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Edited version of your private ruling
Authorisation Number: 1012522961959
Ruling
Subject: Timing of income
Question
Is the income attributable to the sale of harvested produce derived at the time the produce was harvested?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2013
The scheme commenced on
1 July 2012
Relevant facts and circumstances
You are carrying on a business as a produce grower.
You and your spouse entered an agreement with the Company.
Under the agreement:
· you are the sole owner of the produce
· you have granted the Company the sole and exclusive right to enter your property and harvest the produce
· the Company transports the harvested produce to their factory
· the Company provides you with a copy of the weighbridge information showing the weight of each load of produce delivered from your property to their premises
· the Company processes, grades, packages, ships and markets the produce, and
· the Company pays you a percentage of the proceeds of the disposal of the produce.
The produce is harvested and delivered to the factory where it is graded.
The value of the produce depends on various factors.
The Company issues you with a grower remittance and payment after the produce is harvested. This may be is a different financial year to when the produce is harvested.
You use the cash receipts method of accounting.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Reasons for decision
Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) states that, if you are an Australian resident, your assessable income includes ordinary income you derived directly or indirectly from all sources, whether in or out of Australia, during the income year.
Proceeds from carrying on a business are income according to ordinary concepts and are included in assessable income.
Taxation Ruling TR 98/1 provides guidelines for determining when income is derived for the purposes of section 6-5 of the ITAA 1997.
Under the (cash) receipts method, income is derived when it is received. In most cases income is derived when the amount is actually received.
Taxation Ruling TR 2001/1 discusses the assessability of amounts from the sale of wheat and grain. This ruling examines three different methods by which growers can sell their crops - for a cash price on the date of sale, under a contract at a previously agreed price or as part of a pool distribution. In each case, a grower returning their income on a receipts basis includes the gross amounts from the sale of wheat or grain in their assessable income in the year in which the grower receives the payment.
The principles contained within TR 2001/1 can be applied to your situation. As you operate under the receipts method of accounting, you do not derive the income from the harvested produce until you are paid the sale income by the Company or the money is dealt with on your behalf.
Thus, the income from the sale of the harvested produce is included in your assessable income in the financial year in which you receive it.