Commonwealth Numbered Regulations - Explanatory Statements

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INCOME TAX (FARM MANAGEMENT DEPOSITS) AMENDMENT REGULATIONS 2003 (NO. 1) 2003 NO. 205

STATUTORY RULES 2003 No. 205

Issued by authority of the Minister for Revenue and Assistant Treasurer

Income Tax Assessment Act 1936

Income Tax (Farm Management Deposits) Amendment Regulations 2003 (No. 1)

Section 266 of the Income Tax Assessment Act 1936 (the Act) provides that the Governor-General may make regulations prescribing matters, not inconsistent with the Act or the Income Tax Assessment Act 1997 (the 1997 Act), prescribing all matters which by the Act or the 1997 Act are required or permitted to be prescribed, or which are necessary or convenient to be prescribed for giving effect to the Act or the 1997 Act.

Division 393 of Schedule 2G to the Act allows a primary producer to deposit amounts of income with a financial institution as farm management deposits (FMD), and deduct the amount of an FMD in the year income is earned. The primary producer is assessed for income tax purposes on the amounts deducted when FMD amounts are repaid in later years of income. In effect, FMD allows eligible primary producers to set aside pre-tax income in good financial years which can then be drawn on in less successful years to help manage exposure to adverse economic events and seasonal fluctuations.

Paragraph 393-30(3)(c) of Schedule 2G to the Act provides that the depositor must have applied to the financial institution to make the deposit by completing and signing a form that contained any statements, required by regulations, that were to be read by the depositor when completing the form.

Schedule 2 of the Income Tax (Farm Management Deposits) Regulations 1998 (the principal Regulations) sets out the statements to be read by depositors, which provide information about the purpose of the FMD scheme, tax consequences of the FMD scheme, important requirements for FMD, and repayment of FMD.

The purpose of the amending regulations is to:

•       allow primary producers in 'Exceptional Circumstances' (EC) declared areas to withdraw all or part of an FMD within 12 months of making the deposit; and

•       protect primary producers by requiring that an application form issued to depositors include a statement either that the financial institution is an authorised deposit-taking institution or that it has a State or Territory guarantee.

The regulations will give effect to the Government's intention to assist those primary producers who have been most severely affected by the drought. The regulations will also enhance depositor security and protect the integrity of the FMD scheme by making it easier for primary producers to be certain that the financial institution they are dealing with is eligible to accept FMDs.

Under the Regulations, tax benefit are not retained for deposit amounts withdrawn in the first 12 months after the deposit was made, unless the withdrawal is made:

(a)       in exceptional circumstances; or

(b)       because the owner:

•       dies; or

•       becomes bankrupt; or

•       ceases to be a primary producer for 120 days or more; or

•       has requested the deposit to be transferred to another financial institution.

The regulations will also introduce a requirement that an application form to be read by depositors include either of the following two statements:

•       Authorised deposit-taking institution

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

OR

•       State or Territory guarantees

A State or a Territory guarantees the repayment of any deposit taken by the institution issuing this application form in the course of the business of banking or in the course of a business that consists of or includes taking money on deposit.

The amending regulations commence on gazettal.