Farm management deposits
If you are a primary producer with an uneven income flow, a farm management deposit (FMD) account may help.
An FMD account allows primary producers to make tax deductible deposits during years of good cash flow and withdraw them during bad years.
FMD accounts are provided by selected financial institutions. The Department of Agriculture, Fisheries and Forestry manages policy relating to FMD accounts, while the ATO is responsible for the tax administration.
You can claim a tax deduction for deposits you make into an FMD account if you meet certain conditions. When you withdraw from your FMD account, these deposits count as part of your assessable income for that year.
To receive the tax benefits from having an FMD account:
- you must be eligible
- your account must meet certain requirements.
To be eligible to claim a deduction for a deposit to an FMD account, you must:
- be an individual (including a partner in a partnership, or beneficiary of a trust)
- be carrying on a primary production business in Australia when you make a deposit
- have no more than $100,000 in taxable non-primary production income in the income year you make the deposit
- hold no more than $800,000 in total in FMDs.
Companies and other entities are not eligible for an FMD. You can't make a deposit jointly with another person or people.
Trustees can make deposits on behalf of a beneficiary who is presently entitled to a share of the income of the trust estate of the beneficiary under a legal disability (for example, they are a minor).
Example 1: Excess non-primary production income
Darren is a primary producer who deposits funds into an FMD term deposit.
During the year, Darren also earned non-primary production income from:
- rental property
- interest from investments
- salary and wages from a second job.
After taking into account his allowable deductions for that income, his taxable non-primary production income total is $120,000.
Because this is more than the maximum threshold of $100,000, Darren's deposits into the FMD are not tax deductible.
End of example
FMD account terms
Your FMD may be held in any type of account (including an at-call account) that meets all of the requirements set out below.
You may hold multiple FMD accounts with multiple providers.
The total balance of all your FMD accounts must not be more than $800,000
Your FMD provider is not allowed to deduct administration fees or other amounts from your deposit.
Opening the account
Your deposit with an FMD provider is counted as an FMD if both of the following conditions are met:
- You apply to an FMD provider to make a deposit by completing and signing an application that meets the regulatory guidelines. This can be done electronically.
- Your deposit is made under an agreement between you and the FMD provider.
The account agreement must describe the deposit as an FMD. It must contain the following conditions:
- The amount of any deposit or repayment must be $1,000 or more.
- The total of all deposits you hold must not be more than $800,000.
- Interest earned on deposits is assessable to you in the income year in which it is paid. Interest must not be paid into an FMD account.
- Transfers of deposits between FMD providers must be made electronically.
- Your rights as a depositor cannot be transferred to another individual.
- The deposit cannot be subject to encumbrance – this means you can't use the deposit as security for any amount you owe the FMD provider or any other person.
You should provide your FMD provider with your tax file number (TFN) or Australian business number (ABN). If you don't, any repayments to you will be subject to:
- the top marginal rate of withholding tax
- any applicable levies, such as the Medicare levy.
An FMD provider must be either an:
- authorised deposit-taking institution
- an entity that has a Commonwealth, state or territory guarantee for deposits.
The Australian Prudential Regulation Authority (APRA) website has more information about authorised deposit-taking institutionsExternal Link.