Edited version of your private ruling

Authorisation Number: 1012045023156

This edited version of your ruling will be published in the public register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.

Ruling

Subject: Deductibility of farm management deposit

Question

Does your farm management deposit (FMD) satisfy the 12-month rule to be a complying FMD for the purposes of section 393-37 of the Income Tax Assessment Act 1936 (ITAA 1936), entitling you to retain your deduction for the 2009-10 financial 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 primary producer.

You deposited funds into a farm management term deposit on a date in 2010.

Your bank withdrew the funds from this account on the same date in 2011 thereby closing the farm management term deposit on this date.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 393-37

Reasons for decision

The Farm Management Deposits Scheme (FMD scheme) allows you to claim a deduction for farm management deposits made in the year you deposit. When you withdraw a farm management deposit, the amount of the deduction previously allowed is included in your assessable income in the year of repayment.

The FMD scheme provisions in Division 393 of Schedule 2G of the ITAA 1936 were repealed by Tax Laws Amendment (Transfer of Provisions) Act 2010 (Act No 79 of 2010) with effect from 1 July 2010.

The FMD scheme provisions have been rewritten into Division 393 of the Income Tax Assessment Act 1997 (ITAA 1997). Division 393 of the ITAA 1997 applies to assessments for the 2010-11 income year and later income years.

To qualify for the tax deduction, the deposit must not be withdrawn within 12 months after the end of the applicable depositing day, except in certain circumstances. A deduction claim must be cancelled - to the extent that the deposit is repaid to you in the next year and within 12 months after it was made - unless the deposit was repaid to you:

§ in exceptional circumstances, or

§ because the owner dies, becomes bankrupt, ceases to carry on a primary production business for 120 days or more, or has requested the deposit be transferred to another FMD provider.

According to Taxation Determination TD 2002/10, which deals with a similar timing issue for the purposes of indexation and the capital gains tax discount, for an asset acquired on 30 June 1996 and disposed of on or before 30 June 1997, the disposal of the asset would have occurred 'within 12 months after' the day on which the asset was acquired (30 June 1996). The day on which the asset was acquired (30 June 1996) is excluded from the 12 month period. The relevant period of 12 months commenced on 1 July 1996 and ended at midnight on 30 June 1997.

Similarly, in your case, the deposit was repaid to you within 12 months after the end of the applicable depositing day.

Therefore, your FMD does not satisfy the 12-month rule to be a complying FMD for the purposes of section 393-37 of the ITAA 1936 and you are not entitled to retain your deduction for the deposit in the 2009-10 financial year.

Further, the amount withdrawn is not, and is taken never to have been, part of a farm management deposit and will not be assessable in the 2010-11 financial year.