Division 392—Long-term averaging of primary producers’ tax liability
Table of Subdivisions
Guide to Division 392
392-A Is your income tax affected by averaging? 392-B What kind of averaging adjustment must you make? 392-C How big is your averaging adjustment? 392-D Effect of permanent reduction of your basic taxable income392-1 What this Division is about
If you are a primary producer for 2 or more years in a row, this Division evens out your income tax liability from year to year. (It does so by reducing the effect that fluctuations in your taxable income have on the marginal rates of tax that apply to you from year to year.)
392-5 Overview of averaging process
392-5 Overview of averaging process
How averaging adjustments work
(1) This Division reduces or increases your income tax liability to bring it closer to what it would have been if worked out using a special rate of income tax. That rate (the *comparison rate) is based on the income tax that you would pay for the *current year on the average of your taxable income for up to the last 5 income years.
Example: The graph shows how averaging taxable income reduces the effect of variations in taxable income (giving a fairly steady comparison rate from year to year).
Tax offset as averaging adjustment
(2) You may be entitled to a *tax offset if the income tax you would pay on your *basic taxable income for the *current year at the *comparison rate is less than the income tax you would pay on that income (apart from this Division and certain other provisions).
See the examples of years 5, 6, 7 and 9 in the graph in subsection (4).
Extra income tax as averaging adjustment
(3) You may be liable to extra income tax on some or all of your *basic taxable income for the *current year if the income tax you would pay on your basic taxable income for the current year at the *comparison rate is more than the income tax on that income (apart from this Division and certain other provisions).
See the examples of years 8 and 10 in the graph in subsection (4).
Example of the effect of averaging
(4) The graph shows an example of the effect of averaging, using the same income figures as the graph in the example in subsection (1).
Note: The example assumes that all the basic taxable income was from a primary production business, and that the taxpayer’s tax-free threshold was not affected by family tax assistance (under Division 5 of Part II of the Income Tax Rates Act 1986).
Effect of non-primary production income on averaging adjustment
(5) Your income from sources other than your *primary production business may affect the adjustment of your income tax. If more than $5,000 of your *basic taxable income is attributable to those sources, your *averaging adjustment will be reduced to reflect the proportion of your basic taxable income attributable to primary production. (There are special shading-out arrangements if your taxable income from other sources is between $5,000 and $10,000.)
No adjustment in certain cases
(6) Your income tax will not be adjusted under this Division in certain cases. In particular, you can choose not to have your income tax adjusted under this Division for the rest of your life.
392-10 Individuals who carry on a primary production business
(1) This Division applies to your assessment for the
*current year if:(a) you are an individual; and
(b) you have carried on a
(c) for at least one of those income years your
*basic taxable income is less than or equal to your basic taxable income for the next of those income years.Note 1: It follows that this Division does not apply if your basic taxable income has decreased every income year since you started carrying on a primary production business.
Note 2: In working out whether this Division applies to your assessment for an income year, you may need to take account of income years before the 1998-99 income year: see section 392-1 of the Income Tax (Transitional Provisions) Act 1997.
Continued application of this Division after you stop carrying on a primary production business
(2) This Division also applies to your assessment for the
*current year if:(a) this Division applied to your assessment for an earlier income year during which you carried on a
(b) you do not carry on that business during the current year; and
(c) at least one of the following conditions is met for each income year (including the current year) after the income year in which you stopped carrying on that business:
(i) your assessable income for the income year included assessable income that was
(ii) you carried on a
*primary production business in Australia during the income year.Note: In working out whether this Division applies to your assessment for an income year, you may need to take account of income years before the 1998-99 income year. See section 392-1 of the Income Tax (Transitional Provisions) Act 1997.
392-15 Meaning of basic taxable income
(1) Work out your basic taxable income for an income year as follows:
Method statement
Step 1. Work out what would have been your taxable income for the income year if your assessable income for the income year:
(a) had not included any amount under subsection 27B(1A) or (3) (Assessable income to include certain superannuation and kindred payments) of the Income Tax Assessment Act 1936; and
Note: This means that certain deductions will also be excluded.
(b) had not included any
*net capital gain for the income year.Step 2. Subtract from the Step 1 amount any
*above-average special professional income included in your taxable income for the income year under Division 405.(2) However, your basic taxable income for an income year is nil if:
(a) you do not have a taxable income for the income year; or
(b) the amount worked out under subsection (1) for the income year is less than nil.
392-20 Trust beneficiaries taken to be carrying on primary production business
(1) You are taken to carry on a
*primary production business carried on by a trust during an income year if you are a beneficiary presently entitled to all or part of the trust income for the income year.(2) However, you are not taken to carry on the
*primary production business if you are presently entitled to less than $1,040 of the trust income for the income year, unless the Commissioner is satisfied that your interest in the trust was not acquired or granted wholly or primarily to enable your income tax to be adjusted under this Division.(3) You are not taken to carry on a
*primary production business carried on by the trustee of:(a) a corporate unit trust (as defined in section 102J of the Income Tax Assessment Act 1936, which deals with corporate unit trusts); or
(b) a public trading trust (as defined in section 102R of the Income Tax Assessment Act 1936, which deals with public trading trusts).
392-25 Choosing not to have your income tax averaged
(1) You can choose that this Division (except this section) not apply to your assessment for an income year. If you make this choice, this Division (except this section) does not apply to your assessment for the income year or any later income year.
(2) You must make your choice in writing and give it to the Commissioner by the time you lodge your
*income tax return for the income year to which your choice relates. However, the Commissioner may allow you to give the choice later.(3) Your choice cannot be revoked after it is given to the Commissioner.
Subdivision 392-B—What kind of averaging adjustment must you make?
392-30 What this Subdivision is about
This Subdivision explains how to work out whether you are entitled to a tax offset for the current year or whether you must pay extra income tax for the current year.
Table of sections
Tax offset or extra income tax
How to work out the comparison rate
Tax offset or extra income tax
392-35 Will you get a tax offset or have to pay extra income tax?
(1) Compare:
(a) the amount (the income tax you would pay at the comparison rate) worked out using the formula:
(b) the amount of income tax that you would pay on your
Note: You must disregard some provisions of this Act in working out amounts of income tax for the purposes of this subsection: see subsection (5).
Tax offset
(2) You are entitled to a *tax offset equal to the *averaging adjustment worked out under Subdivision 392-C if the income tax you would pay at the comparison rate is less than the amount of income tax you would pay at *basic rates.
Extra income tax
(3) You must pay extra income tax on the *averaging component of your *basic taxable income if the income tax you would pay at the comparison rate is more than the amount of income tax you would pay at *basic rates.
Note 1: Section 12A of the Income Tax Rates Act 1986 sets the rate at which you must pay extra income tax on the averaging component of your basic taxable income.
Note 2: It does so in such a way that, generally, the extra income tax you must pay equals the averaging adjustment worked out under Subdivision 392-C.
Note 3: If family tax assistance raises your tax-free threshold above your taxable income, subsections 12A(3) and (4) of that Act set a lower rate, so that the extra income tax you must pay is reduced by the amount of income tax that family tax assistance would have saved you had your taxable income been increased to equal your tax-free threshold.
Meaning of basic rates
(4) The basic rates at which you would pay income tax are:
(a) if you are a resident taxpayer as defined in the Income Tax Rates Act 1986—the rates of income tax in paragraph 1(b) of Part I of Schedule 7 to that Act:
(i) taking into account the way it would apply with any changes to your tax-free threshold under section 20 of that Act; and
(ii) disregarding the effect of Division 5 of Part II of that Act (which provides family tax assistance); or
(b) if you are a non-resident taxpayer as defined in the Income Tax Rates Act 1986—the rates of income tax in paragraph 1(b) of Part II of Schedule 7 to that Act.
Disregard certain provisions in working out amounts
(5) Work out the amount of income tax mentioned in paragraph (1)(b) as if:
(a) the following provisions did not apply:
(i) this Division;
(ii) section 94 (Partner not having control and disposal of share in partnership income) of the Income Tax Assessment Act 1936;
(iii) Division 6AA (Income of certain children) of Part III of the Income Tax Assessment Act 1936;
(iv) Part VIIB (Medicare levy) of the Income Tax Assessment Act 1936; and
(b) you were not entitled to any rebate or credit under the Income Tax Assessment Act 1936 or to any *tax offset under this Act.
No adjustment
(6) This Division does not affect your income tax for the *current year if the income tax you would pay at the *comparison rate equals the amount of income tax you would pay at *basic rates.
Note: The 2 amounts will be equal if:
How to work out the comparison rate
392-40 Identify income years for averaging your basic taxable income
The income years over which you must average your
*basic taxable income are:(a) if this Division has applied to your assessment for at least 4 income years in a row (including the
(b) if this Division has applied to your assessment for less than 4 income years in a row (including the
*current year)—those income years and the last income year before them.Note: You may need to average your basic taxable income for one or more income years before the 1998-99 income year. See section 392-1 of the Income Tax (Transitional Provisions) Act 1997.
392-45 Work out your average income for those years
(1) Work out your average income in this way:
Method statement
Step 1. Add up your
Step 2. Divide the sum by the number of those income years.
Step 3. Round the result down to the nearest whole dollar if the result is not already a number of whole dollars.
(2) Your basic assessable income for an income year is your assessable income for the income year, less:
(a) any amount included in your assessable income under subsection 27B(1A) or (3) (Assessable income to include certain superannuation and kindred payments) of the Income Tax Assessment Act 1936; and
(b) any net capital gain included in your assessable income under Part IIIA (Capital gains and capital losses) of the Income Tax Assessment Act 1936.
392-50 Work out the income tax on your average income at basic rates
Work out the amount of income tax that you would pay on your
*average income for the *current year at *basic rates.392-55 Work out the comparison rate
Work out the comparison rate using the formula:
Subdivision 392-C—How big is your averaging adjustment?
392-60 What this Subdivision is about
This Subdivision explains how to work out the amount of the averaging adjustment of your income tax for the current year (whether it is a tax offset or is used by the Income Tax Rates Act 1986 to set the rate at which you must pay extra income tax).
Table of sections
Your gross averaging amount
Your averaging adjustment
How to work out your averaging component
392-65 What your averaging adjustment reflects
(1) Your
*averaging adjustment is a proportion of your *gross averaging amount, taking account of:(a) your
(b) your
*taxable non-primary production income (the part of your *basic taxable income from other sources).Your
*averaging component is the means of taking into account the different parts of your basic taxable income in working out your averaging adjustment.(2) If your
*taxable non-primary production income is less than or equal to $5,000, your *averaging component equals the whole of your *basic taxable income. (In other words, your averaging component includes all of your *taxable primary production income and all of your taxable non-primary production income.)(3) If your
*taxable non-primary production income is between $5,000 and $10,000, a shading-out system applies so that your *averaging component includes some of your taxable non-primary production income as well as all of your *taxable primary production income.(4) If your
*taxable non-primary production income is $10,000 or more, your *averaging component equals your *taxable primary production income. Your averaging component does not include any of your taxable non-primary production income.(5) The following diagram shows examples of these relationships.
The second and third columns show that as taxable non-primary production income increases above $5,000 (up to a maximum of $10,000), less of it is counted in the averaging component.
Your gross averaging amount
392-70 Working out your gross averaging amount
Your gross averaging amount is the amount of the difference between the following amounts worked out under section 392-35:
(a) the income tax you would pay at the comparison rate;
(b) the amount of income tax that you would pay on your
392-75 Working out your averaging adjustment
Work out your averaging adjustment for the
*current year using the formula:
How to work out your averaging component
392-80 Work out your taxable primary production income
(1) Work out your taxable primary production income for the
*current year in this way:Method statement
Step 1. Compare your
Step 2. If your assessable primary production income is larger than your primary production deductions, your taxable primary production income is the difference between them.
Step 3. If your primary production deductions are larger than (or equal to) your assessable primary production income, your taxable primary production income is nil.
Assessable primary production income
(2) Your assessable primary production income for the *current year is the amount of your *basic assessable income for the current year that was *derived from, or resulted from, your carrying on a *primary production business.
Primary production deductions
(3) Work out your primary production deductions for the *current year in this way:
Method statement
Step 1. Add any amounts you can deduct (except *apportionable deductions) for the *current year, so far as they reasonably relate to your *assessable primary production income for an income year.
Step 2. Work out the result of applying the formula:
where:
assessable PP income means your *assessable primary production income for the *current year.
Step 3. Add the sum from Step 1 to the result from Step 2 (which may be negative): the total is your primary production deductions.
392-85 Work out your taxable non-primary production income
(1) Work out your taxable non-primary production income for the
*current year in this way:Method statement
Step 1. Compare your
Step 2. If your assessable non-primary production income is larger than your non-primary production deductions, your taxable non-primary production income is the difference between them.
Step 3. If your non-primary production deductions are larger than (or equal to) your assessable non-primary production income, your taxable non-primary production income is nil.
Assessable non-primary production income
(2) Your assessable non-primary production income for the
*current year is the difference between:(a) your
(b) your
*assessable primary production income for the current year.Non-primary production deductions
(3) Your non-primary production deductions for the
*current year are the difference between:(a) the sum of your deductions for the current year; and
(b) your
392-90 Work out your averaging component
(1) Work out your averaging component for the
*current year using the following table, taking into account:(a) your
(b) your
*taxable non-primary production income for the current year.
|
Averaging component |
|||
|
If *taxable |
The averaging component equals: |
||
|
|
non-primary production income: |
for *taxable primary production income > 0 |
for *taxable primary production income = 0 |
|
is nil |
* Basic taxable income |
Nil |
|
|
is more than nil but does not exceed $5,000 |
* Basic taxable income |
* Basic taxable income |
|
|
exceeds $5,000 but does not exceed $10,000 |
* Taxable primary production income plus *non-primary production shade-out amount |
* Non-primary production shade-out amount |
|
|
is $10,000 or more |
* Taxable primary production income |
Nil |
|
Note: Subsections (2) and (3) explain how to work out your non-primary production shade-out amount if your taxable non-primary production income is between $5,000 and $10,000.
Non-primary production shade-out amount if your taxable primary production income is more than nil
(2) If your *taxable primary production income is more than nil, your non-primary production shade-out amount is the amount worked out using the formula:
Non-primary production shade-out amount if your taxable primary production income is nil
(3) If your *taxable primary production income is nil, your non-primary production shade-out amount is the amount worked out using the formula:
However, if that amount is less than nil, your non-primary production shade-out amount is nil.
(4) In this section:
Assessable PP income means your *assessable primary production income for the *current year.
PP deductions means your *primary production deductions for the *current year.
Taxable non-PP income your *taxable non-primary production income for the *current year.
Subdivision 392-D—Effect of permanent reduction of your basic taxable income
Table of sections
392-95 You are treated as if you had not carried on business before
392-95 You are treated as if you had not carried on business before
(1) If you show the Commissioner that, because of retirement from your occupation or from any other cause, your
*basic taxable income for an income year (the reduction year) is permanently reduced during the reduction year to an amount that is less than two thirds of your *average income for the reduction year:(a) this Division does not affect your income tax liability for the reduction year; and
(b) this Division applies to assessments for later income years as if you had not carried on a
(2) In working out the extent of the permanent reduction, you must work out your *average income for the reduction year on the basis that your *basic assessable income for an income year taken into account in working out your average income did not include any assessable income from sources from which you do not usually receive assessable income.
(3) In working out the extent of the permanent reduction, disregard a reduction in *basic taxable income to the extent that it results from a change of assets from which assessable income was *derived into assets from which you derive income that is not assessable income.
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