Primary Production Income - special dividends

Are the special dividends received by the taxpayer classed as primary production income in accordance with subsection 392-80(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes, the special dividends received by the taxpayer are classed as primary production income in accordance with subsection 392-80(2) of the ITAA 1997.

The taxpayer operates a primary production business through a partnership structure. The partnership received franked and unfranked special dividends from the purchaser of the partnership's primary production produce. The special dividend calculation was based upon the level of primary production sales generated for a specific period by the partnership.

In accordance with subsection 392-80(2) of ITAA 1997, assessable primary production income is the basic assessable income derived from, or resulting from, carrying on a primary production business.

The definition of 'assessable primary production income' in the former Division 16 of the Income Tax Assessment Act 1936 , uses the connective phrase, 'in consequence of the carrying on of a business of primary production'. The Explanatory Memorandum in relation to the Income Tax Assessment Amendment Bill (No. 2) 1978, indicates that 'in consequence of' was intended to be limited to situations in which assessable income is included as assessable income by virtue of specific provisions of the ITAA and is directly as a result of conducting the primary production business.

In AAT Case 6254 ; AAT Case X82 21 ATR 3708; 90 ATC 599, Dr Gerber observed: 'The term 'in consequence of' connotes causality. It was a question of fact whether the interest was 'caused' to be derived as the 'predominant' or 'proximate' or 'direct' result of the carrying on of the business of primary production.'

The occasion of deriving income from special dividends was as a consequence of the sale of primary production produce. The calculation of the dividend is such that there is sufficient causal nexus between the sale of produce and the dividend, so as to make the supply of produce the occasion of the payment.