The following three changes to the Farm Management Deposits (FMD) Scheme, are commencing on 1 July 2016:
- doubling of the cap on deposits from $400 000 to $800 000
- re-establishment of an early access trigger during times of drought
- allowing FMDs to be used to offset the interest costs on primary production business debt.
More details on the changes to the FMD Scheme can be found at Important Changes to the Farm Management Deposits Scheme.
What is the FMD Scheme?
The FMD Scheme assists primary producers to deal more effectively with fluctuations in cash flows. It is designed to increase the self-reliance of Australian primary producers by helping them manage their financial risk and meet their business costs in low-income years by building up cash reserves.
The scheme allows eligible primary producers to set aside pre-tax income from primary production in years of high income, which they can draw on in years of low income.
Income deposited into an FMD account is tax deductible in the financial year the deposit is made. It becomes taxable income in the financial year in which it is withdrawn.
Current FMD Scheme eligibility settings
The following conditions apply:
- a primary producer’s non–primary production income must be less than $100 000 in the financial year they make the deposit
- a primary producer may hold up to a maximum of $400 000 in FMDs, increasing to $800 000 from 1 July 2016
- a primary producer can have any number of accounts with multiple Authorised Deposit-taking Institutions (for example a bank, credit union or building society), authorised under the
Banking Act 1959 (Cwlth)
- to be classified as an FMD, and to retain taxation benefits, the deposit must be held for at least 12 months with an Authorised Deposit-taking Institution unless the primary producer
- has received primary producer Category C recovery assistance following a natural disaster under the Natural Disaster Relief and Recovery Arrangements (see below); or
- from 1 July 2016, is affected by a rainfall deficiency for at least six consecutive months (see below).
The Australian Taxation Office (ATO) administers (and interprets) FMD tax provisions. For more information call the ATO’s business enquiry line on 13 28 66 or visit the ATO Website
Eligibility requirements for withdrawal within 12 months for primary producers affected by natural disasters
Primary producers affected by natural disasters can withdraw their FMDs within the first 12 months of deposit without losing any claimed taxation benefits (deductions) if they have received, primary producer Category C recovery assistance under the Natural Disaster Relief and Recovery Arrangements.
Primary producers must:
- have received a primary producer Category C measure recovery grant through the Natural Disaster Relief and Recovery Arrangements
- have deposited the funds into an FMD account, and claimed a tax deduction in their tax return, prior to receiving any primary producer Category C measure recovery grant
- withdraw the funds from the FMD account after receiving the primary producer Category C measure recovery grant.
This provision is only available where a deposit has been made in one financial year and withdrawn in the next financial year within a 12 month period. That is, primary producers can retain the tax benefit claimed for the FMD in the previous year, but the amount of the withdrawal becomes part of the primary producer’s assessable income in the financial year they withdraw the FMD.
This provision is not available to primary producers who make the deposit and withdrawal in the same financial year, as the tax benefit associated with that FMD has not been claimed through an income tax return.
If a primary producer withdraws their FMDs early under the natural disaster early access provision, they cannot claim a tax benefit for any further FMD deposits made later in that financial year.
Australian Government Disaster Assist website for more information on assistance available following natural disasters and to check the declaration status of Local Government Areas.
Eligibility requirements for withdrawal within 12 months for primary producers affected by drought
Early access to FMDs will not be reliant on the area in which a primary producer is located being drought-declared, which was the case under the previous Exceptional Circumstances arrangements that ceased on 30 June 2014. From 1 July 2016, a primary producer affected by drought can withdraw their FMDs before 12 months without losing any taxation benefits, if they:
- made their FMD in the previous financial year, and
- have held their FMDs for at least six months, and
- can demonstrate that an area of their farming property has been affected by a rainfall deficiency for six consecutive months. To be eligible, the rainfall must be within the lowest five per cent of recorded rainfall for their property for that six-month period . An online FMD rainfall deficiency tool will be available from 1 July 2016 to allow primary producers to determine their eligibility.
If a primary producer withdraws their FMDs early because of drought (based on rainfall deficiency), they cannot claim a tax benefit for any further FMD deposits made later in that financial year.
Reviews of the FMD Scheme
Reviews of the FMD Scheme are available on the Department of Agriculture and Water Resources website.
quarterly FMD statistics and detailed state/territory and industry totals.
For more information