FARM MANAGEMENT DEPOSITS – A VALUABLE TAX MANAGEMENT TOOL

CANEGROWERS Legal Advisor

CHRIS COOPER

The farm management deposits (FMD) scheme allows eligible primary producers to set aside pre-tax income from their primary production activities during years of high income. The income can then be drawn in future years as needed. Although not really a legal topic, it is pleasing that the world market sugar price conditions suggest it worthwhile that I make some comments about Farm Management Deposits (FMD).

WHAT ARE FMDS

FMDs are special financial deposit accounts that can be established by individual growers with certain financial institutions. Growers can claim a tax deduction for deposits made into a FMD account in the year in which the deposits are made.

When the grower subsequently withdraws on those accounts, those withdrawals are included in the grower’s assessable income in the year in which the withdrawal was made.

ELIGIBILITY

Only individual growers (including a partner in a partnership and a beneficiary of a trust) are eligible.

Companies and similar incorporated entities that are growers are not eligible.

The grower must have no more than $100,000 in off farm income and there is a cap of $800,000 for FMDs.

CONDITIONS

There are a range of conditions that attach to this tax management scheme.

The Commonwealth Department of Agriculture manages the policy arrangements and the Australian Taxation Office is responsible for the administration of the tax arrangements.

If a grower who holds a FMD retires or otherwise ceases to be a primary producer, then the funds in the FMD must be withdrawn within 120 days and will be assessable income within the year it is withdrawn.

That time frame may be a consideration when taking the step to no longer be a primary producer.

WARNINGS AND REMINDERS FOR ESTATE PLANNING

A FMD is for individuals only and an FMD will form part of the estate of a deceased grower who holds an FMD at the time of their death.

Depending on how the Will of the deceased is drafted, the benefit of the FMD might not necessarily be dealt with as intended. The funds held within a FMD must be withdrawn on the death of the holder. The amounts withdrawn will become assessable income for the estate.

Such a scenario could give rise to some unintended consequences if the terms of the Will don’t make provision as intended.

FURTHER INFORMATION

The use of FMDs can be a valuable tool for some growers to minimise tax, but care needs to be taken with their use.

The Department of Agriculture and the ATO have useful resources on their web sites.

Financial and accounting advice together with legal advice should be considered when entering into or exiting FMD arrangements.

This article contains general advice only. The particular facts and circumstances of each case always need to be taken into account.

Any grower wishing to discuss aspects of this article or any other legal matter should contact your local CANEGROWERS office or call CANEGROWERS Legal Adviser, Chris Cooper, for free initial legal advice. 