Enhancements to the FMD Scheme from 1 July 2016
Farm Management Deposits (FMD) legislation has been amended to:
- double the FMD cap from $400,000 to $800,000
- re-establish an early access trigger during times of drought
- remove the law that prevents FMDs being used as offset accounts against primary production business debt.
Tax Laws and Superannuation Amendment (2016 Measure No. 1) Act 2016, amended the FMD Scheme to allow these changes to start on 1 July 2016.
The amending Act and associated Explanatory Memorandum are available on the
Federal Register of Legislation.
The doubling of the cap on deposits
On 1 July 2016, the maximum level of FMDs each eligible primary producer can hold increased to $800,000. For example, each partner in a partnership that is carrying on a primary production business can hold up to $800,000 in FMDs, meaning that a partnership with five partners can hold up to $4,000,000 in FMDs within the partnership.
How does the new early access trigger work?
The new trigger allows primary producers affected by drought to withdraw their FMDs before 12 months, on or after 1 July 2016, without losing their claimed 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 for primary producers to determine their eligibility is available on the
Bureau of Meteorology website.
How do FMD offset accounts work?
From 1 July 2016, banks, if they choose to, can offer FMD offset accounts, which primary producers who are sole traders or partners in a partnership can use as an offset against money borrowed for their primary production business. As with other FMD accounts, each bank can set up and operate FMD offset accounts in the way they prefer (as long as they meet legislative requirements).
Primary producers need to hold their loan and an FMD with the same financial institution to take advantage of this change. Primary producers will still receive the tax concession for the deposit if they hold it for more than 12 months.
Primary producers who are interested in using their FMDs to offset their farm business borrowings should, before depositing their FMD, check with their bank to see if it offers an FMD offset account product, or is planning to offer one.
Note: Primary producers should be aware that using their FMDs to offset their farm business debt may have wider taxation implications, such as reducing the level of tax deduction that can be claimed against the interest expenses on farm business loans. You may wish to speak to the Australian Taxation Office or a qualified financial adviser when considering your options.