Issued
01 Apr 1973

Land and Income Tax Amendment Act 1973

Archived legislative commentary on the Land and Income Tax Amendment Act 1973 from PIB vol 72, Apr 1973.

This commentary item was published in Public Information Bulletin Volume 72, April 1973

More information about Public Information Bulletins.

Farm Income Stabilisation Scheme

Here is the press statement issued by the Hon. CJ Moyle on the 22 February 1973.

The Government is introducing an extended voluntary scheme to encourage meat and wool farmers to spread their current high incomes over at least two seasons with the twin objectives of reducing pressure on the economy and allowing farmers to make the best use of their increased spending power.

The Minister of Agriculture and Fisheries, Mr Moyle, said today that the Government wanted meat and wool farmers to voluntarily withdraw from circulation some $85 million of their current income, which represents no more than a quarter of the estimated increase. If the voluntary scheme was not successful, the Government would have no alternative but to introduce a compulsory withdrawal scheme.

"We are concerned equally about the disturbance to the stability of the country's economy from this injection of additional spending power and the situation of farmers who will have extraordinarily high incomes this year compared with previous ones.

"For several seasons many farmers have had to defer maintenance and development on their farms, and already because of the heavy spending on these things this year they are coming up against shortages of materials and the farm servicing industries cannot cope with the pressure. To use this money to the best advantage, expenditure on maintenance and development should be planned and spread over several seasons, not forced into one."

Mr Moyle said that the existing Farm Income Equalisation Scheme was limited to a maximum deposit of 40 percent of net income. The Government proposed to remove this limit.

"Briefly, a farmer will be able to deposit whatever he can from this year's income; refunds will become assessable for tax when they are claimed, but there is a guarantee that the tax payable will not be higher than it would have been in the 1972-73 income year; the deposits must remain for 12 months, but there is provision for earlier withdrawal in emergencies.

"We have had extensive and very helpful consultations with Federated Farmers and we are all agreed that it would be in everyone's best interests if we could attain our objective through an extension of the existing voluntary Farm Income Equalisation Scheme.

"Farmers will need to enter into a commitment by April 30 to make a deposit under the voluntary scheme by July 31. These deposits will be deducted from the amount required to be made under a compulsory scheme if one is implemented.

"If the necessary commitments to attain the target are not received by April 30, the compulsory scheme will have to be invoked.

"While the Government is extremely reluctant to introduce a compulsory scheme, and would do so only as a last resort, we consider it fair to give farmers the details of the compulsory scheme that could be introduced.

"In this scheme 12 1/2 percent of the gross proceeds from meat, wool, and stock sales, less purchases, would be compulsorily withdrawn. The first $5,000 of such income would be exempted.

"The amount to be deposited would be in respect of the 1972-73 income year for tax purposes and would relate to the individual farmer's balance date. The sum deposited would be deducted from the assessable income for tax purposes in the same way as are deposits under the existing Farm Income Equalisation Scheme. Any money deposited under this compulsory scheme could only be withdrawn at a maximum annual rate of 20% over the next 5 years and would be assessable for income tax at the rates pertaining at the time of withdrawal."

The Minister emphasised that local appeal committees would be set up to deal speedily with any cases of hardship. Farmers with genuine needs would be fully accommodated.

Deposits under the scheme would be held in the individual farmer's name and the money frozen with the Reserve Bank.

"The Government expects that farmers will recognise that it is their own and the national interest to make full use of the existing voluntary scheme and make any further measures unnecessary," Mr Moyle said.

20 Questions and Answers

In response to the many enquiries that have been received the following questions and answers are provided to assist farmers and their advisers.

Question 1:

Why is an Income Stabilisation Scheme being introduced?

Answer:

An Income Stabilisation Scheme is being introduced for two reasons. The first reason is that this scheme is essential for the maintenance of stability within the national economy. The second is to assist with the levelling out of fluctuations in farm expenditure between years.

Question 2:

What are the main features of the Stabilisation Scheme?

Answer:

The Government has set a target of $85 million to be deposited voluntarily by farmers to the Farm Income Equalisation Scheme by July 31. Farmers should complete a "letter of intent" stating the amount they intend to deposit and forward this to their nearest tax office by April 30.

If the target of $85 million is not reached under the voluntary scheme, the Government intends to introduce a compulsory scheme.

Question 3:

Which farmers would be affected by the introduction of a compulsory scheme?

Answer:

Any farmer who has received more than $5,000 gross income in the 1972-73 financial year from the sale of:

  • wool and skins,
  • sheep and cattle less purchases, and
  • sheep and cattle for slaughter (including bobby calves)
  • would be required to deposit 12 1/2% of that excess.

Note that income from milk products, pigs and poultry is excluded.

Question 4:

If a person is engaged in an agricultural business (e.g. an orchardist) and does not meet the requirements stated above, is he still able to use the existing Income Equalisation Scheme?

Answer:

Yes. He may continue to make deposits or withdrawals from the scheme. However, there will be no limit on the amount of the deposit that any farmer can make for 1972-73, nor will the fact that he has already received a refund for that year preclude him from making a subsequent deposit for that year.

Question 5:

What conditions will apply to deposits made under the voluntary scheme as compared with deposits under the compulsory scheme?

Answer:

Voluntary Scheme Compulsory Scheme
The entire deposit may be withdrawn at the end of 12 months. Withdrawals may be made at a maximum rate of 20% per annum over 5 years.
Tax payable on the amount withdrawn will be at no greater rate than that applying in the year of deposit. Tax payable on the amount withdrawn will be at the rate applying in the year of withdrawal.

Question 6:

How does a farmer calculate the amount he would be required to deposit if a compulsory scheme is introduced?

Answer:

Gross income from wool and skins $22,337
Plus gross income from sale of sheep and cattle for slaughter $21,263
Plus gross income from other sales of sheep and cattle $ 4,639
  $48,239
Less purchases of sheep and cattle $ 1,570
  $46,669
Less exemption $ 5,000
Balance $41,669
12 1/2% (1/8) of balance = Deposit that would be required $ 5,208

Note:All gross income figures should be those relating to the accounting year corresponding with the 1972-73 financial year. If a deposit or deposits in respect of the 1972-73 accounting year have already been made, then these amounts count toward the minimum deposit required.

[CCH Note: The figures in italics in the above table are taken from the simulated hand-written figures in the published PIB.]

Question 7:

Are there any payments made to farmers which are excluded from the above calculations?

Answer:

Payments made under last year's Stock Retention Scheme and compensation payments for stock slaughtered under the Tb and brucellosis schemes are to be excluded from the income calculations together with any other payments made on a similar basis.

Question 8:

Would forced sales of livestock due to drought or other adverse events be excluded from the provisions of the compulsory scheme?

Answer:

All sheep and cattle sales are to be included but the appeal committees will have wide discretionary powers to deal with any cases of hardship.

Question 9:

How is a deposit for the 1972-73 year treated for taxation purposes?

Answer:

The amount deposited is deductible from the assessable income for the 1972-73 year.

Question 10:

When may a farmer withdraw his deposit?

Answer:

Under the voluntary scheme a farmer may withdraw his deposit after 12 months. Withdrawals for an accounting year may be made-

  • during that year, or
  • up to one month after the due date for filing a tax return or within six months after balance date, whichever is the earlier.

Under the voluntary scheme a farmer may withdraw his deposit after 12 months. Withdrawals for an accounting year may be made-

  • during that year, or
  • up to one month after the due date for filing a tax return or within six months after balance date, whichever is the earlier.

Question 11:

How is the refund of the deposit treated for taxation purposes?

Answer:

Refunds will generally be treated as assessable income in the accounting year in which the application is received. The refund can be related back to the farmer's previous accounting year if an application is made up to one month after the due date for filing a tax return or within six months after balance date, whichever is the earlier.

Question 12:

Under what circumstances can a withdrawal be made earlier than 12 months?

Answer:

Under the voluntary scheme the Commissioner of Inland Revenue will allow an early withdrawal in cases of hardship or where the money is required for urgent development work.

If the compulsory scheme is introduced, Appeal Committees will be set up and they will have the power to authorise earlier refunds in appropriate cases.

Question 13:

How can a farmer with a balance date later than March make a commitment by April 30?

Answer:

At the date of commitment he will need to estimate the amount of his gross income still to be received for the remainder of his accounting year and to add this to his known gross income for the part of the accounting year already gone. It would be to his disadvantage to under-estimate his proposed commitment, as any additional deposit would be subject to the provisions of the compulsory scheme.

Question 14:

What happens if a farmer has already committed his 1973 income to development work?

Answer:

If a compulsory scheme is introduced Appeal Committees will consider cases of hardship where farmers had already committed their 1972-73 incomes prior to February 22 when the scheme was announced. The Committees will take account of expenditure on deferred maintenance, capital development, reasonable increases in personal expenditure, and reduction in short and medium term debt.

Question 15:

Would a partnership itself or would the individual partners make deposits to the compulsory scheme and who would receive the $5,000 exemption under that scheme?

Answer:

The deposit would be made on behalf of the farm owning enterprise, i.e. whether it be an individual, partnership, estate, trust, company or livestock syndicate. Should a compulsory scheme be introduced, only one $5,000 exemption will be allowed in respect of each farm owning enterprise regardless of how many farms the enterprise owns.

Question 16:

If a compulsory scheme is introduced, would changes in the value of stock on hand be included in gross income?

Answer:

Livestock and wool on hand at the end of the year would not be taken into account under a compulsory scheme.

Question 17:

Would farmers who retire during the 1972-73 year be affected by the compulsory scheme?

Answer:

In the case of retiring farmers, all gross income from wool and the sale of sheep and cattle will be subject to the provisions of the scheme with an adjustment to exclude proceeds from the realisation of the basic herd or flock. The Farm Income Equalisation Scheme which previously has not been available to retiring farmers will be open to them for the 1972-73 year if they wish to take advantage of the voluntary scheme.

In the case of the death of a farmer and the realisation of the basic herd or flock during the 1972-73 year, gross income derived by the estate will be treated in a similar way.

Question 18:

What happens to deposits already made under the existing income equalisation scheme in respect of the 1972-73 year?.

Answer:

They count as deposits or partial deposits towards the commitment under the voluntary scheme and would also count towards the amount required under a compulsory scheme if one is necessary. Farmers should record previous deposits in respect of the 1972-73 year in the space provided on the "letter of intent"

Question 19:

What is the position if a voluntary deposit is less than the amount of the deposit required should the compulsory scheme be introduced?

Answer:

If the compulsory scheme is introduced, the farmer will be required to deposit a further amount to make up any deficiency. This additional deposit will be subject to the conditions of the compulsory scheme.

Question 20

Who can advise the farmer when making a decision as to how much he is required to deposit under the scheme?

Answer:

If the farmer should be in doubt then he should consult his financial adviser.

Further information is available from local offices of the Ministry of Agriculture and Fisheries or Inland Revenue Department.