Primary Production Income: distributions from WoolStock Australia Ltd

Are distributions made by WoolStock Australia Ltd (WoolStock) to a taxpayer, a primary producer who held ordinary shares in WoolStock, classed as primary production income for the purposes of calculating the 'averaging' concession available under section 392-80 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes. Distributions made by WoolStock to a taxpayer, a primary producer who held ordinary shares in WoolStock, are classed as primary production income for the purposes of calculating the 'averaging' concession available under section 392-80 of the ITAA 1997.

The taxpayer is a primary producer who in 1997 was granted units in Wool International in respect of their contribution to Australia's wool stockpile.

Each unit represented one whole dollar of wool tax they paid between 1 July 1993 and 30 June 1996.

On 1 July 1999 (conversion time), Wool International was privatised and registered as WoolStock Australia Ltd (WoolStock).

At conversion time the taxpayer was granted one ordinary share in WoolStock for every unit they held in Wool International.

Since conversion time and prior to the liquidation of WoolStock, the taxpayer received a number of distributions.

WoolStock went into liquidation on 24 April 2002.

On 1 October 2002, the liquidator paid a cash dividend of $0.0309 per share to be distributed to all WoolStock shareholders.

The dividend was paid as a final dividend, after which the company was deregistered and the shares cancelled.

Subsection 392-80(2) of ITAA 1997 states that 'assessable primary production income' is the basic assessable income derived from, or resulting from, carrying on a primary production business.

Section 21 of the Wool International Privatisation Act 1999 states that distributions made after conversion time are to be treated as income being derived from, or resulting from, the carrying on of a primary production business under the following circumstances: • where the shareholder was a unit holder in Wool International, and • those units were allocated to them in respect of wool tax they paid in the course of carrying on a business.

This provision of Commonwealth legislation ensures that in the taxpayer's circumstances, the WoolStock distributions they received are classed as 'assessable primary production income' for the purposes of subsection 392-80(2) of the ITAA 1997, despite the fact that : • the pre- and post-liquidation distributions are assessable as dividends under section 44 of the ( Income Tax Assessment Act 1936 (ITAA 1936), and • part of the post-liquidation distribution is assessable as a capital gain under section 102-5 of the ITAA 1997.

Accordingly, distributions made by Woolstock to the taxpayer are classed as primary production income for the purposes of calculating the 'averaging' concession under section 392-80 of the ITAA 1997.