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Edited version of your written advice
Authorisation Number: 1013069232789
Date of advice: 9 August 2016
Subject: Farm Management Deposit Offset
Question
Under Division 393 of the Income Tax Assessment Act 1997 (ITAA 1997), can the Commissioner use discretion to provide an exception to allow the status of a Farm Management Deposit to continue when the funds are transferred into another Loan Offset Account with the intent of offsetting against a Primary Production Business Loan?
Answer
No
This ruling applies for the following period
Year ended 30 June 2017
The scheme commenced on
1 July 2016
Relevant facts and circumstances
You are an individual primary producer who has a Farm Management Deposit at Call account.
Post 1 July 2016 you wish to transfer the balance of your FMD account into a Loan Offset Account that offers a higher interest rate to be offset against your current Primary Production Loan.
You state that you have approached a number of Banks to enquire on the availability of a suitable FMD Loan Offset account.
To date you have not been able to source the availability of this account and so you wish to transfer the funds from your existing FMD account to a Loan Offset Account against your Primary Production Business Loan.
Relevant legislative provisions
Income Tax Assessment Act 1997 Division 393
Tax Laws and Superannuation Amendment (2016 Measure No. 1) Act 2016
Reasons for decision
The legislative provisions which provide for the Farm Management Deposits (FMD) scheme are found in Division 393 of the ITAA 1997. The scheme allows primary producers (with a limited amount of off-farm income) to claim deductions for FMDs made in the year of deposit.
Within this Division there is no discretion provided to the Commissioner to allow exceptions to the rules therein.
Subsection 393-5 of the ITAA 1997 states:
Entitlement to deduction
(1) You can deduct the amount of a farm management deposit for an income year if
(a) you are the owner of the deposit: and
(b) the deposit is made at a time during the year when you are an individual carrying on a primary production business in Australia; and
(c) if during the year, at a time after the deposit was made, you stopped carrying on a primary production business in Australia--you started carrying on such a business again within 120 days (whether or not during the year); and
(d) your * taxable non-primary production income for the year is not more than $100,000; and
(e) you do not die or become bankrupt during the year.
The Tax Laws and Superannuation Amendment (2016 Measure No.1) Act 2016, amends the FMD Scheme to allow for the commencement of the below changes.
Commencing 1 July 2016 the government has allowed three changes to the Farm Management Deposits (FMD) Scheme:
• Doubling of the cap on deposits from $400 000 to $800 000
• Re-establishment of an early access trigger during times of drought
• Allowing FMDs to be used to offset the interest costs on primary production business debt
The Government has introduced these changes to encourage Banks to offer primary producers the use of FMDs as a farm business loan offset, reducing farmers' interest costs.
Section 393.37 ITAA 1997 states:
Agreements for a farm management deposit may allow for some offsets of a depositor's liabilities.
This does not change the requirements for an account to be considered a FMD as per the definition of a FMD as described in Section 393-20(1)(b) ITAA 1997:
Meaning of farm management deposit
(b) the deposit is made under an agreement between the FMD provider and the depositor that:
(i) describes the deposit as a farm management deposit
Therefore your request to maintain the status of a FMD deposit and transfer into a Loan Offset Account with a higher interest which is not a specific FMD offset account with a FMD provider will not meet the legislative eligibility requirements to be considered a FMD.