ATO Interpretative Decision
ATO ID 2010/203
Income Tax
Deductibility of deposits into a New Zealand income equalisation accountFOI status: may be released
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is a taxpayer, a participant in a New Zealand Income Equalisation Scheme, entitled to a deduction for a deposit made into a New Zealand income equalisation account?
Decision
No. The taxpayer, a participant in a New Zealand Income Equalisation Scheme, is not entitled to a deduction for the deposit made into a New Zealand income equalisation account.
Facts
The taxpayer is a resident of Australia.
The taxpayer is a primary producer who carries on a forestry business in New Zealand.
The taxpayer is a participant in a New Zealand income equalisation scheme (NZ IES).
The NZ IES is a form of forward tax averaging in New Zealand, designed to enable primary producers to even out the effects of fluctuating incomes on their tax liabilities over a period of five years.
Under the NZ IES, a taxpayer who derives income from forestry in New Zealand may deposit amounts from that income into a New Zealand income equalisation account.
The amounts are paid to the New Zealand Commissioner of Inland Revenue and are deposited into a Crown bank account. Amounts in the Crown bank account are the property of the Crown.
A taxpayer can apply to withdraw an amount that they have deposited into the income equalisation account. The New Zealand legislation refers to withdrawals as refunds.
The New Zealand Commissioner of Inland Revenue must refund an amount provided that the amount has been held in the account for at least one year (and in other limited circumstances).
The taxpayer derived income from forestry in New Zealand and deposited a portion of that income into a New Zealand income equalisation account in the current income year.
In New Zealand, the taxpayer's forestry income is assessable in the income year in which it is derived. The taxpayer's deposit into the New Zealand income equalisation account is deductible against New Zealand assessable income in the income year in which the deposit is made.
When an amount is refunded from an account, the amount is assessable in New Zealand, usually in the year in which the person applied for the refund.
Reasons for Decision
Subsection 8-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a person can deduct from their assessable income any loss or outgoing to the extent that it is incurred in gaining or producing assessable income or it is necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income.
Hence an amount will not be deductible under subsection 8-1(1) of the ITAA 1997 unless it is a loss or outgoing.
The term 'loss or outgoing' is not defined in Australia's tax legislation. Therefore the term is presumed to take its ordinary meaning.
Paragraph 26 of Taxation Ruling TR 2008/5 explains that an amount that is not a cost or expenditure will not be a loss or outgoing.
The taxpayer's deposit into the New Zealand income equalisation account is not a cost or expenditure. Although the deposited amount becomes Crown property while it is in the account, the taxpayer does not lose their entitlement to that amount. This is because when a taxpayer satisfies the requirements for a refund, the New Zealand Commissioner of Inland Revenue must refund an amount at the taxpayer's request.
Therefore, a deposit into a New Zealand income equalisation account is not a loss or outgoing.
As the deposit into a New Zealand income equalisation account is not a loss or outgoing, no deduction is available under subsection 8-1(1) of the ITAA 1997.
There are no other provisions in Australia's income tax legislation which could allow a deduction for a deposit into a New Zealand income equalisation account. (Australia's farm management deposit scheme in Division 393 of the ITAA 1997 does not apply to allow a deduction because a New Zealand income equalisation account deposit with the New Zealand Commissioner of Inland Revenue is not a 'farm management deposit'.)
As a result, the taxpayer is not entitled to a deduction for the deposit into the New Zealand income equalisation account.
Date of decision: 21 October 2010Year of income: Year ended 30 June 2010
Legislative References:
Income Tax Assessment Act 1997
subsection 8-1(1)
Division 393
Related Public Rulings (including Determinations)
Taxation Ruling TR 2008/5
ATO ID 2010/200
ATO ID 2010/201
ATO ID 2010/202
Keywords
Foreign income
Deductions & expenses
Income equalisation deposits scheme
Primary production
Primary production income
ISSN: 1445-2782