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INCOME TAX ASSESSMENT (1997 ACT) REGULATIONS 2021 - SCHEDULE 1C

Farm management deposits--statements to be read by depositors

Note:   See section   393 - 20.02.

Part   1 -- Statements

 

1   Statements for the purposes of paragraph   393 - 20.02(a)

  (1)   This clause sets out statements for the purposes of paragraph   393 - 20.02(a).

Authorised deposit - taking institution

  (2)   The first statement is as follows:

    The FMD provider issuing this application form is an authorised deposit - taking institution for the purposes of the Banking Act 1959 .

  (3)   A form used to apply to an FMD provider to make a farm management deposit may only contain the first statement if the FMD provider is an ADI.

Financial Claims Scheme

  (4)   The second statement is as follows:

    The account holder may be entitled to payment under the Financial Claims Scheme. Payments under the Financial Claims Scheme are subject to a limit for each depositor in respect of total deposits held by that depositor at a locally incorporated authorised deposit - taking institution. For further information contact the Australian Prudential Regulation Authority or visit https://www.apra.gov.au.

Part   2 -- Required statements

 

2   Statements for the purposes of paragraph   393 - 20.02(b)

  (1)   This clause sets out statements for the purposes of paragraph   393 - 20.02(b).

  (2)   The statements are as follows:

Purpose of farm management deposits scheme

    The farm management deposits scheme is designed to allow individuals carrying on a primary production business in Australia to shift before - tax income from years when they need it least to years when it is most needed. The scheme helps those individuals to manage their exposure to adverse economic events and seasonal fluctuations.

    Eligibility criteria apply to individuals carrying on a primary production business in Australia under the scheme.

Note:   Primary production business and carrying on a primary production business are explained in subsection   995 - 1(1) of the Income Tax Assessment Act 1997 .

Tax consequences of farm management deposits

    The scheme allows individuals carrying on a primary production business in Australia to deduct the amount of any farm management deposit they own from their assessable income for the income year in which the deposit is made. However, the amount of the deductions cannot exceed the owner's taxable primary production income for the income year.

    Under the Pay As You Go system, owners may reduce their instalment income for an instalment period by the amount of farm management deposits made during that period. The reduction is limited to the amount that the owners can reasonably expect to deduct for the deposit for the income year in which the deposit is made. However, the instalment income for the period cannot be reduced below nil.

    When a farm management deposit is repaid to an owner in an instalment period, the instalment income of the period will include the amount of the repayment. But the owner's instalment income will only include so much of the repayment as will be included in the owner's assessable income for the income year in which the repayment is made.

    If neither the owner's tax file number nor Australian Business Number has been quoted to the FMD provider that holds the deposit, the amount repaid will also be subject to withholding at a rate equal to the sum of the top marginal tax rate and the Medicare levy.

Important requirements for farm management deposits

    Some of the requirements for farm management deposits are summarised below. There are also other requirements set out in the Income Tax Assessment Act 1997 . A breach of some of the requirements will result in the deposit not being treated as a farm management deposit, and the tax benefits will be lost.

    The owner must be an individual who is carrying on a primary production business in Australia when the deposit is made.

    The deposit must be made by only one individual and on behalf of only one individual.

    Rights of the depositor must not be transferable to another entity.

    The deposit must not be used as security for any amount that the depositor or any other entity owes to the FMD provider or any other entity.

    Interest or other earnings on the deposit must not be invested as a farm management deposit with the FMD provider without having first been paid to the depositor.

    If the depositor requests in writing, the FMD provider must electronically transfer the deposit, or part of the deposit, to another FMD provider that agrees to accept it as a farm management deposit.

    The FMD provider must not deduct any fees from the principal of a farm management deposit. However, it may charge fees on the deposit.

Repayment of farm management deposits

    The tax benefits are not retained for deposit amounts repaid within the first 12 months after the deposit was made, unless the repayment is made:

  (a)   because the owner:

  (i)   dies; or

  (ii)   becomes bankrupt; or

  (iii)   ceases to carry on a primary production business in Australia and does not start carrying on such a business again within 120 days; or

  (iv)   has requested the deposit, or part of the deposit, to be transferred to another FMD provider and the repayment relates to the transfer; or

  (b)   because the circumstances specified in subsection   393 - 40(3) of the Income Tax Assessment Act 1997 or in regulations made for the purposes of that subsection, relating to repayment in the event of severe drought, exist; or

  (c)   because the circumstances specified in subsection   393 - 40(3A) of the Income Tax Assessment Act 1997 or in regulations made for the purposes of that subsection, relating to repayment in the event of a natural disaster, exist.

Part   3 -- Additional information

 

3   Additional information for the purposes of paragraph   393 - 20.02(c)

  (1)   For the purposes of paragraph   393 - 20.02(c), a form used to apply to an FMD provider to make a farm management deposit must include statements setting out the additional information referred to in subclauses   (2) to (8).

  (2)   The amount that is the minimum deposit threshold (the amount stated in item   4 of the table in section   393 - 35 of the Act).

  (3)   The amount that is the maximum deposit limit (the amount stated in item   10 of the table in section   393 - 35 of the Act).

  (4)   An individual can own more than one farm management deposit, and can own farm management deposits with different FMD providers, but the sum of the balances of all of the farm management deposits of an owner claimed as a deduction must not be more than the maximum deposit limit.

  (5)   The amount of any repayment of the deposit must be at least the amount stated in item   12 of the table in section   393 - 35 of the Act, except where the entire amount of the deposit is repaid.

  (6)   The deposit will not be deductible if taxable non - primary production income for the year of income exceeds the amount stated in paragraph   393 - 5(1)(d) of the Act.

  (7)   If neither the owner's tax file number nor Australian Business Number has been quoted to the FMD provider, any repayment will be subject to the withholding rate, which is the sum of:

  (a)   the top marginal tax rate for the income year in the year of deposit; and

  (b)   the Medicare levy.

Note 1:   The top marginal tax rate is the maximum rate specified in the table in Part   I of Schedule   7 to the Income Tax Rates Act 1986 that relates to the income year.

Note 2:   The Medicare levy is specified in subsection   6(1) of the Medicare Levy Act 1986 .

  (8)   If the deposit is used to offset a liability to pay interest on debts to the FMD provider that do not wholly relate to a primary production business that the owner (or a partnership of which the owner is a partner) carries on, the owner is liable to an administrative penalty of up to 200% of that offset.


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