IN BRIEF - PRIMARY PRODUCERS WHO OPT OUT OF INCOME TAX
AVERAGING WILL BE ABLE TO RE-ENTER THE SYSTEM AFTER 10 YEARS
Recent changes to the Income
Tax Assessment Act 1997 allow individuals who are primary
producers to access income tax averaging 10 income years after
choosing to opt out, instead of that choice being permanent. These
changes will apply for the 2016-2017 income year onwards, and
primary producers who choose to opt back in must first satisfy the
conditions for income tax averaging.
AMENDMENTS RECOGNISE UNPREDICTABLE NATURE OF PRIMARY
Income tax averaging is available to individuals who:
have carried on a primary production business for two years or
for at least one of those years, have basic taxable income
(broadly taxable income excluding net capital gains and certain
superannuation lump sum amounts and death benefit termination
payments) which is not more than basic taxable income for the next
The object of income tax averaging is to ensure that the tax
system does not treat those individuals with highly volatile income
unfairly relative to other tax payers with more stable incomes. Tax
averaging smooths the income tax liability of primary producers
over a maximum of five years. This means income tax paid by primary
producers better reflects that paid by someone who receives an
equivalent, but more stable, income over that period.
Where a primary producer's average income is less than their
basic taxable income, they will receive an averaging tax offset.
Where a primary producer's average income is more than their
basic taxable income, they must pay extra income tax.
The past decades of periodical droughts and irregular rainfall
have meant that a primary producer's taxable income often fell
below the average income. In this situation farmers could either
pay extra income tax, or opt out of the tax averaging system and
pay tax at ordinary rates each year. Once a primary producer opted
out, the decision could not be revoked.
PRIMARY PRODUCERS MUST SATISFY INCOME TAX AVERAGING CONDITIONS
TO OPT BACK IN
Under the new laws, a primary producer may opt back into the tax
averaging system 10 years after opting out. Primary producers must
have opted out from averaging in the 2006-07 income year or earlier
in order for the benefit of the averaging to apply in the 2017-2018
income year. The delay period ensures that the flexibility is not
used for improper purposes. After the 10 year opt out period has
ended, primary producers are effectively treated as new primary
producers and must satisfy the conditions for income tax averaging
set out above before they can opt back in.
The measures do not operate retrospectively as income derived in
the opt out period is not taken into account for the purposes of
income tax averaging.
The amendments will apply for the 2016-2017 income year onwards.
The first possible averaging year will be the 2016-2017 income
year, and the benefit of the tax offset will be available from the
2017-2018 income year at the earliest.
These recent changes recognise the unpredictable nature of the
primary industries and will help to ensure that agribusiness
remains a key contributor to the economic development of
Exemptions or concessions on stamp duty could apply when contemplating the purchase or transfer of NSW real estate.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).