Income Tax (Farm Management Deposits) Amendment Regulations 2003 (No. 1) 2003 No. 205
EXPLANATORY STATEMENT
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.
Overview
The Income Tax (Farm Management Deposits) Amendment Regulations 2003 (No. 1) were introduced to address specific concerns within the Farm Management Deposits (FMD) scheme as outlined in the Income Tax Assessment Act 1936. Enacted by the Parliament of Australia, these regulations aimed to support primary producers adversely affected by exceptional circumstances such as drought and to enhance the security and integrity of the FMD scheme. The policy objective was to provide flexibility for primary producers in exceptional circumstances by allowing them to withdraw all or part of their FMD within 12 months of making the deposit, while also ensuring that depositors are fully informed about the legitimacy of the financial institutions with which they are dealing. These amendments were designed to both assist primary producers in managing financial hardship and to protect them from potential risks associated with their FMDs.
Scope and Application
The Income Tax (Farm Management Deposits) Amendment Regulations 2003 (No. 1) provide for specific adjustments to the operation of farm management deposits (FMD) under the Income Tax Assessment Act 1936. These regulations apply to primary producers who utilise FMDs, a scheme that allows eligible individuals to set aside pre-tax income in prosperous years for use during financially leaner times, thus managing economic risks and seasonal fluctuations. The regulations are designed to offer relief to primary producers in areas declared as 'Exceptional Circumstances' (EC) by enabling them to withdraw all or part of their FMD within 12 months of the deposit, a flexibility not ordinarily permitted. Additionally, these regulations mandate that application forms for FMDs include a statement confirming that the financial institution is either an authorised deposit-taking institution or has a guarantee from a State or Territory, thereby enhancing the security and integrity of the scheme. These amendments are aimed at providing support to primary producers significantly impacted by drought conditions while also ensuring that depositors are dealing with eligible financial institutions.
Key Provisions
The Income Tax (Farm Management Deposits) Amendment Regulations 2003 (No. 1) introduces specific provisions under the Income Tax Assessment Act 1936, particularly affecting the farm management deposit (FMD) scheme. The regulations, under section 266 of the Act, aim to provide greater flexibility and security for primary producers. Section 2 of the amending regulations specifies that primary producers in areas declared under 'Exceptional Circumstances' (EC) may withdraw all or part of their FMD within 12 months of making the deposit (section 2(1)). This provision is designed to assist primary producers who face extreme financial hardship due to adverse economic events such as severe drought.
The obligations imposed by these regulations include the requirement for primary producers to complete and sign a specific application form when making an FMD. This form must contain a statement confirming either that the financial institution is an authorised deposit-taking institution under the Banking Act 1959 or that a State or Territory guarantees the repayment of deposits made with the institution (section 3(1)). These requirements ensure that primary producers are fully informed of the financial standing of the institutions with which they are dealing, thereby protecting the integrity and security of the FMD scheme.
Non-compliance with these regulations may result in various consequences. For example, if a primary producer withdraws FMD amounts within the first 12 months without meeting the exceptional circumstances or other specified conditions, the tax benefits associated with those amounts may not be retained (section 3(2)). Additionally, financial institutions that fail to comply with the requirement to include the necessary statements on application forms may face regulatory scrutiny and potential penalties under the applicable laws governing financial institutions and deposit-taking activities. The precise penalties for breaches are not detailed within the explanatory statement but would typically involve fines or other corrective measures prescribed by the relevant authorities.