Edited version of private advice

Authorisation Number: 1052078964180

Date of advice: 20 January 2023

Ruling

Subject: Farm management deposit deduction

Question 1

Can you deduct $XXX in respect of farm management deposit account number NNNNNNNNN in your income tax return for the income year ended 30 June 20XX?

Answer

No.

This ruling applies for the following period:

Income year ended 30 June 20XX

The scheme commences on:

28 June 20XX

Relevant facts and circumstances

Farm Management Deposit account number NNNNNNNNN was made with the start date of X August 20XX.

Background regarding the deposit

You spoke to your tax agent who advised that you and your spouse should each make a $X farm management deposit (FMD) prior to 30 June 20XX.

You spoke to your Bank, verbally advising of your intention to lodge two FMD prior to 30 June 20XX and to arrange paperwork for the FMD to be emailed to you.

The Bank emailed the necessary forms which, when sent, was addressed to you and your spouse and included the following instruction:

'If you are wanting to lodge an FMD, please complete the attached form for each individual and forward it back to me.'

On DD June 20XX, you and your spouse completed two FMD forms, taking photos of each page to be returned to the Bank via email. Your spouse's email to the Bank transmitted successfully, and a FMD was opened in your spouse's name.

Your email to the Bank on DD June 20XX did not transmit properly and your FMD application form was not received by the Bank. The Bank did not follow up why only one form was received, and you did not call the Bank to confirm that your email and application had been received. As no FMD application form had been received in your name, no FMD was made in your name at that time.

Sometime after 30 June 20XX and before DD July 20XX, you and your spouse noticed that only one FMD was showing in your online banking and queried this with the Bank.

On DD July 20XX, the Bank called the tax agent seeking guidance as to whether a letter from the bank would be sufficient to ensure that an FMD lodged post-30 June would be sufficient to ensure the FMD could be deducted in the intended year. It was decided to lodge the FMD post-30 June and apply for a private ruling prior to lodgment of your income tax return.

On XX July 20XX, the Bank sent you a letter discussing their investigation into the matter, which states:

'Firstly, please accept my apologies for the inconvenience caused to you by not lodging your Farm Management Deposit prior to 30^th June 20XX...

I confirm that [the Bank] had discussions with you around lodgement of 2 X $[X] Farm Management Deposits which were to be lodged prior to 30^th June 20XX. These were to be in the names of [you] and [your spouse].

On the [DD] June 20XX [the Bank] received signed lodgement form for your spouse only. As such, 1 X $[X] Farm Management Deposit was lodged for a period of 12 months.

Your written lodgement was not received and as such Farm Management Deposit was not lodged. Upon investigation it appears that you had technology issues when attempting to send through the form via email and as such it did not come through to [the Bank].

From your earlier discussion with [the Bank] regarding intent to lodge Farm Management, the technology issue with sending through the form and the fact you had funds available to lodge the Farm Management Deposit shows that it was your intention to do so...'

Relevant legislative provisions

Income Tax Assessment Act 1997

Division 393

section 393-5(1)

paragraph 393-5(1)(b)

section 393-20

subsection 393-20(1)

subsection 393-20(2)

Reasons for decision

Summary

In your circumstances, although there may have been a miscommunication between the parties, you did not provide your Bank with an application to make a farm management deposit in accordance with subsection 393-20(2) of the Income Tax Assessment Act 1997 (ITAA 1997) until after 30 June 20XX.

Consequently, any deposit with the Bank in the 20XX income year was not a "farm management deposit" for the purpose of the income tax legislation. Until an application in accordance with subsection 393-20(2) of the ITAA 1997 was provided to the Bank, no farm management deposit was made.

As the deposit in Farm Management Deposit account number NNNNNNNNN was not made at a time during the 20XX income year for the purpose of paragraph 393-5(1)(b) of the ITAA 1997, you cannot deduct the $X in your income tax return for the year ended 30 June 20XX.

Detailed reasoning

Section 393-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997) sets out that you can deduct the amount of a farm management deposit for an income year if the requirements in paragraphs (a) to (e) are satisfied.

Paragraph 393-5(1)(b) of the ITAA 1997 requires that the farm management deposit 'is made at a time during the year when you are an individual carrying on a primary production business in Australia'.

What is a farm management deposit? - section 393-20 of the ITAA 1997

Subsection 393-20(1) of the ITAA 1997 defines a "farm management deposit" and explains that a deposit with an FMD provider is a farm management deposit if two requirements are satisfied:

(a)  the depositor applies to make the deposit in accordance with subsection 393-20(2); and

(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; and

(ii)     at all times while the deposit is with the FMD provider, contains requirements to the effect set out in the table in section 393-35.

For the purposes of paragraph 393-20(1)(a) of the ITAA 1997, subsection 393-20(2) states:

'...the depositor must apply to the FMD provider to make the deposit by completing and signing a form that:

(a)    permits the depositor to state the owner's tax file number in the form; and

(b)    requires the depositor to provide any other information required by regulations for the purposes of this paragraph; and

(c)    contains any statements, required by regulations for the purposes of this paragraph, that are to be read by the depositor when completing the form.

Division 393 of the ITAA 1997 does not provide any discretion to the Commissioner enabling any exceptions to these rules.

The facts in your circumstances show that:

•         prior to 30 June 20XX, you clearly intended to make a farm management deposit with the Bank, a FMD provider. You discussed making a farm management deposit with the Bank and were advised you needed to apply for the farm management deposit by completing and returning a signed application form.

•         you completed and signed a farm management deposit application form, however due to a technology failure, your application was not received by the Bank until after 30 June 20XX, at which time, the Bank opened a farm management deposit made in your name.

•         neither you nor the Bank followed up your application prior to 30 June 20XX.

Although the Bank was aware of your intention to make a farm management deposit, as shown above, the legislation sets out how an application to make a farm management deposit must be made - by providing a completed and signed application, containing specific information, to the FMD provider.

In your circumstances, although there may have been a miscommunication between the parties, you did not provide your Bank with an application to make a farm management deposit in accordance with subsection 393-20(2) of the Income Tax Assessment Act 1997 (ITAA 1997) until after 30 June 20XX.

Consequently, any deposit with the Bank in the 20XX income year was not a "farm management deposit" for the purpose of the income tax legislation. Until an application in accordance with subsection 393-20(2) of the ITAA 1997 was provided to the Bank, no farm management deposit was made.

As the deposit in Farm Management Deposit account number NNNNNNNNN was not made at a time during the 20XX income year for the purpose of paragraph 393-5(1)(b) of the ITAA 1997, you cannot deduct the $X in your income tax return for the year ended 30 June 20XX.