Farm Management Deposits Draft Legislation: Submissions on Important Changes to Close Soon

Thursday 3 December 2015 @ 12.17 p.m. | Taxation | Trade & Commerce

On 4 July 2015, following from the Agricultural Competitiveness White Paper, the Federal Government announced changes to the Farm Management Deposits Scheme (the FMD Scheme) as follows:

  • a doubling of the cap on deposits from $400 000 to $800 000;
  • the re-establishment of an early access trigger during times of drought; and
  • allowing the FMD Scheme to be used to offset the interest on primary production business debts.

The proposed changes, according to the Federal Treasury website, are set to come in to operation next year (on 1 July 2016) and the Treasury has released an "Exposure Draft - Tax Laws Amendment (Farm Management Deposit Reforms)  Bill 2016" for the legislation and an "Explanatory Material" document for consultation (these were posted on its website on 27 November 2015 and can be obtained here) - as well it should noted that the closing date for interested parties to provide comments is 15 December 2015.

About the FMD Scheme

The FMD Scheme according to website "Beef Central" has:

". . . reached its highest level of deposits since the program began in 1999, with $4.6 billion held in accounts as of June 30, 2015".

The FMD Scheme is designed to assist primary producers in dealing more effectively with fluctuations in their cash flows , in this way effectively helping Australian primary producers by assisting with the management of their financial risk so that they can meet their business costs in years of low-income by using cash reserves built up in more productive years.

Under the Scheme an "eligible primary producer" is able to set aside "pre-tax income from primary production" in years of high income, which can the be drawn upon in years of low income. Further, under the Scheme, income deposited into an FMD Scheme account is tax deductible in the financial year in which the deposit is made and becomes taxable income in the financial year in which the deposit is withdrawn.

Currently the following conditions apply for a primary producer:

  • non–primary production income must be less than $100,000 in the financial year the deposit is made;
  • up to a maximum of $400,000 may be held in FMD Scheme account;
  • any number of accounts with multiple Authorised Deposit-taking Institutions authorised under the Banking Act 1959 (Cth) can be held (e.g. banks, credit unions etc);
  • for classification as an FMD, a deposit must be held for at least 12 months with an Authorised Deposit taking Institution;
  • can receive the taxation benefits (unless they are receiving primary producer Category C recovery assistance following a natural disaster under the Natural Disaster Relief and Recovery Arrangements*).

[*Primary producers affected by natural disasters can withdraw their FMD Scheme funds within the first 12 months of deposit without losing taxation benefits if they are currently accessing, or have accessed, primary producer Category C recovery assistance under the Natural Disaster Relief and Recovery Arrangements.]

Some Key Changes in the Draft Legislation

A key change is that FMDs may be used to offset farm business loans held by individuals or partnerships from 1 July 2016, the exposure draft contains amendments to remove the previous loss of FMD status for such use, and introduces an alternate administrative penalty for offsets that breach the new rules. Farmers may also access their FMD Scheme accounts within 12 months while retaining the taxation benefit, provided they meet the rainfall deficiency criteria using the online Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) tool.

Reaction and Comment

The Agriculture Minister Mr Joyce is reported as saying that:

". . . he encourages banks to offer FMDs as loan offset accounts once the changes are made . . ." and that ". . . the government would be consulting with organisations such as the Australian Bankers’ Association to establish how to implement the changes as efficiently as possible."

Commenting on the value of the FMD Scheme to the farming economy, website "Beef Central" points to ABARES, quoting it as having estimated that, if all FMD holdings are used to offset loans, the benefit to the farm sector in interest savings could be worth up to $150 million a year.

TimeBase is an independent, privately owned Australian legal publisher specialising in the online delivery of accurate, comprehensive and innovative legislation research tools including LawOne and unique Point-in-Time Products.

Sources:

Related Articles: