment Act 1997 subsection 35-10(2)

Reasons for decision

Question 1

Summary

The amount of the FMD which was withdrawn is assessable income in the withdrawal year.

Detailed reasoning

Farm Management Deposits

Subsection 393-15(2) to schedule 2G of the Income Tax Assessment Act 1936 (ITAA 1936) states

If:

(a) you are the owner of a farm management deposit of which part only is repaid in the year of income; and

(b) the unrecouped FMD deduction in respect of the deposit immediately before the repayment exceeds the amount (if any) of the deposit that remains immediately after the repayment;

the amount of the excess is included in your assessable income for the year of income.

In your case you are the owner of a FMD of which part has been repaid to you and the unrecouped FMD deduction in respect of the deposit immediately before the repayment was greater than the amount of the deposit that remains immediately after the repayment, therefore the withdrawn amount is assessable income in the withdrawal year.

Question 2

Summary

The distributed loss from the partnership did not exceed the assessable amount which was withdrawn from the FMD, therefore the rule under subsection 35-10(2) of the ITAA 1997 does not apply to you in the withdrawal year.

Detailed reasoning

The assessable income that arises from the operation of section 393-15, Schedule 2G of the ITAA 1936 is considered assessable income "from" the business activity when:

(a) applying the loss deferral rule in Division 35, in subsection 35-10(2) of the ITAA 1997; and/or

(b) determining whether the assessable income test in section 35-30 of the ITAA 1997 has been satisfied.

Subsection 35-10(2) of the ITAA 1997 states:

If the amounts attributable to the business activity for that income year that you could otherwise deduct under this Act for that year exceed your assessable income (if any) from the business activity for that year, or your share of it, this Act applies to you as if the excess:

· were not incurred in that income year; and

· were an amount attributable to the activity that you can deduct from assessable income from the activity for the next income year in which the activity is carried on.

In application to your case the amounts attributable to your business activity for the withdrawal year that you could otherwise deduct under this Act (partnership loss) do not exceed your assessable income (FMD withdrawn amount), therefore the rule under subsection 35-10(2) of the ITAA 1997 does not apply to you.

As no loss was made from the business in the withdrawal year, Division 35 of the ITAA 1997 does not apply, hence whether you pass the income requirement is irrelevant.