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Ruling

Subject: Farm Management Deposit Early Withdrawal

Question:

Does the amount withdrawn from the Farm Management Deposit (FMD), within 12 months of the deposit being made, remain eligible for concessions as an FMD?

Answer:

No.

This ruling applies for the following period

Year ended 30 June 2011

Year ended 30 June 2012

The scheme commenced on

1 July 2010

Relevant facts

You deposited an amount into a Farm Management Deposit in order to have cash reserves for low income years.

Due to unexpected medical reasons, you could not work for some time. You could not meet your debts. You were forced to withdraw the FMD within 12 months of the deposit.

You were not issued with an exceptional circumstances certificate.

You were not declared bankrupt nor have you ceased carrying on a primary production business.

Assumptions

Nil

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

Summary

As the FMD was withdrawn within 12 months, and the conditions for an exception to apply have not been met, the FMD is considered to have never been an FMD.

Detailed reasoning

The farm management deposit (FMD) scheme is designed to allow primary producers, in effect, to shift income from good to bad years in order to deal with adverse economic events and seasonal fluctuations.

There are many 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 an FMD.

However, a repayment covered by subsection (3) or (5) is disregarded in applying subsection 393-40(1). The normal rules in section 393-5 (about deductions for making a farm management deposit) and 393-10 (about assessability of the repayment of a farm management deposit) apply instead.

Repayment in exceptional circumstances

Subsection 393-40(3) of the ITAA 1997 states subsections (1) and (2) do not apply to a repayment of the whole or a part of a FMD if all of the following circumstances are satisfied:

(a) the repayment is made in the income year following the income year in which the deposit is made with the FMD provider;

(b) at the time of the repayment, the owner of the deposit is eligible for the issue of an exceptional circumstances certificate (within the meaning of subsection 8A(2) of the Farm Household Support Act 1992) that relates to a primary production business of that owner;

(c) by the end of 3 months after the end of the income year in which the repayment is made, such an exceptional circumstances certificate is issued in respect of that owner;

(d) a declaration of exceptional circumstances (as referred to in paragraph 8(c) of the Rural Adjustment Act 1992) was not in force in relation to that primary production business when the deposit was made.

In this case you did not receive an exceptional circumstances certificate which relates to the business. Therefore all of the conditions were not met so this exception does not apply.

Repayment in the case of death, bankruptcy or ceasing to carry on a primary production business

393-40(5) of the ITAA 1997 states subsections (1) and (2) do not apply to a repayment of a farm management deposit because of the requirement contained in the relevant agreement as set out in item 11 of the table in section 393-35 (death, bankruptcy etc).

Item 11 of the table states the deposit must be repaid if:

· the owner dies or becomes bankrupt; or

· the owner ceases to carry on a primary production business in Australia and does not start carrying on such a business again within 120 days.

In this case none of the events outlined above occurred.

As neither exception outlined under subsections (3) or (5) occurred, the amount repaid within the 12 month period was not, and will never be, part of a 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 grants the Commissioner the power to exercise a discretion. The Commissioner understands the circumstances that led to the withdrawal of the farm management deposit within the 12 month period, however as stated above he has no discretion in this matter.