EXPLANATORY STATEMENT
Select Legislative Instrument 2007 No. 19
Issued by the Authority of the Minister for Revenue
and Assistant Treasurer
Income Tax Assessment Act 1936
Income Tax (Farm Management Deposits) Amendment Regulations 2007 (No. 1)
Section 266 of the Income Tax Assessment Act 1936 (the Act) provides, in part, that the Governor-General may make regulations prescribing matters required or permitted by the Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Act.
Under Schedule 2G to the Act, a farm management deposit (FMD) is a tax-linked, financial risk management tool for primary producers designed to encourage primary producers to set aside income from profitable years for subsequent ‘draw‑down’ in low-income years; thereby reducing the risk to primary producers of income variability owing to factors such as drought.
Currently an individual primary producer with taxable non-primary production income of $50,000 or less is able to make an FMD with a total deposit limit of $300,000. These thresholds have not been amended since 1999.
Schedule 6 to the Tax Laws Amendment (2006 Measures No. 7) Bill 2006 would amend Schedule 2G to increase the non‑primary production income threshold to $65,000 and the total deposit limit per depositor to $400,000. The Bill was introduced into the Parliament on 7 December 2006.
Existing section 264AA of the Act imposes a number of reporting requirements on financial institutions that accept FMDs. These include providing information to the Secretary of the Department of Agriculture, Fisheries and Forestry that is required in the Income Tax (Farm Management Deposits) Regulations 1998 (the Principal Regulations) for the purpose of the section. In addition, the Principal Regulations specify, among other things, information required to be given by financial institutions to depositors.
The Regulations amend the information required to be given to depositors by financial institutions to reflect the income threshold and total deposit limit as set out in the Act rather than requiring the numbers to be restated in the Principal Regulations. This would streamline arrangements; if changes are made to the thresholds or the total deposit limit in the future, consequential regulation changes would not be needed.
The Regulations also amend the reporting requirements for financial institutions to set out the information required to be provided to the Secretary of the Department of Agriculture, Fisheries and Forestry.
The Department of Agriculture, Fisheries and Forestry consulted with financial institutions on the new reporting requirements.
The Regulations are of a minor or machinery of government nature and are intended to ensure that the law operates as intended. Accordingly, a Regulation Impact Statement is not mandatory and has not been prepared.
Details of the proposed Regulations are set out in the Attachment.
The Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003.
The Regulations commenced on the day after they were registered.
ATTACHMENT
Details of the proposed Income Tax (Farm Management Deposit) Amendment Regulations 2007 (No. 1)
Regulation 1 – Name of Regulations
The title of the Regulations is the Income Tax (Farm Management Deposits) Amendment Regulations 2007 (No. 1).
Regulation 2 – Commencement
These Regulations commenced on the day after they were registered.
Regulation 3 – Amendment of Income Tax (Farm Management Deposits) Regulations 1998
Regulation 3 provides that Schedule 1 amends the Income Tax (Farm Management Deposits) Regulations 1998 (the Principal Regulations).
Schedule 1
Item [1] of Schedule 1
Under paragraph 393-30(3)(c) of Schedule 2G to the Income Tax Assessment Act 1936, a depositor must complete and sign an application form that contains any statements required by the Principal Regulations.
This item amends regulation 5 of the Principal Regulations to require that an application form for an FMD must contain the statements as amended and detailed under the new Schedule 2 (inserted by item [2]).
Item [2] of Schedule 1
This item replaces the current Schedule 2 and Schedule 3 of the Principal Regulations with new Schedules.
Statements to be read by depositors
The new Schedule 2 provides the information that must be included in the statement to be read by depositors.
The Principal Regulations currently require financial institutions to provide depositors with information about farm management deposits. This information includes details such as the deposit thresholds and who can hold a farm management deposit.
The information that is required to be given to depositors by financial institutions is being amended to remove any numbers from the Principal Regulations and replace them with the relevant reference in the Income Tax Assessment Act 1936. Financial institutions will be required to insert any numbers that are specified in the legislation into the statement to be read by depositors.
These amendments update the regulations to reflect the total deposit limit and the non-primary production income limit that are specified in the Act, so that if Tax Laws Amendment (2006 Measures No. 7) Bill 2006 is passed, the Principal Regulations will also be up to date. These changes will also ensure that if any further changes are made to the thresholds in the future, subsequent regulation changes will not be needed.
Information to be given to the Secretary by financial institutions
The new Schedule 3 provides new information that financial institutions must provide to the Secretary of the Department of Agriculture, Fisheries and Forestry (the Secretary).
The Principal Regulations currently require financial institutions to provide information to the Secretary, such as the number of farm management deposits in a number of defined groupings (for example, more than $10,000 but less than $20,000). Financial institutions are also required to inform the Secretary of any new deposits and withdrawals for each month as well as the number of deposits held classified by Australian and New Zealand Industry Classification Code (ANZIC).
These amendments update the requirements for information to be given to the Secretary by financial institutions. Financial institutions will be required to provide the following information for each deposit at the end of each month:
• the date of the last day of each month being reported;
• the industry code for the depositor, by reference to the Australian and New Zealand Standard Industrial Classification code;
• an account number that is modified by the financial institution to prevent the disclosure of the identity of the depositor and remains the same while the depositor holds that farm management deposit;
• a personal identification number that is modified by the financial institution to prevent the disclosure of the identity of the depositor and remains the same while the depositor holds any farm management deposits;
• the closing balance of the farm management deposit at the end of each month;
• the State or Territory of the depositor’s residence;
• the year of birth of the depositor;
• the year of deposit; and
• the month of deposit.