Any owner of a primary industry business knows about cash flow ups and downs brought on my circumstance beyond any ones control.
Established in 1999, the Farm Managements Deposit (FMD) Scheme is a government initiative which provides tax deductions on farm management deposits to help primary producers deal with inconsistent income from natural disasters, climate and market changes. It aims to encourage primary producers to set aside cash reserves earned during high-income years for use in low income years through providing tax liability they need to pay.
Income deposited into an FMD account is tax deductible in the financial year the deposit is made and only become taxable income in the financial year in which the amount is withdrawn.
A primary-industry business needs to satisfy certain eligibility criteria.
- To be eligible, a primary-producers income must be less than $100,000 in the financial year the deposit was made.
- A balance of no more than $800,000 in FMDs can be held by a primary producer
- Multiple Authorised Deposit-taking instructions (bank, credit union of building society) can be held
- The FMD deduction cannot exceed the primary-producers taxable income in that financial year
- An FMD with an Authorised Deposit-taking Institution must be held for at least 12 months to retain taxation benefits
- The 12 month rule may be exempt if the primary-producer received a Category C recovery assistance following a natural disaster under the Natural Disaster Relief and Recovery Arrangements or are affected by a rainfall deficiency for at least six consecutive months.
Opening An Account
Two conditions must be met to open an FMD account. You must apply to an FMD provider and make a deposit that meets the guidelines which can be done electronically. The deposit is an agreed to amount between the primary-producer and the FMD provider.
The account agreement must meet the following criteria:
- The deposit must be $1,000 or more
- The total of all deposits must not be more than $800,000
- Interest earned in assessable income. Interest cannot be paid into the FMD account
- Any transfers of money must be electronic
- The deposit cannot be made as a security for amounts owed to the FMD provider or any other person
Pro Tax Tip: The FMD should have your Tax File Number (TFN) and Australian Business Number (ABN) to ensure you’re not subject to the top marginal tax rate and that any applicable levies are withdrawn.
An FMD provider can be any authorised deposit-taking institution and must be an entity that has a Commonwealth, state or territory guarantee for deposits.
Some types of payments are not assessable, and include reinvested deposits or extensions of the deposit term with the same FMD provider; merged deposits under certain conditions; transfers of the same deposit from one FMD provider to the next. These transfers should be electronic.
Eligibility Requirements For Withdrawal Within 12 Months – Natural Disaster
Those primary-producers subject to natural disaster under Category C recovery assistance under the Natural Disaster Relief and Recovery Arrangements can withdraw their FMD amount under 12 months if eligible. The primary-producer must have received an eligible grant; have deposited the funds into an FMD account and claimed a tax deduction in their tax return in the previous year; and must withdraw the funds from the FMD account after receiving the eligible recovery grant.
The deposit must have been made in one financial year and withdrawn in the next financial year so that the tax benefits have been received and becomes the primary-producers assessable income before the FMD withdrawal. Claims cannot be made if the deposit and withdrawal occur in the same year as no tax benefits have been provided.
Pro Tax Tip: No further tax benefits can be claimed on any FMD deposit made later in the same financial year.
Eligibility Requirements For Withdrawal Within 12 Months – Drought
Those primary-producers subject to droughts can withdraw FMD amounts before their 12 months without losing benefits if they made their FMD deposit in the previous financial year and have held the FMDS for at least 6 months. They should also demonstrate that their farming area has been affected by rainfall deficiency for 6 consecutive months.
If a primary producer withdraws their FMD amount because of drought, they cannot claim a tax benefit for any further FMD deposits in that same financial year.
Pro Tax Tip: These early release of FMD amounts are not available to commercial fishing, pearling and related activities (other than aquatic animals); felling of trees; or transporting trees, logging, milling or processing plants.
Farm Management Deposits are made through the taxation system. If you’re unsure, ITP Accounting Professionals can advise, help you apply and manage your FMD accounts.