The farm management deposits scheme allows farmers to smooth their income over a number of financial years. This avoids the potential tax spike which might otherwise be caused by a higher-income year.
FMD – how it works
The principle of the scheme is to allow a tax deduction against current year profits for cash placed into an approved deposit, which becomes taxable only when withdrawn.
News: Legislation for the implementation of changes recommended in the Agricultural Competitiveness White Paper on 4 July 2015 has been passed by the federal parliament.
Changes applying to income years commencing on or after 1 July 2016 include:
- an increase of the deposit limit from $400,000 to $800,000
- allowing FMD bank accounts to be used as a farm business loan offset
- allowing early access for farmers in severe drought conditions: Farmers meeting the rainfall deficiency criteria using the online ABARES tool are to be able to access FMDs within 12 months with no loss of taxation benefit. Early access does not require an amended assessment for the deduction year.
- Explanatory Memorandum (from page 119)
- Article: Proposed changes to the farm management deposits scheme
FMD features and general requirements:
- Authorised deposit-taking institution
The farm management deposit account has to be maintained as an FMD account by an authorised deposit-taking institution. That includes banks, building societies and and credit unions who normally take care of the paperwork with the necessary FMD agreement.
- FMD accounts are only available to individuals carrying on a primary production business*
- Accounts cannot be held jointly
- Primary production activities must not cease for more than 120 days in an income year
- The effect of death or bankruptcy during the income year is to terminate an FMD.
- FMD deposits must be between $1,000 and $400,000 ($800,000 from 1 July 2016)
- Minimum withdrawals are $1,000 or the deposit balance
- Deductions are claimable in the year the deposit is made
- To enable a tax deduction, the FMD must be held for at least 12 months (primary producers affected by natural disasters are excluded)
- From 1 July 2012 FMD deposits may be with more than one provider, and can transferred intact without triggering tax consequences even if within 12 months
- Deposits which are consolidated trigger tax consequences (but not from 1 July 2014* if held for at least 12 months)
- Non-primary production income must be $65,000 or less ($100,000 from 1 July 2014*)
- Interest earned by the FMD account is taxable
* From 1 July 2014 – amendments
- Non-primary production income allowance lifted to $100,000 per annum
- Consolidation of deposits does not trigger tax consequences if they have been held for at least 12 months
- Carrying on a primary production business – Tax Ruling TR97/11
- Farm management deposits scheme
- Help for drought affected taxpayers
- Practical Compliance Guideline PCG 2019/2 Fuel tax credits – practical compliance methods for farmers in disaster affected areas
This page was last modified on 2019-03-22