Commonwealth Numbered Regulations

INCOME TAX (FARM MANAGEMENT DEPOSITS) REGULATIONS 1998 1998 No. 325 - SCHEDULE 2

Schedule 2 Statements to be read by depositors (regulation 5) An application
form must include the following statements: Purpose of farm management deposit
scheme The farm management deposits scheme is designed to allow primary
producers with a taxable non-primary production income of not over $50,000 to
shift before-tax income from years when they need it least to years when it is
most needed, to help them manage their exposure to adverse economic events and
seasonal fluctuations. Eligibility criteria apply to primary producers under
the scheme. Tax consequences of farm management deposits The scheme allows
primary producers in the scheme to deduct the amount of any farm management
deposit they own from their assessable income for the year in which the
deposit is made. However, the amount of the deductions cannot exceed the
owner's taxable primary production income for the year. Tax will be assessed
on the deposit when it is withdrawn and will be deducted, by the financial
institution that holds the deposit, at a rate of 20%, unless:

   (a)  the owner's tax file number has not been given to the financial
        institution, in which case tax will be deducted at a rate of 48.5%; or

   (b)  a deduction exemption certificate is granted, in which case no tax
        will be deducted. A deduction exemption certificate can be applied for
        from the Secretary to the Department of Agriculture, Fisheries and
        Forestry if the owner is experiencing severe financial difficulties.
        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
        1936 . 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 of the deposit must be a primary producer
        when the deposit is made. . The deposit must be made by only one
        person and on behalf of only one person. . The deposit must be at
        least $1,000 and not more than $300,000, at any time in any year of
        income. . A person can own more than one deposit, but they must all be
        with the same financial institution, and must not total more than
        $300,000. . Rights of the depositor are not, and must not be,
        transferable to another person. . The deposit must not be used as
        security for any amount owed to the financial institution or any other
        person by the depositor or any other person. . The deposit must not be
        used, as a mortgage offset account or otherwise, to reduce the
        depositor's liability to pay interest on other debts to the financial
        institution. . Interest or other earnings on the deposit must not be
        invested as a farm management deposit with the financial institution
        without having first been paid to the depositor. . If the depositor
        requests, the financial institution must electronically transfer the
        deposit to another financial institution that agrees to accept it as a
        farm management deposit. . The financial institution 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
        To retain the tax benefits, no part of the deposit can be withdrawn in
        the first 12 months after it is deposited. However, the deposit must
        be repaid if the owner: . dies; or . becomes bankrupt; or . ceases to
        be a primary producer for 120 days or more. The amount of any
        repayment of the deposit must be at least $1,000, except where the
        entire amount of the deposit is repaid.